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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

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:


	December 31, 2022								December 31, 2021
(in millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	94	$	85	$	9	$	—	$	76	$	58	$	18	$	—
Restricted cash and other settlement deposits	$	27	$	27	$	—	$	—	$	1,537	$	1,537	$	—	$	—
Foreign currency exchange contracts	$	6	$	—	$	6	$	—	$	1	$	—	$	1	$	—
Liabilities:
Acquisition-related contingent consideration	$	241	$	—	$	—	$	241	$	241	$	—	$	—	$	241
Cross-currency swaps	$	39	$	—	$	39	$	—	$	—	$	—	$	—	$	—
Foreign currency exchange contracts	$	4	$	—	$	4	$	—	$	—	$	—	$	—	$	—

Cash equivalents consist of highly liquid investments, primarily money market funds, with maturities of three months or less when purchased, and are reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to their short-term nature. Cash, cash equivalents and restricted cash and other settlements as presented in the Consolidated Balance Sheet as of December 31, 2022 includes $380 million of cash, cash equivalents and restricted cash held by legal entities of Bausch + Lomb. Cash held by Bausch + Lomb legal entities and any future cash from the operations, investing and financing activities of Bausch + Lomb, is expected to be retained by Bausch + Lomb entities and are generally not available to support the operations, investing and financing activities of other legal entities, including Bausch Health unless paid as a dividend which would be determined by the Board of Directors of Bausch + Lomb and paid pro rata to Bausch + Lomb’s shareholders.

As of December 31, 2021, Restricted cash and other settlement deposits included $1,510 million of payments into escrow funds under the terms of settlement agreements regarding certain U.S. securities litigation, which was subject to one objector’s appeal of the final court approval and the Glumetza Antitrust Litigation. With respect to the U.S. Securities Litigation, the period to file a petition for an appeal with the U.S. Supreme Court expired on August 10, 2022 and the objector did not file such a petition. The expiration of this deadline means the securities litigation settlement and judgment have become “final”, as no more appeals can be filed. As a result, the Company’s rights to the funds in escrow were extinguished and the Company reduced Restricted cash and other settlement deposits with a corresponding reduction to liabilities for legal settlements, included in Accrued and other current liabilities on the Company’s Consolidated Balance Sheets, by $1,210 million during the third quarter of 2022. See “U.S. Securities Litigation - Opt -Out Litigation” of Note 20, “LEGAL PROCEEDINGS” for additional details.

There were no transfers into or out of Level 3 during 2022 and 2021.

Cross-currency Swaps

During 2019, the Company entered into cross-currency swaps, with aggregate notional amounts of $1,250 million, to mitigate fluctuation in the value of a portion of its euro-denominated net investment in its consolidated financial statements from adverse movements in exchange rates. The euro-denominated net investment being hedged was the Company’s investment in certain euro-denominated subsidiaries.

During November 2021, the Company entered into a transaction to unwind its cross-currency swaps and received net proceeds of $4 million, which included interest income of $6 million, offset by the amount owed by the Company upon the unwinding of $2 million. The gain arising from the transaction of the swaps has been included as a component of Other comprehensive loss. As of December 31, 2021, there were no cross-currency swaps.

During the third quarter of 2022, Bausch + Lomb entered into cross-currency swaps (the “2022 Cross-Currency Swaps”), with aggregate notional amounts of $1,000 million, to mitigate fluctuation in the value of a portion of its euro-denominated net investment in its consolidated financial statements from fluctuation in exchange rates. The euro-denominated net investment being hedged is Bausch + Lomb’s investment in certain Bausch + Lomb euro-denominated subsidiaries.

The assets and liabilities associated with the Company’s cross-currency swaps as included in the Consolidated Balance Sheets as of December 31, 2022 and 2021 are as follows:


(in millions)	2022		2021
Other non-current liabilities	$	45	$	—
Prepaid expenses and other current assets	$	6	$	—
Net fair value	$	39	$	—

The following table presents the effect of hedging instruments on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Loss for 2022 and 2021:


(in millions)	2022		2021
Gain (loss) recognized in Other comprehensive loss	$	(45)	$	77
Gain excluded from assessment of hedge effectiveness	$	6	$	20
Location of gain of excluded component	Interest Expense

Interest settlement of the 2022 Cross-Currency Swaps occurs in January and July each year, with the first settlement in January 2023. Future settlements of the 2022 Cross-Currency Swaps will be reported as investing activities in the Consolidated Statements of Cash Flows.

For the years ended December 31, 2022 and 2021, the Company received $0 and $27 million, respectively, in settlements of its cross-currency swaps which are reported as Investing activities in the Consolidated Statements of Cash Flows.

Foreign Currency Exchange Contracts

During 2022 and 2021, the Company entered into foreign currency exchange contracts. As of December 31, 2022, these contracts had an aggregate outstanding notional amount of $455 million.

The assets and liabilities associated with the Company’s foreign exchange contracts as included in the Consolidated Balance Sheets as of December 31, 2022 and 2021 are as follows:


(in millions)	2022		2021
Accrued and other current liabilities	$	(4)	$	—
Prepaid expenses and other current assets	$	6	$	1
Net fair value	$	2	$	1

The following table presents the effect of the Company’s foreign exchange contracts on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for 2022 and 2021:


(in millions)	2022		2021
Gain related to changes in fair value	$	2	$	9
Loss related to settlements	$	(20)	$	(17)

Acquisition-related Contingent Consideration Obligations

The fair value measurement of contingent consideration obligations arising from business combinations is determined via a probability-weighted discounted cash flow analysis, 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 and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly higher or lower fair value measurement. At December 31, 2022, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 6% to 18%, and a weighted average risk-adjusted discount rate

of 7%. The weighted average risk-adjusted discount rate was calculated by weighting each contract’s relative fair value at December 31, 2022.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the years 2022 and 2021:


(in millions)	2022				2021
Beginning balance, January 1,			$	241			$	328
Adjustments to Acquisition-related contingent consideration:
Accretion for the time value of money	$	16			$	17
Fair value adjustments	12				(6)
Acquisition-related contingent consideration adjustments			28				11
Payments / Settlements			(28)				(99)
Foreign currency translation adjustment included in other comprehensive loss			—				1
Ending balance, December 31,			241				241
Current portion			34				39
Non-current portion			$	207			$	202

Fair Value of Long-term Debt

The fair value of long-term debt as of December 31, 2022 and 2021 was $14,011 million and $22,689 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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