FAIR VALUE MEASUREMENTS

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:


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


•	Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and


•	Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015:



	As of September 30, 2016										As of December 31, 2015
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents⁽¹⁾	$	296.6		$	208.5	$	88.1	$	—		$	167.2		$	156.1	$	11.1	$	—
Liabilities:
Acquisition-related contingent consideration	$	(985.3	)	$	—	$	—	$	(985.3	)	$	(1,155.9	)	$	—	$	—	$	(1,155.9	)

___________________________________


(1)	Cash equivalents include highly liquid investments with an original maturity of three months or less at acquisition, primarily including money market funds, reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

In March 2015, the Company entered into foreign currency forward-exchange contracts to sell €1.53 billion and buy U.S. Dollars in order to reduce its exposure to the variability in expected cash inflows attributable to the changes in foreign exchange rates related to the €1.50 billion aggregate principal amount and related interest of 4.50% senior unsecured notes due 2023 (the "Euro Notes") issued on March 27, 2015, the proceeds of which were used to finance the Salix Acquisition. These derivative contracts were not designated as hedges for accounting purposes, and such contracts matured on April 1, 2015 (which coincided with the consummation of the Salix Acquisition). A foreign exchange loss of $26 million was recognized in Foreign exchange loss and other in the Consolidated statement of (loss) income for the three-month period ended March 31, 2015.

In addition to the above, the Company has time deposits valued at cost, which approximates fair value due to their short-term maturities. The carrying value of $1 million and $16 million as of September 30, 2016 and December 31, 2015, respectively, related to these investments is classified within Prepaid expenses and other current assets in the Consolidated balance sheets. These investments are Level 2.

There were no transfers between Level 1 and Level 2 during the nine-month period ended September 30, 2016.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The fair value measurement of contingent consideration obligations arising from business combinations is determined via a probability-weighted discounted cash flow analysis or Monte Carlo Simulation, using unobservable (Level 3) inputs. These inputs may include (i) the estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the factor(s) on which the contingency is based; (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows; and (iv) volatility of projected performance (Monte Carlo Simulation). Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the nine-month period ended September 30, 2016:



	Balance, January 1, 2016			Payments/ Settlements^(a)		Net Unrealized Loss			Foreign Exchange^(b)		Adjustments^(c)		Balance, September 30, 2016
Acquisition-related contingent consideration	$	(1,155.9	)	$	144.8	$	(18.3	)	$	7.8	$	36.3	$	(985.3	)

____________________________________

(a)

Primarily relates to payments of acquisition-related contingent consideration related to Salix, the acquisition of certain assets of Marathon, the settlement of contingent consideration obligation in connection with the termination of the arrangements with and relating to Philidor, and payments of acquisition-related contingent consideration related to the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL in June 2011 (the "Elidel®/Xerese®/Zovirax® agreement"), and other smaller acquisitions.


(b)	Included in other comprehensive loss.


(c)	Primarily relates to $26 million of contingent consideration reclassified to a liability held for sale. See Note 5 for further detail.

There were no transfers into or out of Level 3 during the nine-month period ended September 30, 2016.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following fair value hierarchy table presents the Company’s assets measured at fair value on a non-recurring basis as of September 30, 2016 and December 31, 2015:



	As of September 30, 2016								As of December 31, 2015
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Prepaid expenses and other current assets	$	181.4	$	—	$	—	$	181.4	$	—	$	—	$	—	$	—

As of September 30, 2016, certain assets, included in Prepaid expenses and other current assets, have been measured at fair value:

•

an asset held for sale within the Company's Branded Rx segment, related to the Company's North American commercialization rights to Ruconest®. The Company recognized an impairment charge of $199 million in Amortization and impairments of finite-lived intangible assets for the nine months ended September 30, 2016 in the Consolidated statement of loss. The adjusted carrying amount of Ruconest® of $82 million represents the estimated fair value less costs to sell, determined using a discounted cash flow analysis approach which utilized Level 3 unobservable inputs; and

•

assets held for sale related to a number of small businesses within the Company’s Bausch + Lomb / International segment. The Company recognized an aggregate impairment charge of $88 million in Amortization and impairments of finite-lived intangible assets for the three and nine months ended September 30, 2016 in the Consolidated statement of loss. The adjusted carrying amount of $99 million, in the aggregate, represents the estimated fair values of these assets less costs to sell, determined using a discounted cash flow analysis approach which utilized Level 3 unobservable inputs.

There were no other significant assets or liabilities that were re-measured at fair value on a non-recurring basis subsequent to initial recognition in the nine-month period ended September 30, 2016.

For further information regarding asset impairment charges, see Note 9.