

17.	Financial Instruments and Fair Value Measurements

Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:

Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2— significant other observable inputs that are observable either directly or indirectly; and

Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each period:



	December 25, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Debt and equity securities held in rabbi trusts	$	34.7	$	25.5	$	9.2	$	—
Foreign exchange forward and option contracts	2.6		2.6		—		—
	$	37.3	$	28.1	$	9.2	$	—

Liabilities:
Deferred compensation liabilities	$	23.7	$	—	$	23.7	$	—
Contingent consideration and acquired contingent liabilities	146.4		—		—		146.4
	$	170.1	$	—	$	23.7	$	146.4



	September 25, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Debt and equity securities held in rabbi trusts	$	34.6	$	24.2	$	10.4	$	—
	$	34.6	$	24.2	$	10.4	$	—

Liabilities:
Deferred compensation liabilities	$	20.0	$	—	$	20.0	$	—
Contingent consideration and acquired contingent liabilities	174.6		—		—		174.6
Foreign exchange forward and option contracts	3.3		3.3		—		—
	$	197.9	$	3.3	$	20.0	$	174.6

Debt and equity securities held in rabbi trusts. Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are valued using quoted market prices reported on nationally recognized securities exchanges.

Foreign exchange forward and option contracts. Foreign currency option and forward contracts are used to economically manage the foreign exchange exposures of operations outside the U.S. Quoted prices are available in an active market; as such, these derivatives are classified as level 1.

Deferred compensation liabilities. The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.

Goodwill. The Company performs an annual goodwill impairment assessment using an income approach based on the present value of future cash flows.

Contingent consideration and acquired contingent liabilities. The Company maintains various contingent consideration and acquired contingent liabilities associated with the acquisitions of Questcor and CNS Therapeutics. The acquired contingent liabilities associated with Questcor pertain to Questcor's acquisition of Synacthen and Synacthen Depot (collectively "Synacthen") from Novartis AG and Novartis Pharma AG (collectively "Novartis") and Questcor's acquisition of BioVectra. The contingent consideration is associated with the CNS Therapeutics.

During the three months ended December 25, 2015, the Company paid the remaining obligation of $40.0 million CAD to the former owners of BioVectra to reach the maximum cumulative payment of $50.0 million CAD. At December 25, 2015, there are no further contingent liabilities associated with BioVectra.

At December 25, 2015, the fair value of the Synacthen acquired contingent liability and the CNS contingent consideration was $139.2 million and $7.2 million, respectively.

The following table provides a summary of the changes in the Company's contingent considerations and acquired contingent liabilities:



Balance at September 25, 2015	$	174.6
Payments	(30.0		)
Accretion expense	1.8
Balance at December 25, 2015	$	146.4

Financial Instruments Not Measured at Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $66.5 million and $66.3 million as of December 25, 2015 and September 25, 2015, respectively (level 1), which was included in prepaid expenses and other current assets and other assets on the unaudited condensed consolidated balance sheets. The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of $67.9 million and $67.7 million at December 25, 2015 and September 25, 2015, respectively. These contracts are included in other assets on the unaudited condensed consolidated balance sheets.

The carrying value of the Company's revolving credit facility and variable-rate receivable securitization approximates fair value due to the short-term nature of these instruments. The carrying value of the 4.00% term loan approximates the fair value of the instrument, as calculated using the discounted exit price, which is therefore classified as level 3. Since the quoted market prices for the Company's term loans and 8.00% and 9.50% debentures are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value. The Company's 3.50%, 4.75% , 4.875%, 5.50%, 5.625% and 5.75% notes are classified as level 1, as quoted prices are available in an active market for these notes. The following table presents the carrying values and estimated fair values of the Company's long-term debt, excluding capital leases, as of the end of each period:



	December 25, 2015				September 25, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Variable-rate receivable securitization	$	215.0	$	215.0	$	153.0	$	153.0
3.50% notes due April 2018	300.0		285.5		300.0		294.3
4.875% notes due April 2020	700.0		668.2		700.0		684.1
Term loans due March 2021	1,973.5		1,915.4		1,978.5		1,966.5
4.00% term loan due February 2022	7.5		7.5		7.9		7.9
9.50% debentures due May 2022	10.4		12.0		10.4		13.0
5.75% notes due August 2022	884.0		845.7		900.0		876.1
8.00% debentures due March 2023	4.4		4.8		4.4		5.3
4.75% notes due April 2023	600.0		553.1		600.0		539.6
5.625% notes due October 2023	740.0		702.2		750.0		705.2
5.50% notes due April 2025	700.0		640.9		700.0		646.0
Revolving credit facility	400.0		400.0		500.0		500.0

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company does not typically require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.

The following table shows net sales attributable to distributors that accounted for 10% or more of the Company's total net sales:



	Three Months Ended
	December 25, 2015		December 26, 2014
CuraScript, Inc.	32	%	35	%
McKesson Corporation	14	%	17	%
Cardinal Health, Inc.	8	%	15	%

The following table shows accounts receivable attributable to distributors that accounted for 10% or more of the Company's gross accounts receivable at the end of each period:



	December 25, 2015		September 25, 2015
McKesson Corporation	25	%	24	%
CuraScript, Inc.	15	%	16	%
Cardinal Health, Inc.	13	%	13	%
Amerisource Bergen Corporation	12	%	12	%

The following table shows net sales attributable to products that accounted for 10% or more of the Company's total net sales:



	Three Months Ended
	December 25, 2015		December 26, 2014
Acthar	31	%	35	%
Inomax	12	%	—	%

Molybdenum-99 ("Mo-99") is a key raw material in the Company's Ultra-Technekow™ DTE technetium generators that are sold by its Nuclear Imaging segment. There are only eight suppliers of this raw material worldwide. The Company has agreements to obtain Mo-99 from three nuclear research reactors and relies predominantly upon two of these reactors for its Mo-99 supply. Accordingly, a disruption in the commercial supply or a significant increase in the cost of this material from these sources could have a material adverse effect on the Company's financial condition, results of operations and cash flows.