ConvaTec Group

2015 
Annual Report

We exist to improve the lives 
of the people we touch

Table of Contents

A message from CEO, Paul Moraviec 

Our Business 

Risk Factors 

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

Management 

Principal Shareholders 

Certain Relationships and Related Party Transactions 

Description of Certain Financing Arrangements 

Glossary 

Index to financial statements 

Page

2

3

19

41

57

62

63

65

71

F‑1

 
A message from CEO, Paul Moraviec

In my first year as CEO of ConvaTec, I have been delighted 
with the progress we have made, both as a company and  
as a team, towards building a world class organization. 
A global business which is well positioned for long term 
sustainable performance, and culturally rooted in our core 
values of caring for people, continually driving innovation 
and excellence, and earning the trust of our stakeholders, 
every day and in everything we do.

2015 was a pivotal year for ConvaTec; not only did we 
achieve a constant currency organic revenue growth rate 
for the total company of 4.2%, and Adjusted EBITDA growth 
of 7.7%, but all four franchises delivered growth, with strong 
performances from our Wound Therapeutics business 
at 5.3%, Continence & Critical Care at 5.9% and Infusion 
Devices delivering 6.2%. Additionally, our ostomy business 
returned to growth in 2015, as we began to realize the 
results of investments in our product portfolio, new 
patient capture initiatives and our direct to consumer 
marketing programs. 

ConvaTec has always been at the forefront of driving 
innovation and excellence; this is one of our key growth 
strategies. One of the best examples of this is our 
AQUACEL® portfolio and in particular, our recently 
launched AQUACEL® Foam and AQUACEL® Ag+ 
platforms, where we have seen strong growth and market 
penetration for these advanced dressings. This year we 
mark the 20th anniversary of AQUACEL® and the pace 
of new products deriving from this platform continues to 
accelerate in response to further unmet needs.  

We have also invested into our other businesses and as 
a result continue to see strong growth in intermittent 
catheters with our GentleCath™ product line, our U.S. 
distributor 180 Medical, and from our key business 
relationships in Infusion Devices. 

This past year, we have significantly expanded the depth and 
experience of our executive leadership team. I have been 
personally delighted to welcome to the team Mike Sgrignari, 
EVP Operations, Marc Reuss, EVP Human Resources, and 
Tim Moran and George Poole, Presidents of our Americas 
and APAC regions, respectively.

As well as focusing on revenue growth, we have also 
initiated a multi-year program designed to improve our 
efficiencies and profitability through both manufacturing 
operations and supply chain.

In 2015 we made significant progress in remediating our 
Quality and Finance functions. The US Food and Drug 
Administration (“FDA”) completed follow-up inspections of 
our Slovakian manufacturing facility in January where we 
received a Warning Letter in 2014. They also visited our 
Greensboro, North Carolina facilities in September 2015. 
The visit to Greensboro was as a follow-up to the  
Warning Letter issued in 2013 to the now closed Skillman, 
New Jersey facility. I am pleased to report that the FDA 
formally closed out both of these Warning Letters. We have 
also successfully remediated the material weaknesses we 
had previously identified in our financial reporting controls.

At ConvaTec, we exist to improve the lives of the people we 
touch. In the areas of healthcare that we serve, we feel a 
deep and personal connection to our customers, many 
of whom rely on us to help them lead a more normal life. 
Our vision is to be the most respected and successful 
MedTech company, worldwide. We drive for excellence in 
all we do – anticipating and addressing our customers’ 
needs with advanced technologies and best-in-class 
products and services. 

The focus, hard work and commitment that everyone at 
ConvaTec has demonstrated in 2015 gives me confidence 
that we will achieve our vision, and I would like to thank all 
of our 9,100 employees for their contributions to making 
this a pivotal year for our company. 

I am very pleased with the momentum we have built in 2015 
and with the foundations we have established. 

Paul Moraviec

Chief Executive Officer, ConvaTec

Our Business

Except where the context otherwise requires, all references 
in this Annual Report to the “Company”, “ConvaTec”, “we”, 
“us”, “our” or similar words or phrases are to ConvaTec 
Healthcare B S.à r.l. (“CHB”) and its subsidiaries on a 
consolidated basis.

Overview

We are a global medical products and technologies 
company, with leading market positions in wound 
therapeutics, ostomy care, continence and critical care, 
and infusion devices. Our products provide our customers 
— including doctors, nurses and patients — with a range 
of clinical and economic benefits, including infection 
prevention, protection of vulnerable skin, improved patient 
outcomes and reduced total cost of care.

Acquisition”), expanding our product offerings in continence 
and critical care and into infusion devices and 180 Medical 
Holdings, Inc. (“180 Medical”) in September 2012, through 
which we distribute disposable, intermittent urological 
catheters to customer in the United States (“U.S.”). Today, 
we have almost 9,100 employees, with 11 manufacturing 
sites in eight countries, and conduct business in more than 
100 countries.

ConvaTec was founded in 1978 as a division of E.R. Squibb 
& Sons, Inc. Our first product, Stomahesive® skin barrier, 
revolutionized ostomy care and established our reputation 
as an innovator of skin adhesives. Our product portfolio 
grew to include a complete ostomy care line and advanced 
wound care line, including AQUACEL® Hydrofiber® and 
DuoDERM® dressings. In 2008, Nordic Capital and Avista 
Capital Partners acquired the ConvaTec business from 
Bristol‑Myers Squibb (“BMS”) (the “ConvaTec Acquisition”). 
We subsequently acquired Unomedical Holdings a/s 
(“Unomedical”) in September 2008 (the “Unomedical 

For the year ended December 31, 2015, we generated net 
sales of $1,650.5 million, net loss of $209.0 million and 
adjusted earnings before interest, taxes, depreciation and 
amortization (“Adjusted EBITDA”) of $474.0 million. For 
the definition of Adjusted EBITDA, an explanation of why 
we present it and a description of the limitations of this 
non‑GAAP measure, as well as the reconciliation from net 
loss, see “Management’s Discussion and Analysis of 
Financial Condition and Results of Operations” within this 
Annual Report.

3

ConvaTec Healthcare B S.à.r.l. and SubsidiariesOur Franchises

Wound
Therapeutics

Market Size

$5.5bn

+5–6%

Ostomy Care

Market Size

$2.1bn

+4–5%

3%
3
$1650.5m

3

1

%

21%

Continence 
& Critical Care

Market Size

15%

Infusion Devices

Market Size

$4.3bn

+4–5%

+5–6%
Market size and annual growth rates represent our latest estimate (source: external reports/ ConvaTec internal estimates).  
Refer for further discussion below regarding each franchise market size and growth rates.

$2.0bn

4

ConvaTec Healthcare B S.à.r.l. and SubsidiariesWe operate in attractive growing markets where underlying 
trends are expected to create increased demand globally. 
A majority of our business is derived from medical 
consumables tied to the management of chronic conditions, 
generating consistent recurring revenues. We report sales 
in four major franchises: Wound Therapeutics, Ostomy 
Care, Continence & Critical Care (“CCC”) and Infusion 
Devices. For the year ended December 31, 2015, our Wound 
Therapeutics, Ostomy Care, CCC, and Infusion Devices 
franchises generated 33%, 31%, 21%, and 15% of total net 
sales, respectively.

Wound
Therapeutics

2015 Net Sales

$536.1m

+5.3%

Our Wound Therapeutics franchise includes advanced 
wound dressings and skin care products. These dressings 
and products are used for the management of acute and 
chronic wounds, such as those resulting from traumatic 
injury, burns, invasive surgery, diabetes, venous disease, 
immobility and other factors.

We market a comprehensive portfolio of advanced wound 
dressings, including antimicrobial and foam dressings. Our 
advanced dressings have long been products of choice by 
healthcare professionals treating chronic wounds associated 
with aging populations, such as pressure ulcers, venous 
leg ulcers and diabetic foot ulcers. We have successfully 
expanded our offerings in the acute wound area, with 
advanced dressings for partial‑thickness burns and 
surgical‑site incisions, where the potential for infection is a 
clinical and institutional concern.

Key products include our AQUACEL® line of advanced 
dressings, which features ConvaTec’s proprietary 
Hydrofiber® Technology. These dressings provide a wound 
contact layer that transforms into a gel on contact with 
wound fluid, absorbing and retaining excess exudate to help 
create an optimal healing environment. The gel contours to 
the wound bed to help minimize dead space where bacteria 
can grow.

5

In addition to the base AQUACEL® formulation, we 
offer AQUACEL® Ag, which contains bacteria‑killing 
silver, AQUACEL® Foam, which combines the comfort 
and simplicity of foam with the benefits of Hydrofiber® 
Technology, and AQUACEL® SURGICAL Cover Dressing, 
which combines hydrocolloid technology with Hydrofiber® 
Technology. Together, these products represent the growth 
drivers of our wound therapeutics business.

AQUACEL® Ag+ dressings are designed to address three 
key barriers to wound healing‑excess exudate, infection 
and biofilm by combining HydroFiber™ Technology with 
Ag+ Technology. In 2015, its growth was pivotal in making 
ConvaTec the leader in the Silver/Antimicrobial segment in 
Europe, Middle East and Africa (“EMEA”). Clinical evidence 
supports the product’s success: a multi‑country clinical 
evaluation of AQUACEL® Ag+ published in the January 
2015 issue of the Journal of Wound Care showed that 95% 
of wounds studied either improved or healed completely 
(observed over an average treatment period of 4.1 weeks). 
In addition, a clinical study of venous leg ulcers exhibiting 
clinical signs of infection was published in June 2015 online 
in The International Wound Journal showing that 88% of 
wounds observed either improved or healed completely 
after eight weeks.

AQUACEL® Ag+ Extra dressings received CE mark approval 
(a European regulatory marking to signify compliance with 
applicable regulatory standards) in 2013 and are available 
in select countries in the European Union (“EU”), as well as 
Canada, Hong Kong and Malaysia. In the U.S., AQUACEL® 
Ag+ Extra dressings have not yet received Food and Drug 
Administration (“FDA”) clearance and were not available for 
commercial sale in 2015.

We continue to invest in the commercialization of 
AQUACEL® Foam, the only foam dressing with the comfort 
and simplicity of foam plus the benefits of a Hydrofiber® 
interface. Launched in 2012, AQUACEL® Foam continues to 
be one of the fastest growing products in the more than $1 
billion market for foam dressings.

In 2015, we added several new sizes of AQUACEL® 
Foam dressing, which are designed for a wider variety of 
anatomical wound care applications, including the head 
and neck, shoulder, lower leg and wrist, as well as the lower 
abdomen for appendectomies, cesarean sections and 
midline incisions. The new sizes are available in the United 
Kingdom (“U.K.”), the Nordic countries, Canada, Bulgaria, 
Malaysia, the Netherlands, Australia, New Zealand and the 
U.S., with other countries to follow.

ConvaTec Healthcare B S.à.r.l. and SubsidiariesWe also launched AQUACEL® Foam Pro in 2015, a 
multi‑layered silicone foam dressing that is designed to 
protect the skin from breakdown, when used as a part of 
a protocol of care, where there is a risk of pressure ulcer 
formation. Available in two sacral sizes, AQUACEL® Foam 
Pro is available in the U.S.

AQUACEL®/ AQUACEL® Ag SURGICAL continued to be a 
contributor to revenue growth in 2015, and clinical evidence 
supported that growth. Results of a randomized controlled 
trial were published in the September 2015 issue of the 
American Journal of Orthopedics showing that the use 
of AQUACEL® Ag SURGICAL Cover Dressing significantly 
reduced wound complications and significantly improved 
patient satisfaction rates after joint replacement surgery.

Additional products include our DuoDERM® family of 
hydrocolloid dressings and our Aloe Vesta® and Sensi‑Care® 
skin care products.

The global Wound Therapeutics market is approximately 
$5.5 billion and is expected to grow 5–6% per annum over 
the next five years, driven by an increase in the number of 
addressable wounds and a shift from traditional products to 
more advanced therapies.

ConvaTec is a market leader in advanced wound dressings, 
competing globally with Mölnlycke, Smith & Nephew, 
Coloplast and Systagenix (an Acelity company).  
We also compete with other local medical products 
companies offering wound care products, such as Medline 
in the U.S. and Urgo in France. In skin care, a predominantly 
U.S.‑based business, our competitors include Coloplast, 
Medline and 3M.

Ostomy
Care

2015 Net Sales

$515.6m

+1.3%

colorectal cancer, inflammatory bowel disease, bladder 
cancer and other causes.

Technology today allows us to offer cutting‑edge products 
and services to make a real difference in the lives of people 
with an ostomy. We have the tools and expertise to help 
patients, caregivers and medical professionals see ostomy 
care as simple, easy and accessible.

For more than 35 years, ConvaTec has provided products, 
accessories and services designed to dramatically improve 
life with an ostomy. From the first days after surgery to the 
first months of recovery and beyond, ConvaTec supports 
every person with an ostomy throughout his or her  
entire journey.

Our literature and online resources provide the facts, photos 
and details of what to expect before and after surgery, in 
recovery and at home. Our customer call centers‑made up 
of Wound, Ostomy and Continence nurses and product 
specialists around the globe‑provide advice and answers on 
how to make living with an ostomy easier.

ConvaTec markets a comprehensive product portfolio of 
one‑ and two‑piece ostomy systems and accessories to 
address a full range of customer needs and preferences. 
One‑piece systems consist of an integrated skin barrier 
and pouch, while two‑piece systems consist of a skin 
barrier separate from the pouch, allowing users to change 
the pouch without having to remove the skin barrier. Skin 
barriers (or wafers) adhere the system to the skin around 
the stoma, also serving to protect the skin from harmful 
bodily waste. Our systems are available with a variety of 
closure and drainage options, deodorizing filters and pouch 
materials. A line of accessory products complements our 
pouch systems and offers the opportunity to increase 
per‑customer revenue. Our accessories include pastes, 
powders, strips, seals, adhesive removers and a special line 
of clothing.

Approximately 50% of people with an ostomy develop 
peristomal skin complications, commonly stemming from 
bodily waste leaking in between the stoma and the skin 
barrier. This cycle of leakage and skin breakdown can 
negatively impact quality of life, physically and emotionally. 
Therefore, the security of the fit of the pouching system 
to the body is paramount to enabling our customers to live 
their lives normally.

Our Ostomy Care franchise includes devices, accessories 
and services for our customers. Our customers are people 
with an ostomy or stoma (a surgically‑created opening 
where bodily waste is discharged) commonly resulting from 

Addressing this fundamental customer need, all of our core 
products, including our advanced pouch ranges of Natura+® 
(two piece) and Esteem+® (one piece), feature our 
skin‑friendly and clinically‑proven adhesives (Stomahesive®, 

6

ConvaTec Healthcare B S.à.r.l. and SubsidiariesDurahesive® and ConvaTec Moldable Technology™). Key 
accessory products include Stomahesive® paste and 
powder, Sensi‑Care® sting free skin care, Diamonds™ gelling 
sachets and the Ostomysecrets® clothing line.

In 2015, we launched a new direct‑to‑consumer service 
program in the U.S. called me+™, that offers people living 
with an ostomy and their caregivers, the support, insights 
and products they need throughout their life with an 
ostomy. This program will be expanded globally in 2016.

In 2015, we further expanded our range of products with 
Esteem® +ConvaTec Moldable Technology™ in extra‑large 
sizes to further meet customer needs for enhanced security 
and ease of use. Traditional skin barriers are cut to fit the 
stoma opening; Moldable Technology requires no cutting, 
and instead creates an elastic‑like seal that “rebounds” to fit 
any stoma size and shape.

New products launched in 2015 include Natura™+ 
Two‑Piece Urostomy Pouch with Soft tap which 
incorporates a new pouch shape that has been redesigned 
with a soft body‑side comfort panel. Pouch baffling evenly 
distributes urine for a slimmer profile and less tugging. An 
upgraded Flexible Soft Tap is designed for security and 
added comfort.

Within our two‑piece ostomy product offerings, we also 
continued to roll out our Natura® Accordion flange range 
with new options to further meet our customers’ needs. 
The flange lifts easily to provide generous finger room so 
coupling is easy and comfortable and is designed for tender 
abdomens or for anyone who wants everyday comfort.

Within our accessories range we further added to our 
Eakin Cohesive® seal offering through launching the Eakin 
Cohesive® StomaWrap™ in our North America markets. The 
Eakin Cohesive® StomaWrap™ is designed for large or oval 
shaped stomas and is for people with limited dexterity or for 
quick pouching routine.

The global Ostomy Care market is approximately $2.1 billion 
and is expected to grow 4–5% per annum over the next five 
years, driven by favorable demographics.

We are one of three global market leaders in ostomy 
care, competing with Coloplast and Hollister Incorporated 
(including Dansac, part of the Hollister group). In addition, 
we compete with smaller regional providers of ostomy and 
ostomy‑related products, including B. Braun in France and 
Germany, Salts, Eakin‑Pelican and Welland in the U.K., and 
Alcare in Japan and China.

7

Continence 
& Critical Care

2015 Net Sales

$348.2m

+5.9%

Our CCC franchise includes products for people with 
urinary continence issues related to spinal cord injuries, 
multiple sclerosis, spina bifida and other urological disorders. 
The franchise also includes devices and products used in 
intensive care units and hospital settings.

In Continence Care, ConvaTec offers a portfolio of 
intermittent urinary catheters, which are predominantly 
used by people who self‑catheterize in order to drain urine 
from the bladder.

 Key brands include our GentleCath™ line of intermittent 
urinary catheters. The 2013 launch of the GentleCath™ line 
marked the entry of ConvaTec, one of the world’s largest 
producers of catheters, into the estimated $2.1 billion 
market for intermittent self‑catherization. Designed for 
maximum comfort, safety and ease of use, the GentleCath™ 
line includes a variety of catheter styles to meet a wide 
range of customer needs.

In November 2015, we launched the GentleCath™ Pro 
Closed‑System Intermittent Catheter that provides for 
“no‑touch” catheterization to help minimize the risk of 
infection, while providing the convenience to catheterize 
where and when it is needed. Simultaneously, we also 
launched the GentleCath™ Insertion Kit that provides all 
necessary catheter insertion supplies required to perform 
sterile technique intermittent catheterization.

Our Critical Care portfolio includes advanced systems 
for managing acute fecal incontinence, monitoring urine 
production output (hourly diuresis) and monitoring 
intra‑abdominal pressure (“IAP”). Acute fecal incontinence is 
a serious healthcare problem for patients in critical care and 
can lead to skin breakdown, the development of pressure 
ulcers and the spread of C. difficile infection. Hourly diuresis 
and IAP monitoring provide clinicians with important 
indicators of a patient’s condition. Monitoring IAP is vital 
for the early detection of intra‑abdominal hypertension, 

ConvaTec Healthcare B S.à.r.l. and Subsidiariesestimated to affect up to half of all critical care patients, and 
enables timely intervention against potential consequences, 
including abdominal compartment syndrome, multiple organ 
failure and death.

Key products in this range include Flexi‑Seal® Fecal 
Management Systems (“FMS”), UnoMeter™ hourly diuresis 
management systems and AbViser® and Abdo‑Pressure™ 
intra‑abdominal pressure measurement devices.

In September 2015, we received a letter from FDA  
which officially closed the 2014 voluntary recall of our 
FlexiSeal® CONTROL Fecal Management System.  
For more information, see note 17 titled “Commitments 
and Contingencies” of the notes to consolidated financial 
statements within this Annual Report. In October 2015  
we launched Flexi‑Seal™ Signal FMS with odor barrier,  
designed with advanced odor‑absorbing technology that 
helps maintain a better environment for patients, visitors 
and caregivers.

Our Hospital Care portfolio provides a wide range 
of high‑quality disposable medical devices for use in 
high‑volume procedures in urology, intensive care,  
operating rooms and other hospital departments —  
helping care teams complete necessary everyday 
procedures safely and efficiently.

Products include wound drainage systems; urine 
collection bags and catheters; airway management and 
oxygen/ aerosol therapy devices; suction handles and  
tubes; gastroenterology tubes; and securement devices.  
In 2015, based on our CCC commercial strategy to focus on 
strategic growth products, we announced the elimination 
of certain non‑strategic Hospital Care products with low 
profitability and limited growth potential, specific to our 
product lines in urological drainage, airway management, 
and respiratory & anesthesia. For more information, see 
the “Manufacturing and Raw Materials” section within this 
Annual Report.

The global market for our CCC product segments is 
approximately $4.3 billion and is expected to grow 4–5%  
per annum over the next five years, driven by increases  
in general, non‑elective care consumption and 
reimbursement coverage.

We hold market‑leading positions in fecal management 
(globally) and in urine monitoring (in Europe). Our primary 
competitors in Critical Care and Hospital Care include 
C.R. Bard, Covidien (now Medtronic Minimally Invasive 
Therapies), Hollister and Teleflex. In Continence Care,  
our primary competitors include Coloplast, Wellspect and 
C.R. Bard.

Infusion 
Devices

2015 Net Sales

$250.6m

+6.2%

Our Infusion Devices franchise, previously referred to 
as Infusion Devices/Industrial Sales, provides disposable 
infusion sets to manufacturers of insulin pumps for  
diabetes and similar pumps used in continuous infusion 
treatments for other conditions. In addition, the franchise 
supplies a range of products to hospitals and the home 
healthcare sector.

An insulin pump is an external computer‑controlled device 
allowing diabetes patients to get continuous delivery 
of insulin to the body. Infusion sets are the disposable 
parts connected to the pump via tubing and injected into 
the patient’s body, allowing the insulin to be delivered 
subcutaneously (under the skin). Insulin pumps are a 
well‑established and recognized technology for treatment 
of many type 1 and severe type 2 diabetes patients.  
In addition to insulin pump therapy for diabetes,  
we also work with pharmaceutical companies and other 
partners on infusion sets for continuous subcutaneous 
drug delivery for other diseases, including apomorphine 
for Parkinson’s disease, immunoglobulins for primary 
immunodeficiencies, and Thalassaemia and morphine  
for palliative pain management.

Key products for insulin pump therapy include Quick‑set™, 
mio™, Sure‑T™, Silhouette™ (which are trademarks of 
Medtronic MiniMed, Inc.), Comfort™ and the InSet™  
range of products, each of which is tailored for specific 
patient needs. Outside of diabetes care, we use the  
product name neria™.

The franchise’s portfolio also includes a broad variety 
of products for hospital and home healthcare that 
we sell directly to large customers. We use our global 
manufacturing capabilities and supply chain economies 
of scale to provide our customers with high‑volume, 
high‑quality products, including DEHP‑, phthalate‑ and 
PVC‑free materials and newly developed multi‑layer 
polyolefin materials.

8

ConvaTec Healthcare B S.à.r.l. and SubsidiariesThe global Infusion Devices market is approximately $2 
billion and is expected to grow 5–6% per annum over the 
next five years, driven by the increasing prevalence of 
diabetes and expanded reimbursement coverage for insulin 
pump therapy.

We are the leading provider of disposable infusion sets  
used for insulin pump therapy. Our primary competitors 
include original equipment manufacturers (“OEM”) 
manufacturing infusion sets themselves as well as a variety 
of specialized manufacturers.

Geographic Information

We market our products in more than 100 countries 
through direct sales and local distributors. In 2015, 
approximately 40.4% of our revenues were generated  
from customers in EMEA, our largest commercial region  
and Europe being our principal international market.  
The U.S., our single largest individual market, generated 
31.3% of our revenues.

Customers

Our products are marketed and distributed to a wide range 
of customers, including healthcare providers, patients and 
manufacturers. In the U.S., the majority of products in our 
Wound Therapeutics, Ostomy Care and CCC franchises are 
sold through distributors, wholesalers and other channel 
partners, such as hospital buying companies and group 
purchasing organizations (“GPO”). In Europe, products in 
these three franchises are also sold through bandagists 
(specialized medical stores), as well as directly to hospitals, 
home care companies and other healthcare providers.  
Our Ostomy and CCC customers include end users who 
receive products from retailers, distributors or directly 
from public healthcare providers. We also sell Ostomy and 
Continence Care products directly to consumers through 
our subsidiary home delivery companies, Amcare in the 
U.K. and 180 Medical/Symbius Medical, LLC (“Symbius”) in 
the U.S. For the year ended December 31, 2015, no single 
customer generated more than 10% of our net sales. 

To service our customers, we operate a network of 
distribution centers with regional hubs strategically located 
to support our key markets.

Seasonality

All of our foreign operations are subject to risks inherent in 
conducting business abroad, including price and currency 
exchange controls, fluctuations in the relative values of 
currencies, political and economic instability and restrictive 
governmental actions including possible nationalization or 
expropriation. Changes in the relative values of currencies 
may materially affect our results of operations. For a 
discussion of these risks, see “Risk Factors” within this 
Annual Report.

Each of our major markets has a professional sales force, 
the composition and focus of which varies according to 
local market and customer dynamics. Generally speaking, 
our full time representatives call on specialist nurses and 
physicians involved in the management of wound, ostomy 
and continence care. We target acute‑ and post‑acute care 
settings with a sales focus on wound care clinics, intensive 
care units, operating rooms and other departments within 
hospitals, home care nurses, and long‑term care settings, 
as well as the purchasers/payers who oversee wound care, 
intensive care and related departmental budgets.

Our Infusion Devices franchise has a concentrated 
business‑to‑business customer base, primarily consisting 
of the leading insulin pump manufacturers, global 
urology/ continence players and respiratory/airway 
management players. The contractual relationships we 
hold with a number of these manufacturers are strategic 
partnerships involving joint product development and 
specialized manufacturing capabilities.

The end‑use of our products is generally not seasonal in 
nature because ostomy and continence products, wound 
dressings, hospital‑related products and infusion sets are 
non‑elective chronic‑related use products that are used 

on a routine basis by end users. However, in any given year 
our sales may be weighted toward a higher percentage 
in the second half of the year. We believe this trend may 
be impacted by the following factors: ⁽I⁾ distributor buy‑in 

9

ConvaTec Healthcare B S.à.r.l. and Subsidiariesprior to the winter holiday season; ⁽II⁾ increased purchases 
from certain U.S. customers and GPOs to achieve certain 
contractual volume rebates or to use their allowable 
allotments under U.S. healthcare programs; ⁽III⁾ annual 
discretionary price increases in the U.S. that have typically 
been made effective during the fourth quarter of the 
year, thereby resulting in increased purchases prior to the 

effective dates of such increases; and ⁽IV⁾ reimbursement 
practices impacting purchasing trends such as in Ostomy 
Care, in which customers in the U.S. can purchase up 
to three months of ostomy supplies in one month and 
customers in Japan are given vouchers twice a year for the 
purchase of Ostomy Care products.

Competition

We operate in highly competitive markets. Our Wound 
Therapeutics franchise and the Hospital Care sub‑group 
of our CCC franchise compete with both large and small 
companies, including several large, diversified companies 
and numerous smaller niche companies. In Ostomy Care, 
Infusion Devices, and the Continence and Critical Care 
sub‑groups of our CCC franchise, we generally compete 
with a small number of large competitors in the market.

Our competitors include C.R. Bard, Coloplast, Covidien  
(now Medtronic Minimally Invasive Therapies), Hollister 
(including Dansac), Mölnlycke, Smith & Nephew and 
Teleflex, among others.

The success of our business depends on our ability to 
develop innovative products that address unmet customer 
needs and differentiate ourselves from our competitors. 
Strong patent protection, reliable product quality  
and dependable service are also important to our  
market position.

Research & Development

Our Research & Development (“R&D”) department works 
to develop and deliver innovative technologies that meet 
the most important needs of patients and to help clinicians 
advance their medical practice in caring for patients. We are 
continually focused upon improving our existing portfolio 
of products and upon developing the next generation of 
technologies for each of our business areas.

Most of our product development is conducted internally 
at our R&D centers in Deeside, U.K. and Osted, Denmark. 
These centers have developed a strong reputation among 
key opinion leaders and are considered among the leading 
research institutes within their respective fields, especially 
in the areas of infection prevention and skin integrity. 
Core R&D competencies include microbiology, infection 
detection, anti‑infective therapies, biofilm science, adhesive 
science, polymer science, fluid handling technologies, tissue 
physiology, injection molding, product design engineering 

Many healthcare industry companies, including medical 
device companies, are consolidating to create larger 
companies. As the healthcare industry consolidates, 
competition to provide products and services to industry 
participants may become more intense. In addition, many 
of our distribution channels and purchasing entities are 
consolidating, and industry participants may try to use 
their purchasing power to negotiate price concessions 
or reductions for the products that we manufacture and 
market. Consolidation may have an impact on price or may 
enable a competitor to offer a more complete portfolio 
of products to customers. If we are forced to reduce our 
prices or suffer other competitive disadvantages because of 
consolidation in the healthcare industry, our revenues could 
decrease, and our business, financial condition and results of 
operations could be adversely affected.

and materials chemistry.

We continue to supplement our internal development 
efforts with targeted scouting initiatives for innovative 
technologies and products in relevant areas of our business 
where we see opportunities for accelerating commercial 
growth. Our investment expense in R&D during the years 
ended December 31, 2015 and 2014 were $41.2 million 
and $37.2 million, respectively. As of December 31, 2015, 
approximately 300 employees were involved in our  
R&D efforts.

In 2015, we delivered a number of new products and 
product line extensions. These included new size additions 
to our AQUACEL® Foam dressing range and the launch of 
AQUACEL® Foam Pro dressing, which features enhanced 
adhesion for skin protection in addition to the exudate 
management and wound progression benefits of our 

10

ConvaTec Healthcare B S.à.r.l. and SubsidiariesHydrofiber® Technology. We expanded our GentleCath™ line 
of intermittent urinary catheters to add a closed system and 
an insertion kit, and we launched FlexiSeal® Signal FMS with 
odor barrier; extensions to our Ostomy Care range which 
leverage the proven skin protection of ConvaTec Moldable 
Technology™ adhesives and extensions to our range of 
Accordion Flange two‑piece Ostomy Care products.

Our future developments in Wound Therapeutics will 
focus upon expanding our Hydrofiber® Technology and 
Ag+ Technology ranges, together with introducing novel 
technologies to further advance infection prevention in 
wound management. In Ostomy Care, our focus will be on 
further expanding the range of products with our Moldable 
Technology™ and on the development of innovative 
technologies to create new products which provide 

discretion, comfort, ease of use, and the best possible skin 
protection and confidence that leaks will not occur. Future 
developments in CCC will focus upon further expanding 
our GentleCath™ range through the incorporation of new 
material technologies and innovative design features, 
together with new technology innovations in the field of 
continence care. In Infusion Devices, we will continue to 
focus on needle‑safe systems and systems with additional 
user benefits in relation to ease of use and wear‑time and 
infection prevention.

Our new product development pipeline of proprietary 
technologies and products spans all business areas and 
comprises projects at all stages of development from 
innovation to launch:

Innovation

Concept

Development

Launch

Wound Therapeutics

Ostomy Care

Total

Continence & Critical Care

Infusion Devices

Intellectual Property

23

22

23

14

We hold an extensive portfolio of patents and trademarks 
across our key franchises and geographies. We actively 
establish and maintain our rights and assess our risks with 

respect to our intellectual property. We file and maintain 
patents and patent applications in those countries in which 
we have, or desire to have, a strong business presence.

11

ConvaTec Healthcare B S.à.r.l. and SubsidiariesThe majority of our patents are related to key technologies, 
compositions, processes or product features, and many 
of our key products have patent protection. We also have 
licenses to issued patents and patent applications that cover 

certain of our products and technologies. For additional 
information relating to our patents and trademarks, see 
“Risk Factors — Risks Related to Our Business” within this 
Annual Report.

Government Regulations

Our business is highly regulated. We are subject to various 
government regulations, reimbursement policies and 
healthcare cost‑containment programs in the countries in 
which we operate.

FDA

The major regulatory agencies with regulatory authority 
over our products include the FDA, the U.K. Medicines and 
Healthcare Products Regulatory Agency, the Japanese 
Ministry of Health, Labour and Welfare, the China Food 
and Drug Administration and the Australian Therapeutic 
Goods Administration. The general trend is towards more 
onerous regulatory obligations and increased enforcement 
by government authorities.

Our research, development, manufacturing and marketing 
operations are subject to extensive regulation in the U.S. 
and other countries. Most notably, all of our products 
sold in the U.S. are subject to the Federal Food, Drug and 
Cosmetic Act (“FDCA”) as implemented and enforced by 
the FDA. The FDA regulates the following activities that 
we perform or that are performed on our behalf to ensure 
that medical products distributed domestically or exported 
internationally are safe and effective for their intended uses:

•  product design, development and manufacture;

•  product safety, non‑clinical and clinical testing, labeling, 

packaging and storage; 

•  record keeping procedures; 

•  product marketing, sales, advertising, promotion  

and distribution;

•  post‑marketing surveillance or post market studies, 

complaint handling, medical device reporting, reporting of 
deaths, serious injuries or device malfunctions and repair 
or recall of products; and

•  import and export.

We and our products are subject to numerous FDA 
regulatory requirements including:

•  product listing and establishment registration, which helps 
facilitate FDA inspections and other regulatory action; 

•  Quality System Regulation (“QSR”) which requires 

manufacturers, including third‑party manufacturers, to 
follow stringent design, testing, control, documentation 
and other quality assurance procedures during all aspects 
of the manufacturing process; 

•  labeling regulations and FDA prohibitions against the 
promotion of products for uncleared, unapproved or 
off‑label use or indication; 

•  clearance or approval of new products or certain  

product modifications;

•  medical device reporting regulations, which require  

that manufacturers comply with FDA requirements to 
report if their device may have caused or contributed to 
a death or serious injury, or has malfunctioned in a way 
that would likely cause or contribute to a death or serious 
injury if the malfunction of the device or a similar device 
were to recur; 

•  post‑approval restrictions or conditions, including 

post‑approval study commitments; 

•  post‑market surveillance regulations, which apply when 
necessary to protect the public health or to provide 
additional safety and effectiveness data for the device; and 

•  notices of correction or removal and recall regulations.

Unless an exemption applies, each medical device 
commercially distributed in the U.S. requires either FDA 
clearance of a 510(k) premarket notification, or approval 
of a premarket approval (“PMA”) application. Under the 
FDCA, medical devices are classified into one of three 
classes — Class I, Class II or Class III — depending on the 
degree of risk associated with each medical device and the 
extent of manufacturer and regulatory control needed to 
ensure its safety and effectiveness. Class I includes devices 
with the lowest risk to the patient and are those for which 
safety and effectiveness can be assured by adherence to 
the FDA’s General Controls for medical devices, which 
include compliance with the applicable portions of the QSR 
facility registration and product listing, reporting of adverse 
medical events, and truthful and non‑misleading labeling, 
advertising, and promotional materials. Class II devices are 
subject to the FDA’s General Controls, and special controls 

12

ConvaTec Healthcare B S.à.r.l. and Subsidiariesas deemed necessary by the FDA to ensure the safety and 
effectiveness of the device. These special controls can 
include performance standards, post‑market surveillance, 
patient registries and FDA guidance documents. While 
most Class I devices are exempt from the 510(k) premarket 
notification requirement, manufacturers of most Class II 
devices are required to submit to the FDA a premarket 
notification under Section 510(k) of the FDCA requesting 
permission to commercially distribute the device. The FDA’s 
permission to commercially distribute a device subject 
to a 510(k) premarket notification is generally known as 
510(k) clearance. Devices deemed by the FDA to pose 
the greatest risks, such as life sustaining, life supporting 
or some implantable devices, or devices that have a new 
intended use, or use advanced technology that is not 
substantially equivalent to that of a legally marketed device, 
are placed in Class III, requiring approval of a PMA. Some 
pre‑amendment devices are unclassified, but are subject to 
FDA’s premarket notification and clearance process in order 
to be commercially distributed.

In the 510(k) clearance process, the FDA must determine 
that a proposed device is “substantially equivalent” to a 
legally marketed device, known as a “predicate” device, 
with respect to intended use, technology and safety and 
effectiveness, in order to clear the proposed device for 
marketing. Bench tests, pre‑clinical and/or clinical data are 
sometimes required to support substantial equivalence.  
The PMA approval pathway requires an applicant to 
demonstrate the safety and effectiveness of the device 
based, in part, on data obtained in clinical trials. Both 
of these processes can be expensive and lengthy and 
entail significant fees, unless exempt. The FDA’s 510(k) 
marketing clearance process usually takes from three to 
12 months, but it can last longer. The process of obtaining 
PMA approval is much more costly and uncertain than the 
510(k) marketing clearance process. It generally takes from 
one to three years, or even longer, from the time the PMA 
application is submitted to the FDA, until an approval is 
obtained. In the U.S., our currently commercialized products 
have received pre‑market clearance under Section 510(k) of 
the FDCA. Certain products also require pre‑market clinical 
testing for safety and efficacy.

The FDA has broad regulatory enforcement powers. 
We are subject to unannounced inspections by the 
FDA to determine our compliance with the QSR and 
other regulatory requirements, and these inspections 
may include the manufacturing facilities of some of our 
subcontractors. Failure by us or our subcontractors to 
comply with applicable regulatory requirements can result 

13

in enforcement action by the FDA or other regulatory 
authorities, which may result in sanctions including,  
but not limited to:

•  untitled letters, warning letters, fines, injunctions, consent 

decrees and civil penalties; 

•  unanticipated expenditures to address or defend  

such actions; 

•  customer notifications for repair, replacement,  

and/or refunds;

•  recall, detention or seizure of our products; 

•  operating restrictions or partial suspension or total 

shutdown of production; 

•  refusing or delaying our requests for 510(k) clearance or 
PMA approval of new products or modified products; 

•  withdrawing 510(k) clearances or PMA approvals that 

have already been granted; 

•  refusal to grant export approval for our products; or 

•  criminal prosecution.

For further information regarding the potential impact of 
compliance with FDA’s regulations, see “Risk Factors” within 
this Annual Report.

To market our products in the EU, we apply for CE Marking 
in accordance with the EU’s Medical Device Directive. The 
Directive regulates the manufacture and distribution of 
medical devices in EU member states, ensuring they meet 
quality standards and requirements.

Coverage and Reimbursement

Our product portfolios are subject to hospital payment 
levels, community reimbursement policies and fees of 
third‑party payors in each country in which our products 
are sold. Coverage and reimbursement in international 
markets vary significantly by country and include both 
government‑sponsored healthcare and private insurance.

Increasing per capita healthcare consumption in developed 
markets as a result of increased longevity, increased 
incidence of chronic illnesses, defensive medicine and other 
factors have driven healthcare reforms in many countries 
where we sell our products. Combined with government 
austerity programs following the global recession, these 
reforms have generally been accelerated in an effort to 
reduce overall healthcare spending. As a result, global 
healthcare systems have sought ways to limit cost increases, 
placing downward pressure on the prices of many of our 

ConvaTec Healthcare B S.à.r.l. and Subsidiariesproducts while putting increased emphasis on differentiated 
products and support services that can provide improved 
patient outcomes and cost‑effective benefits to patients.

In the U.S., reforms mandated by the Affordable Care Act 
(“ACA”) have increased provider regulation and risk of 
payment penalties for poor patient outcomes. Increasingly, 
manufacturers need to demonstrate with clinical evidence 
that their products not only perform on individual patients, 
but also help providers meet ACA‑mandated quality and 
outcomes measures. This requires us to provide higher 
levels of evidence of the benefits of new technologies and 
creates increased pricing pressures for our older, existing 
technologies that may not have the requisite evidence. 
Some of these impacts are spread over several years due to 
multi‑year contracts.

The ACA also expanded the Durable Medical Equipment, 
Prosthetics, Orthotics and Supplies (“DMEPOS”) 
Competitive Bidding Program for medical devices sold in 
retail settings outside of the hospital. None of the products 
manufactured by us are in categories currently included 
in the Competitive Bidding Program however, retail 
supplier consolidation as a result of the program may place 
downward pressure on our prices as larger retailers qualify 
for discounted volume pricing.

The ACA also imposed a 2.3% excise tax on medical device 
manufacturers’ U.S. sales, beginning January 1, 2013. 
Under the Consolidated Appropriations Act, 2016, this 
tax is suspended from January 1, 2016, to December 31, 
2017, and, absent further action, will be reinstated starting 
January 1, 2018. We believe that many of our products meet 
the requirements of the “retail exemption” Safe Harbor or 
the Facts and Circumstances Tests, as outlined in the final 
rule issued by the Internal Revenue Service (“IRS”) and are, 
thus, exempt from the tax. Further, the final rule also defines 
a “Safe Harbor” for certain classes of devices categorized 
as prosthetic devices under the U.S. Social Security Act. We 
believe that most of our ostomy products are included in 
the proposed IRS Safe Harbor regulations and are thereby 
also excluded from the tax. The total cost incurred by us for 
the medical device excise tax during 2015 and 2014 was $1.7 
million and $1.6 million, respectively.

In the U.K., decentralization of large portions of the National 
Health Service (“NHS”) is encouraging new business and 
contracting models involving economic decision makers. 
Reforms creating internal and external market forces on 
healthcare delivery, shifting care “closer to home” to less 
expensive settings and increasing focus on prevention 
and management of chronic disease are changing the 

landscape in which we sell. While the increased focus on 
quality and efficiency provides selling opportunities for our 
products with strong value messages for care providers 
and prescribers, this focus has yet to fully filter through to 
procurement bodies which still largely base decisions solely 
on price.

Healthcare reforms in certain European countries are 
triggering government payers to implement cost‑cutting 
measures that result in reduced recognition of brand 
differences for medical technologies in reimbursement 
schemes, reduced consumption, slower uptake of 
innovations and higher clinical and health economic 
evidence requirements. Also, governmental procurement 
processes in certain countries are shifting away from 
regional tenders to national tenders. This shift increases 
pressure for obtaining contracts and on pricing.

We continue to monitor the continued impact of global 
economic conditions as well as government healthcare 
reform and the related impact on pricing discounts, 
creditworthiness of our customers and our ability to collect 
outstanding receivables from our customers. Currently,  
we believe the general economic environment will not have 
a material impact on our liquidity, cash flow or financial 
flexibility. Further, we believe our development of enhanced 
and innovative product offerings provides customers with 
strategic business solutions to help improve quality of care, 
patient outcomes and total cost of care. We believe that our 
product offerings are aligned with the current direction of 
healthcare policies and, as such, will be viewed positively by 
healthcare providers.

Other Healthcare Laws

We are also subject to healthcare regulation and 
enforcement by the federal government and the states and 
foreign governments in which we conduct our business. 
These laws include, without limitation, state and federal 
anti‑kickback, fraud and abuse, false claims, physician 
sunshine and privacy and security laws and regulations.

The federal Anti‑Kickback Statute prohibits, among other 
things, any person from knowingly and willfully offering, 
soliciting, receiving or providing remuneration, directly or 
indirectly, to induce either the referral of an individual, for 
an item or service or the purchasing or ordering of a good 
or service, for which payment may be made under federal 
healthcare programs such as the Medicare and Medicaid 
programs. The Anti‑Kickback Statute is subject to evolving 
interpretations. In the past, the government has enforced 

14

ConvaTec Healthcare B S.à.r.l. and Subsidiariesthe Anti‑Kickback Statute to reach large settlements with 
healthcare companies based on sham consulting and other 
financial arrangements with physicians. A person or entity 
does not need to have actual knowledge of the statute 
or specific intent to violate it in order to have committed 
a violation. In addition, the government may assert that a 
claim including items or services resulting from a violation 
of the federal Anti‑Kickback Statute constitutes a false or 
fraudulent claim for purposes of the federal False Claims 
Act. The majority of states also have anti‑kickback laws 
which establish similar prohibitions and in some cases may 
apply to items or services reimbursed by any third‑party 
payor, including commercial insurers.

Additionally, the civil False Claims Act prohibits knowingly 
presenting or causing the presentation of a false, fictitious 
or fraudulent claim for payment to the U.S. government. 
Actions under the False Claims Act may be brought by 
the Attorney General or as a qui tam action by a private 
individual in the name of the government. Violations of 
the False Claims Act can result in very significant monetary 
penalties and treble damages. The federal government is 
using the False Claims Act, and the accompanying threat 
of significant liability, in its investigation and prosecution 
of device and biotechnology companies throughout the 
country, for example, in connection with the promotion 
of products for unapproved uses and other sales and 
marketing practices. The government has obtained 
multi‑million and multi‑billion dollar settlements under the 
False Claims Act in addition to individual criminal convictions 
under applicable criminal statutes. Given the significant size 
of actual and potential settlements, it is expected that the 
government will continue to devote substantial resources 
to investigating healthcare providers’ and manufacturers’ 
compliance with applicable fraud and abuse laws.

To the extent we directly bill government healthcare 
programs for the provision of our products, our financial 
relationships with referring physicians may be subject to the 
Stark Law, which prohibits, among other things, physicians 
who have a financial relationship, including an investment, 
ownership or compensation relationship with an entity, from 
referring Medicare and Medicaid patients to that entity for 
designated health services, which include the provision of 
DMEPOS, unless an exception applies. Similarly, entities 
may not bill Medicare, Medicaid or any other party for 
services furnished pursuant to a prohibited referral. Unlike 
the federal Anti‑Kickback Statute, the Stark Law is a strict 
liability statute, meaning that all of the requirements of a 
Stark Law exception must be met in order for referrals to 
an entity by a physician with a financial relationship with the 

15

entity to be compliant with the law. Penalties for violating 
the Stark Law include denial of payment, civil monetary 
penalties of up to $15,000 per claim submitted, and 
exclusion from federal health care programs, as well as a 
penalty of up to $100,000 for attempts to circumvent  
the law.

The federal Health Insurance Portability and Accountability 
Act of 1996 (“HIPAA”), also created new federal criminal 
statutes that prohibit among other actions, knowingly and 
willfully executing, or attempting to execute, a scheme to 
defraud any healthcare benefit program, including private 
third‑party payors, knowingly and willfully embezzling 
or stealing from a healthcare benefit program, willfully 
obstructing a criminal investigation of a healthcare offense, 
and knowingly and willfully falsifying, concealing or covering 
up a material fact or making any materially false, fictitious or 
fraudulent statement in connection with the delivery of or 
payment for healthcare benefits, items or services. Similar 
to the federal Anti‑Kickback Statute, a person or entity does 
not need to have actual knowledge of the statute or specific 
intent to violate it in order to have committed a violation.

There has also been a recent trend of increased federal 
and state regulation of payments made to physicians 
and other healthcare providers. The ACA, among other 
things, imposed new reporting requirements on device 
manufacturers for payments made by them to physicians 
and teaching hospitals, as well as ownership and investment 
interests held by physicians and their immediate family 
members. Failure to submit required information may 
result in civil monetary penalties of up to an aggregate of 
$150,000 per year (or up to an aggregate of $1 million per 
year for “knowing failures”), for all payments, transfers of 
value or ownership or investment interests that are not 
timely, accurately and completely reported in an annual 
submission. Device manufacturers were required to begin 
collecting data on August 1, 2013 and must submit annual 
reports to CMS by the 90th day of each calendar year. 
Certain states also mandate implementation of compliance 
programs, impose restrictions on device manufacturer 
marketing practices and/or require the tracking and 
reporting of gifts, compensation and other remuneration  
to physicians.

We may also be subject to data privacy and security 
regulation by both the federal government and the  
states in which we conduct our business. HIPAA, as by  
the Health Information Technology and Clinical Health  
Act of 2009 (“HITECH”), and their respective  
implementing regulations, including the final omnibus 

ConvaTec Healthcare B S.à.r.l. and Subsidiariesrule published on January 25, 2013, imposes specified 
requirements relating to the privacy, security and 
transmission of individually identifiable health information. 
Among other things, HITECH makes HIPAA’s privacy 
and security standards directly applicable to “business 
associates,” defined as independent contractors or agents 
of covered entities that create, receive, maintain or transmit 
protected health information in connection with providing 
a service for or on behalf of a covered entity. HITECH 
also increased the civil and criminal penalties that may be 
imposed against covered entities, business associates and 

possibly other persons, and gave state attorneys general 
new authority to file civil actions for damages or injunctions 
in federal courts to enforce the federal HIPAA laws and seek 
attorney’s fees and costs associated with pursuing federal 
civil actions. In addition, state laws govern the privacy and 
security of health information in certain circumstances, 
many of which differ from each other in significant ways, 
thus complicating compliance efforts. See note 17 titled 
“Commitments and Contingencies” of the notes to 
consolidated financial statements within this Annual Report 
for additional information.

Manufacturing and Raw Materials

Our manufacturing network includes 11 sites in eight 
countries, many of which are in relatively low cost labor 
markets. Recently, we completed a comprehensive 
evaluation and analysis of our global manufacturing 
facilities utilization and strategy. Based on the analysis of 
our sites that support our Wound and Ostomy businesses, 
as well as our CCC commercial strategy to rationalize our 
Hospital Care portfolio, we made a decision to close three 
manufacturing facilities (Reynosa HC (Mexico), Sungai 
Petani (Malaysia) and Greensboro (U.S.)) with plans to 
consolidate manufacturing in the remaining facilities or 
outsource production. Refer to note 5 titled “Restructuring” 
and note 18 titled “Subsequent Events” of the notes to 
consolidated financial statements within this Annual Report 
for additional information.

Environment

Our facilities and operations are subject to national, state 
and local environmental laws and regulations and other 
requirements in both the U.S. and countries outside the 
U.S., including those regulations governing the generation, 
use, manufacture, handling, transport, storage, treatment 
and disposal of, or exposure to, hazardous materials, 
discharges to air and water, the cleanup of contamination 
and occupational health and safety matters. We believe 
we are in compliance in all material respects with 
applicable environmental laws and regulations. Existing 
environmental protection legislation and regulations, and 
compliance therewith, had no material adverse effect on 
our capital expenditures, earnings or competitive position. 
Although we continue to make capital expenditures 
for environmental protection, we do not anticipate any 
significant expenditures in order to comply with such laws 

Our global network provides significant operational 
flexibility and the ability to drive continuous improvements 
in productivity and overall profitability.

We rely on various suppliers for the components and raw 
materials required for the production of our products. 
Wherever possible, we attempt to source materials from 
multiple suppliers. We have not been impacted by major 
supply disruptions.

Our core manufacturing capability is supported by 
third‑party contract manufacturers and linked to a 
reliable supply chain and broad distribution network. The 
overall supply chain configuration enables us to meet the 
production expectations of our customers while maintaining 
a high level of product quality, preserving operational 
flexibility and improving productivity and overall profitability.

and regulations that would have a material impact on our 
earnings and competitive position. We are not aware of 
any pending litigation or significant financial obligations 
arising from current or past environmental practices that 
are likely to have a material adverse effect on our financial 
position. We cannot assure, however, that environmental 
problems relating to facilities owned or operated by us 
will not develop in the future, and we cannot predict 
whether any such problems, if they were to develop, would 
require significant expenditure on our part. In addition, 
we are not able to predict what legislation or regulations 
may be adopted or enacted in the future with respect to 
environmental protection and waste disposal.

16

ConvaTec Healthcare B S.à.r.l. and SubsidiariesEmployees

As of December 31, 2015, we had approximately 9,100 
employees. These employees included approximately 6,000 
in operations, 2,200 in sales and marketing, 600 in general 
and administrative positions, and 300 in R&D. The majority 
of our employees are located in the U.S., the U.K., the 
Dominican Republic, Slovakia, Malaysia and Mexico, where 
we operate our largest manufacturing facilities. 

We consider our relations with our employees to be 
satisfactory and have not experienced any significant labor 
disputes, work stoppages or slowdowns that have materially 
impeded our business operations. All U.S. employees are 
non‑unionized. Some of our employees in Europe, Mexico 
and in the Asia‑Pacific jurisdictions are covered by collective 
bargaining agreements that are customary for the industry 
or are members of labor unions.

Insurance

We maintain insurance policies to cover risks including 
those related to physical damage to, and loss of, our 
equipment and properties, as well as product liability 
coverage against claims and general liabilities which may 
arise through the course of our normal business operations. 
We renew most of our insurance policies annually, and most 
insurance premiums are denominated in U.S. Dollars.

We also maintain various other insurance policies to cover 
a number of other risks related to our business, such as 
director and officer cover, employment practices and 
fiduciary liability coverage. In addition, we maintain insurance 
policies to cover various other risks such as automobile 
liability and physical damage, workers’ compensation and 

employer’s liability and marine cargo transit. We believe that 
the types and amounts of insurance coverage we currently 
maintain are in line with customary practice in the medical 
device industry and are adequate for the conduct of our 
business. We cannot assure, however, that our insurance 
coverage will adequately protect us from all risks that may 
arise or in amounts sufficient to prevent any material loss. 
See “Risk Factors — Risks Related to Our Business — Our 
business may be harmed as a result of litigation, particularly 
if the number of product liability claims increases 
significantly and/or our insurance proves inadequate” within 
this Annual Report for more information.

17

ConvaTec Healthcare B S.à.r.l. and SubsidiariesProperties

We believe that we have sufficient facilities to conduct 
our operations during 2016. All of these facilities are 
well‑maintained and suitable for operations conducted in 
them. We manufacture products at 11 worldwide locations, 
most of which are owned by us. Our manufacturing 
locations and their square footage were as follows at 
December 31, 2015:

Location

Haina (Dominican Republic)

Greensboro (U.S.)⁽¹⁾

Deeside (Wales, U.K.)

Rhymney (Wales, U.K.)⁽²⁾

Osted (Denmark)

Reynosa ID (Mexico)

Sungai Petani (Malaysia)⁽¹⁾

Minsk (Belarus)

Michalovce (Slovakia)

Reynosa HC (Mexico)⁽¹⁾

Herlev (Denmark)

Leased or Owned Approximate Square Footage

Leased

Owned

Owned

Leased

Owned

Owned

Leased

Owned

Leased

Leased/Owned

Owned

192,000

144,000

223,000

60,000

78,000

164,000

139,000

46,000

264,000

37,000

101,000

⁽¹⁾  Recently, we completed a comprehensive evaluation and analysis of our global manufacturing facilities utilization and strategy along with an analysis of our CCC commercial strategy 
and we made a decision to cease our manufacturing operations as follows: ⁽I⁾ Reynosa Hospital Care (“HC”), Mexico by mid‑2016, ⁽II⁾ Sangai Petani, Malaysia by the end of 2016, and  
⁽III⁾ Greensboro, U.S. by early 2017. Going forward, the HC facility will be repurposed to support the expansion of the infusion devices business and its customers and we will expand  
our capabilities at the Deeside, U.K., Haina, Dominican Republic, Michalovce, Slovakia, Rhymney, U.K., and Herlev, Denmark facilities to optimize our supply chain for the Wound,  
Ostomy, and CCC franchises. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent developments” within this Annual Report for 
further information.

⁽²⁾  We hold a long‑term leasehold on this property with a term of 99 years from August 23, 2000. 

Legal Proceedings

See note 17 titled “Commitments and Contingencies” 
of notes to consolidated financial statements within this 
Annual Report, which is incorporated by reference herein.

18

ConvaTec Healthcare B S.à.r.l. and SubsidiariesConvaTec Healthcare B S.à r.l. and Subsidiaries

Risk Factors

You should carefully consider these risk factors in evaluating our business.  In addition to the following risks, there may also 
be risks that we do not yet know of or that we currently think are immaterial that may also affect our business.  If any of the 
following risks occur, our business, results of operations, cash flows or financial condition could be adversely affected.

Risks Related to Our Financial Statements

We have identified in previous years material weaknesses in our internal control over financial reporting. 

In preparing our Consolidated Financial Statements as of and for the year ended December 31, 2014, we identified control 
deficiencies in the design and operation of our internal control over financial reporting that together constituted material 
weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, 
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial 
statements will not be prevented or detected on a timely basis. The material weaknesses identified related to the corporate 
governance and oversight of the financial reporting process and revenue recognition. These material weaknesses were first 
identified during the preparation of our Consolidated Financial Statements as of and for the year ended December 31, 2013, 
and have been fully remediated as of and for the year ended December 31, 2015. We continue to strengthen our control 
environment, however, we can give no assurances that any material weaknesses will not arise in the future due to our failure 
to implement and maintain adequate internal control over financial reporting. 

Risks Related to Our Regulatory Environment

Act of 2002, which requires public 
As we are not a public company in the U.S., we are not subject to the U.S. 
companies  to  have  and  maintain  effective  disclosure  controls  and  procedures  to  ensure  timely  disclosure  of  material 
information, and have management review the effectiveness of those controls on a quarterly basis. We are also not subject to 
the U.S. Securities Act of 1933, as amended (the "Securities Act"). The Securities Act also requires public companies to have 
and maintain effective internal control over financial reporting to provide reasonable assurance regarding the reliability of 
financial reporting and preparation of financial statements, and have management review the effectiveness of those controls 
on an annual basis (and have the independent auditor attest to the effectiveness of such internal controls). We will not be 
required to comply with these requirements and therefore we might not have procedures comparable to public companies in 
the U.S.

We and our customers are subject to substantial national and local government regulation that could have a material 
adverse effect on our results of operations, including:

(i) Exposing us to liabilities in numerous areas of our business.

The medical device products we design, develop, test, manufacture, label, distribute, market and export/import are subject to 
rigorous regulation by governmental authorities such as the FDA in the U.S., the EU National Competent Authorities (the 
“NCAs”)  of  the  Member  States  of  the  European  Economic  Area  (“EEA”),  and  numerous  other  national  and/or  state 
governmental authorities in the countries in which we manufacture and sell our products. These regulations govern, among 
other things: the research, testing, manufacturing, safety, clinical efficacy, effectiveness and performance, product standards, 
packaging requirements, labeling requirements, import/export restrictions, storage, recordkeeping, promotion, distribution, 
production, tariffs, duties and tax requirements. Our products and operations are also often subject to the norms of industrial 
standards bodies, such as the International Standards Organization or the rules of associations of healthcare professionals. In 
the U.S., our products are subject to regulation by the FDA pursuant to its authority under the federal FDCA and its implementing 
regulations. In the U.S., before we can market a new medical device, or a new use of, or claim for, or significant modification 
to, an existing product, we must first receive either premarket clearance under Section 510(k) of the FDCA, or approval of a 
PMA from the FDA, unless an exemption applies. In the 510(k) marketing clearance process, the FDA must determine that 
a proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate” device, with respect to 
intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Bench tests, pre-
clinical and/or clinical data are sometimes required to support substantial equivalence. The PMA approval pathway requires 
an applicant to demonstrate the safety and effectiveness of the device based, in part, on data obtained in clinical trials. Both 
of these processes can be expensive and lengthy and entail significant fees, unless exempt. The FDA’s 510(k) marketing 
clearance process usually takes from three to 12 months, but it can last longer. The process of obtaining PMA approval is 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

much more costly and uncertain than the 510(k) marketing clearance process. It generally takes from one to three years, or 
even longer, from the time the PMA application is submitted to the FDA, until an approval is obtained. There is no assurance 
that we will be able to obtain FDA clearance or approval for any of our new products on a timely basis, or at all. In the U.S., 
our currently commercialized products have received pre-market clearance under Section 510(k) of the FDCA.  If the FDA 
requires us to go through the lengthier more rigorous examination for future products or modifications to existing products 
than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales 
to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain PMA 
process. Although we do not currently market any devices under PMA, the FDA may demand that we obtain a PMA prior to 
marketing certain of our future products.

Many of the laws and regulations applicable to our products in other countries, such as the Council Directive 93/42/EEC of 
14 June 1993 concerning medical devices, as amended (the “EU Medical Devices Directive”) (as transposed into the respective 
national laws and regulations of the EEA Member States), are generally comparable to those of the FDCA in their aim to 
ensure safety and effectiveness of medical devices, but the applicable standards and proceedings are not globally harmonized. 
Such regulations are subject to continuous revision, which may entail increased requirements, and, more generally, there 
appears to be a trend toward more stringent regulatory oversight throughout the world. We do not anticipate this trend to 
diminish in the near future. Due to the movement towards harmonization of standards in the EU and the expansion of the EU, 
we expect a changing regulatory environment in Europe characterized by a shift from a 
regulatory system 
single regulatory system. The timing of this harmonization and its effect on us cannot currently be predicted. 
to a 
Likewise, EU medical devices legislative framework is currently under review (the “Recast” or “Revision” of the Medical 
Device Directive) and this may result in more stringent regulation of, at least, some medical devices, the details and impact 
of which cannot yet be fully predicted.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, 
or take other actions which may prevent or delay approval or clearance of our products under development or impact our 
ability to modify our currently cleared products on a timely basis.  For example, in response to industry and healthcare provider 
concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation 
of the program, and in January 2011, announced several proposed actions intended to reform the review process governing 
the clearance of medical devices, which governs a significant proportion of our currently marketed devices. The FDA intends 
these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. In 
addition, as part of the Food and Drug Administration Safety and Innovation Act (“FDASIA”), Congress reauthorized the 
Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical 
Device Regulatory Improvements” and miscellaneous reforms which are further intended to clarify and improve medical 
device regulation both pre- and post-clearance or approval.  The changing regulatory environment, as partially evidenced by 
the  former  examples,  may  have  a  material  impact  on  existing  device  marketing  authorizations  as  well  as  future  device 
registration applications, requirements and timings, which may, in turn, have material impacts upon our ability to continue or 
begin to market existing and new devices.

We are also subject to antitrust, 
laws, such as the U.S. Foreign Corrupt Practices 
and 
Act (the “FCPA”) and similar laws in other countries, as well as to obligations to business partners, including the World Bank 
Group, related to anti-corruption compliance. Actual or alleged violations of applicable laws, regulations, or anti-corruption 
compliance contractual requirements could create a substantial liability for us and also damage our reputation or cause a loss 
of business opportunity in the market. The FCPA prohibits U.S. companies and issuers, along with their officers, directors, 
employees, shareholders and agents acting on their behalf  from offering, promising, authorizing or making improper payments 
to "foreign officials" for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment or 
an improper business advantage. U.S. issuers must also maintain records that fairly and accurately reflect transactions and 
maintain adequate internal accounting controls. We regularly interact with individuals who may be considered to be foreign 
officials under the FCPA, including regulatory authorities from whom we obtain and retain regulatory approvals and healthcare 
professionals employed by government-owned hospitals and clinics. We interact with foreign officials and otherwise have 
business  in  some  countries  generally  recognized  as  having  business  environments  with  heightened  corruption  risks.  Our 
activities in these countries create the risk of unauthorized payments by one or offers of payments by our employees or agents 
that could be in violation of various 
laws including the FCPA. We have implemented safeguards and policies 
to discourage these practices by our employees and agents, and we conduct internal investigations from time to time related 
to our anti-corruption compliance program. However, as for similar businesses, there is a risk our existing safeguards and any 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

future compliance enhancements may not be effective to fully mitigate these corruption risks. If we, our employees or our 
agents violate our policies and engage in improper conduct, we may be subject to sanctions. If we are found to have violated 
the FCPA or other similar laws, we may face sanctions including significant fines and criminal penalties, disgorgement of 
profits and suspension or debarment of our ability to contract with government agencies or public international organizations, 
or to receive export licenses, as well as reputational harm.

(ii) Causing us to expend material time and money in bringing new products to market and in making them eligible for
government reimbursement.

In addition, in many countries the government health or other regulatory organizations require our products to be qualified 
before they can be marketed with the benefit of reimbursement eligibility. In emerging markets, new regulations and product 
registration requirements continue to evolve. Failure to receive or delays in the receipt of, relevant national or state qualifications 
could have a material adverse effect on our business, results of operations and financial condition.

We are required to expend significant time, effort and expense in bringing new products to market and to adhering to 
requirements. Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing 
responsibilities under government authorities’ regulations.  Among other things, we are required to implement and maintain 
stringent reporting, labeling and record keeping procedures and must make available our manufacturing facilities and records 
for periodic inspections by governmental agencies, to assess compliance with current good manufacturing practice (“CGMP”) 
requirements in the applicable jurisdiction. For example, in the U.S., we and our third party manufacturers and suppliers are 
required to comply with the FDA’s Quality System Regulation, which covers the methods and documentation of the design, 
testing,  production,  control,  quality  assurance,  labeling,  packaging,  sterilization,  storage  and  shipping  of  our  products. 
phase both in terms of surveillance and vigilance 
Regulatory agencies are increasingly applying requirements to the 
This trend is likely to continue and could 
as well as in terms of reporting requirements and post market clinical 
result in the need for more frequent 
clinical studies or registry studies, increasing the costs involved in maintaining 
product  registrations  and  keeping  our  products  on  the  market.   The  failure  to  comply  with  applicable  regulations  could 
jeopardize our ability to sell our products and result in enforcement actions such as untitled letter or warning letters, fines, 
injunctions, civil penalties, termination of distribution, recalls or seizures of products, delays in the introduction of products 
into the market, total or partial suspension of production, refusal to grant future clearances or approvals, withdrawals or 
suspensions of current clearances or approvals, and criminal penalties.  Any of these sanctions could result in higher than 
anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of 
operations and financial condition.

(iii) Subjecting our business to increasingly complex and changing laws and third-party audits.

The medical device industry also is subject to an immense number of complex laws governing healthcare reimbursement and 
healthcare  fraud  and  abuse  laws,  with  these  laws  and  regulations  being  subject  to  interpretation.  Recent  legislative  and 
regulatory changes have been or are in the process of being implemented. In addition, in many instances, the industry does 
not have the benefit of significant regulatory or judicial interpretation of these laws and regulations.

For instance, 180 Medical, a fully consolidated subsidiary of the Company, is required to have a Medicare supplier number 
in order to bill Medicare for services provided to Medicare patients.  In order to maintain billing privileges in the Medicare 
program, durable medical equipment (“DME”) suppliers, including 180 Medical, must satisfy certain supplier standards, one 
of which is to comply with applicable state licensure and regulatory laws.  Such laws vary from state to state and are subject 
to change, and 180 Medical must ensure that it maintains each of its state licenses and is continually in compliance with the 
laws of the states in which 180 Medical operates. In the event that 180 Medical fails to comply with any such state’s laws 
regulating DME suppliers, 180 Medical will be unable to operate as a DME supplier in such state until it regains compliance. 
In addition, 180 Medical may lose its Medicare supplier number, which could jeopardize its Medicare as well as certain 
Medicaid contracts and, as a result, 180 Medical would experience a decrease in its revenues.  Commercial insurers may also 
cancel their agreement with 180 Medical by giving notice per their agreements, resulting in a further loss of revenue to 180 
Medical. 180 Medical may also be subject to certain fines and/or penalties, including criminal penalties.

As a Medicare supplier, 180 Medical is also subject to periodic audits by the Medicare and Medicaid programs, and the 
oversight agencies for these programs have authority to assert remedies against it if they determine that 180 Medical has 
overcharged the programs or failed to comply with program requirements. These agencies could seek to require 180 Medical 
to repay any overcharges or amounts billed in violation of program requirements, or could make deductions from future 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

amounts otherwise due to 180 Medical from these programs. Further, the recently enacted Patient Protection and Affordable 
Care  Act,  as  amended  by  the  Health  Care  and  Education  Reconciliation  Act  (collectively,  the  “ACA”)  requires  that 
overpayments be reported and returned within 60 days of identification of the overpayment. Any overpayment retained after 
this deadline will be considered an “obligation” for purposes of the False Claims Act and subject to fines and penalties.

(iv) Exposing us to regulatory inspections and potential penalties and fines.

Various national and state agencies have become increasingly vigilant in recent years in their investigation of various business 
practices. If we fail to achieve acceptable results in an inspection or to comply with applicable regulatory requirements, we 
could be subject to enforcement action or could otherwise be required to take corrective action and, in severe cases, we could 
suffer a disruption of our operations and manufacturing delays or shutdowns. We cannot assure you that the FDA, the NCAs 
or other governmental authorities would agree with our interpretation of applicable regulatory requirements or that we have 
in all instances fully complied with all applicable requirements. Any failure to comply with applicable requirements could 
adversely affect our product sales and profitability. For example, in 2013 and 2014, the FDA issued us warning letters following 
routine inspections of our now closed Skillman, New Jersey and Michalovce, Slovakia facilities, respectively. While both of 
these warning letters have been formally resolved, we cannot assure you that the FDA or other governmental authorities will 
not take similar action with respect to the matters identified in these warning letters, or that we will not receive any future 
warnings letters or be subject to any other enforcement action in the future. Governmental and regulatory actions against us 
can result in various actions that could adversely impact our operations, including:

•

•

•

•

•

•

•

•

•

•

the recall or seizure of products;

the issuance of warning letters or untitled letters;

operating restrictions or the suspension or revocation of the authority necessary for the production or sale of a product;

the suspension of shipments from particular manufacturing facilities;

the delay in approvals of products by governmental authorities outside of the U.S.;

the imposition of fines and penalties;

the delay of our ability to introduce new products into the market;

the exclusion of our products from being reimbursed by national healthcare programs;

the issuance of an alert blocking the export of our products from or the import of our products into a particular
jurisdiction; and

other civil or criminal sanctions against us.

Any actions, in combination or alone, or even a public announcement that we are being investigated for possible violations 
of these laws, could have a material adverse effect on our business, results of operations and financial condition.

As  government  authorities  and  courts  interpreting  the  relevant  laws  and  regulations  throughout  the  world  have  become 
increasingly stringent, we may be subject to more rigorous regulation in the future. If we fail to adequately address any of 
these regulations, our business may be harmed.

We  are  subject,  directly  or  indirectly,  to  healthcare  fraud  and  abuse  regulation,  false  claims  and  physician  payment 
transparency laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.

We are subject to healthcare fraud and abuse regulation and enforcement in the jurisdictions in which we conduct our business. 
These healthcare laws and regulations include, for example:

•

the U.S.
Statute, which prohibits, among other things, persons or entities from soliciting, receiving, 
offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual 
for, or the purchase order or recommendation of, any item or services for which payment may be made under a U.S. 
federal healthcare program such as the Medicare and Medicaid programs.  A person or entity does not need to have 
actual knowledge of the statute or specific intent to violate it to have committed a violation.  In addition, the government 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute 
constitutes a false or fraudulent claim for purposes of the False Claims Act;

•

•

•

•

•

•

the Stark Law, which prohibits a physician from referring Medicare or Medicaid patients to an entity providing
“designated health services,” including a company that furnishes DME, in which the physician has an ownership or
investment interest or with which the physician has entered into a compensation arrangement;

federal false claims laws which, prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare, Medicaid, or other 
payers that are false or
fraudulent;

the federal Civil Monetary Penalties law, which prohibits, among other things, offering or transferring remuneration
to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision
to order or receive items or services reimbursable by the government from a particular provider or supplier;

HIPAA,  which  established  new  federal  crimes  for  knowingly  and  willfully  executing  a  scheme  to  defraud  any
healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare
benefits, items or services.  Similar to the Anti-Kickback Statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it to have committed a violation;

the federal Physician Payment Sunshine Act (the "Sunshine Act"), which requires certain manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's
Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services (“CMS”) certain
"transfers of value" to U.S. physicians or teaching hospitals. The Sunshine Act also requires manufacturers and group
purchasing organizations to report ownership and investment interests held by physicians and their immediate family
members. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year; and

and false claims laws, which may
state law equivalents of each of the above federal laws, such as 
payer, including commercial insurers; state laws that require
apply to items or services reimbursed by any 
device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance
guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare
providers and other potential referral sources; and state laws that require device manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.

The risk of our being found in violation of these or similar laws is increased by the fact that many of them have not been fully 
interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations.  Because 
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is 
possible that some of our business activities, including our relationships with physicians and other healthcare providers, some 
of whom recommend, purchase and/or prescribe our products, could be subject to challenge under one or more of such laws. 
The shifting compliance environment and the need to implement systems to comply with multiple jurisdictions with different 
compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or more of the 
requirements.  If our operations are found to be in violation of any of the laws described above or any other governmental 
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion 
from the Medicare and Medicaid programs, and the curtailment or restructuring of our operations, any of which could adversely 
affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if 
we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention 
from the operation of our business.

Our activities are subject to national and state privacy and security laws and regulations, which could have an impact on 
our operations.

In the EU, we are subject to laws relating to our collection, control, processing and other use of personal data (for example, 
employee and patient data) which impact our operations. The data privacy regime in the EU is harmonized by Directive 95/46/
EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data and 
by the EU Privacy and Electronic Communications Directive 2002/58/EC (as amended by Directive 2009/136/EC) (together, 
the “Directives”). Although this legislation has been implemented at a European level, it is for each EU member state to enact 

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legislation to incorporate the Directives into their national data privacy regime. The laws applicable in each member state 
therefore differ from jurisdiction to jurisdiction. We must therefore ensure compliance with the rules in each jurisdiction in 
which we use personal data. In particular, to the extent that we process, control or otherwise use sensitive data relating to 
living individuals (which includes the health or medical information relating to an individual who order our products directly), 
more stringent rules will apply and will limit the circumstances and the manner in which we are legally permitted to process 
and transfer that data outside of the EU. Local laws are amended from time to time and guidance is issued reasonably frequently 
by regulators and the Article 29 Working Party (a body formed of the European regulators). Any changes in law and new 
guidance may impact, and require changes to, our current operations. In addition, the EU Commission is undertaking a review 
of the entire European regime over the next two years. The outcome of this could further impact our operations. While we 
have taken steps to ensure compliance with the current regime in all material respects, given its nature and our geographical 
diversity, there could be areas where we are 
Should we not be in compliance with this legislation or any 
changes thereto, we may be subject to sanctions which could include giving undertakings to regulatory authorities to change 
our operations, adverse publicity, substantial financial penalties and/or criminal proceedings.

In the U.S., we may be subject to the Health Insurance Portability and Accountability Act ("HIPAA"), as amended by HITECH, 
and  their  respective  implementing  regulations,  including  the  final  omnibus  rule  published  on  January 25,  2013.  HIPAA 
established uniform standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses) 
governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health 
information, and requires the adoption of administrative, physical and technical safeguards to protect such information. Among 
other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates” - independent 
contractors or agents of covered entities that receive or obtain protected health information in connection with providing a 
service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against 
covered entities, business associates and possibly other persons and gave state attorneys general new authority to file civil 
actions for  damages or  injunctions in  federal courts to  enforce the  federal HIPAA  laws  and seek  attorney fees  and costs 
associated with pursuing federal civil actions. Failure to comply with these laws, where applicable, can result in the imposition 
of significant civil and criminal penalties and could adversely affect our profitability.

In addition to U.S. federal regulations issued under HIPAA and HITECH, some U.S. states have enacted privacy and security 
statutes or regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary 
to modify our planned operations and procedures to comply with the more stringent state laws. If we fail to comply with 
applicable laws and regulations, we could be subject to additional sanctions.

We are subject to medical device reporting regulations for certain adverse events or malfunctions associated with our 
products, which could result in corrective actions or agency enforcement actions.

Under the FDA Medical Device Reporting (“MDR”) regulations, we are required to report to the FDA any incident in which 
our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the 
malfunction were to recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing 
medical devices in European markets are legally bound to report any serious or potentially serious incidents involving devices 
they produce or sell to the relevant authority in whose jurisdiction the incident occurred. We anticipate that in the future it is 
likely that we could experience events that would require reporting to the applicable governmental organizations pursuant to 
these regulations. Any adverse event involving our products could result in future voluntary corrective actions, such as product 
actions or customer notifications, or agency actions, such as inspection, mandatory recall or other enforcement action. Any 
corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of 
our time and capital, distract management from operating our business, and may harm our reputation and financial results.

In addition, we may experience an increase in the number of incidents that could lead to incident reports which we might need 
to file. The decision to file a report involves a judgment by us as the manufacturer. We have made decisions that certain types 
of events are not reportable under the MDR or others regulations; however, there can be no assurance that the FDA will agree 
with our decisions. If we fail to report within the required timeframes, or at all, or if the FDA or applicable EU regulatory 
entity  disagrees  with  any  of  our  determinations  regarding  the  reportability  of  certain  events,  the  government  could  take 
enforcement actions against us, which could have an adverse impact on our reputation and financial results.

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Our products may in the future be subject to product actions that could harm our reputation, business operation and 
financial results.

Manufacturers may, on their own initiative, initiate actions, including a non-reportable market withdrawal or a reportable 
product recall, for the purpose of correcting a material deficiency, improving device performance, or other reasons. 

We have initiated recalls and other post-market actions in the past, and may in the future initiate additional recalls or post-
market actions.  For example, in April 2014, we voluntarily recalled our Flexi-Seal CONTROL Fecal Management System 
product, which later became classified as a Class I recall by the FDA. This recall has been formally closed out by the FDA. 
In October 2014, we became aware of an issue with our NicoFix securement device and have undertaken a voluntary recall 
of the lots affected. In May 2015 and June 2015, we initiated voluntary recalls of certain batches of our Steel cannula infusion 
set devices and our Suction Catheter devices, respectively, after receiving complaints regarding breakage of the products.  
Most recently, in January 2016, we initiated a voluntary recall of a range of nebulizer products due to an increase in complaints 
related to the products’ failure to generate an atomized spray as intended.  

Additionally, health or governmental authorities have the authority to require an involuntary recall of commercialized products 
in the event of material deficiencies or defects in design, manufacturing or labeling or in the event that a product poses an 
unacceptable risk to health. In the case of the FDA, the authority to require a recall must be based on an FDA finding that 
there is a reasonable probability that a device intended for human use would cause serious, adverse health consequences or 
death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material 
deficiencies or defects in design or manufacture. Product actions involving any of our products would divert managerial and 
financial resources and have an adverse effect on our financial condition and results of operations.

Companies are required to maintain certain records of actions, even if they determine such actions are not reportable to the 
FDA. If we determine that certain actions do not require notification of the FDA, the FDA may disagree with our determinations 
and require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and 
negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were 
conducted or failing to timely report or initiate a reportable product action.

Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may 
decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected 
device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, 
if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, 
including, for example, warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines.

If  a  regulatory  agency  determines  that  we  have  promoted  an  off label  use  of  our  products  in  violation  of  applicable 
regulations, we may be subject to various penalties, including civil or criminal penalties, and the off label use of our 
products may result in injuries that lead to product liability suits, which could be costly to our business.

In the U.S., the Department of Health and Human Services ("HHS"), the Office of Inspector General (“OIG”), the FDA, the 
DOJ and other regulatory agencies actively enforce regulations prohibiting the promotion of a product for a use that has not 
been cleared or approved by the FDA. Use of a product outside its cleared or approved indications is known as “of
use. Physicians may use our products for of
uses, as the FDA does not restrict or regulate a physician’s choice of 
treatment within the practice of medicine. However, if the OIG, the FDA or another U.S. or international regulatory agency 
determines that our promotional materials, training or activities constitute improper promotion of an of
use, it could 
request that we modify our promotional materials, training or activities, or subject us to regulatory enforcement actions, 
including, among other things, the issuance of an untitled letter or warning letter, injunction, seizure, civil fine and criminal 
penalties. Although our policy is to refrain from statements and activities that could be considered of
promotion of our 
products, the FDA, the DOJ or another regulatory agency could disagree and conclude that we have engaged in of
use of our products 
promotion and, potentially, aided and abetted in the submission of false claims. In addition, the of
may increase the risk of injury to patients, and, in turn, the risk of product liability claims. Product liability claims are expensive 
to defend and could divert our management’s attention and result in substantial damage awards against us.

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We may fail to receive positive clinical results for our products in development that require clinical trials, and even if we 
receive positive clinical results, we may still fail to receive the necessary clearance or approvals to market our products.

In the development of new products or new indications for, or modifications to, existing products, we may be required to 
conduct or sponsor clinical trials. Clinical trials are expensive and require significant investment of time and resources and 
may not generate the data we need to support a submission to applicable regulatory bodies. Delay in or failure to receive 
necessary clearance or approvals to market our products may have an adverse effect on our financial condition and results of 
operations. Failure to comply with relevant regulations and directives in the country where a clinical trial is being conducted, 
including, but not limited to, failure to obtain adequate informed consent of subjects, failure to adequately disclose financial 
conflicts or failure to report data or adverse events accurately, could result in, among other things, fines, penalties, suspension 
of trials and the inability to use the data to support the marketing authorization process and subsequent reimbursement filings.

If we are unable to continue to develop and market new products and technologies in a timely manner, the demand for 
our products may decrease or our products could become obsolete, and our revenue and profitability may decline.

The markets for many of our products are highly competitive and dominated by a small number of large companies. We are 
continually engaged in product development, research and improvement efforts to sustain our history of innovation. New 
products and line extensions of existing products represent a significant component of our growth rate. Our ability to continue 
to grow sales effectively depends on our capacity to keep up with existing or new products and technologies in the wound 
care, ostomy, continence, and infusion devices products markets. The process of obtaining regulatory clearances and approvals 
to market a new medical device, or a significant modification to an existing device, can be costly and time consuming and 
approvals and clearances might not be granted for future products on a timely basis, if at all. The FDA can delay, limit or deny 
clearance or approval of a device for many reasons, including:

•

•

•

we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended
users;

the data from our
required; and

studies and clinical trials may be insufficient to support clearance or approval, where 

the manufacturing process or facilities we use may not meet applicable requirements.

Further, any modification we make to a 510(k) cleared device that could significantly affect its safety or effectiveness, or that 
would constitute a major change in its intended use, technology, materials, packaging and certain manufacturing processes, 
may require us to submit a new 510(k) or, possibly, a PMA. The FDA requires every manufacturer to make the determination 
regarding the need for a new 510(k) or PMA in the first instance, but the FDA may review the manufacturer’s decision and, 
if it disagrees, require the manufacturer to submit a new 510(k) or PMA for the modified device. FDA also has the authority 
to require a manufacturer to cease marketing and recall the modified device until the new 510(k) or PMA is obtained. We 
have made modifications to our devices in the past and may make additional modifications in the future that we believe do 
not or will not require additional clearances or approvals. Our currently commercialized devices are either 510(k) exempt or 
have received 
clearance under Section 510(k) of the FDCA. However, no assurance can be given that the FDA 
would agree with any of our future decisions not to seek 510(k) clearance or a PMA. If the FDA disagrees with our determination 
and requires us to submit new 510(k) notifications or PMAs for modifications to our previously cleared products for which 
we have concluded that new clearances or approvals are unnecessary, or any future decisions not to seek a new 510(k) for 
changes or modifications to existing devices and requires new approvals or clearances, we may be required to cease marketing 
or to recall the modified product until we obtain clearance or approval, which could require us to redesign our products or 
conduct clinical trials to support any modifications, and we may be subject to significant regulatory fines or penalties.  In 
addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful 
commercialization or could require clinical trials to support any modifications.  Any delay or failure in obtaining required 
clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which 
in turn would harm our future growth.  Any of these actions would harm our operating results.  Moreover, clearances and 
approvals are subject to continual review, and the later discovery of previously unknown problems can result in product 
labeling restrictions or withdrawal of the product from the market.  The loss of previously received approvals or clearances 
or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth 
prospects.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Changes in FDA clearance or approval policies or the adoption of new regulations may also impact our ability to obtain timely 
clearances and approvals for our products. For example, in response to industry and healthcare provider concerns regarding 
the  predictability,  consistency  and  rigor  of  the  510(k)  regulatory  pathway,  the  FDA  initiated  an  evaluation  of  the  510(k) 
program, and in January 2011, announced several proposed actions intended to reform the review process governing the 
clearance of medical devices, which could make the 510(k) process more costly and burdensome. More recently, on July 9, 
2012, FDASIA was signed into law, which, among other requirements, obligated the FDA to prepare a report for Congress 
on the FDA’s approach for determining when a new 510(k) will be required for modifications or changes to a previously 
cleared device. The FDA submitted this report to Congress and concluded that, although FDA’s 1997 Guidance on this topic 
includes certain areas that should be updated or revised, the 1997 Guidance is a solid foundation and should remain mostly 
unchanged.  The FDA intends to issue revised guidance for making a determination as to whether or not a new 510(k) is 
required for a change or modification to a device.  Until then, manufacturers may continue to adhere to the FDA’s 1997 
guidance on this topic when making a determination as to whether or not a new 510(k) is required for a change or modification 
to a device, but the practical impact of the FDA’s continuing scrutiny of these issues remains unclear.

medical devices (Class I 

In the EEA, our devices are required to comply with the essential requirements of the EU Medical Devices Directive before 
they can be commercialized. Compliance with these requirements entitles us to affix the CE conformity mark to our medical 
devices. In order to demonstrate compliance with the essential requirements and obtain the right to affix the CE conformity 
mark, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its 
devices), where the manufacturer 
classification. Except for some 
can issue an EC Declaration of Conformity based on a 
of the conformity of its products with the essential 
requirements  of  the  EU  Medical  Devices  Directive,  a  conformity  assessment  procedure  requires  the  intervention  of  an 
organization accredited by a Member State of the EEA to conduct conformity assessments (a “Notified Body”). In September 
2012, the European Commission published proposals for the revision of the E.U. regulatory framework for medical devices. 
The proposal would replace the Medical Devices Directive and the Active Implantable Medical Devices Directive with a new 
regulation (the “Medical Devices Regulation”). Unlike the Directives that must be implemented into national laws, the Medical 
Devices Regulation would be directly applicable in all EEA Member States and so is intended to eliminate current national 
differences in regulation of medical devices.  In October 2013, the European Parliament approved a package of reforms to 
the European Commission's proposals. Under the revised proposals, only designated "special notified bodies" would be entitled 
to  conduct  conformity  assessments  of  high-risk  devices.  These  special  notified  bodies  will  need  to  notify  the  European 
Commission  when  they  receive  an  application  for  a  conformity  assessment  for  a  new  high-risk  device.  The  European 
Commission  will  then  forward  the  notification  and  the  accompanying  documents  on  the  device  to  the  Medical  Devices 
Coordination Group (“MDCG”), (a new, yet to be created, body chaired by the European Commission, and representatives 
of Member States) for an opinion. These new procedures may result in increased regulatory oversight of certain devices (most 
likely higher risk devices, which could include some ConvaTec products) and this may, in turn, increase the costs, time and 
requirements that need to meet in order to maintain or place such devices on the EEA market.

If finally adopted, the Medical Devices Regulation is expected to enter into force in 2016 and become applicable three years 
thereafter. The adoption of the Medical Devices Regulation may, however, be materially delayed. In its current form it would, 
among other things, also impose additional reporting requirements on manufacturers of high risk medical devices, impose an 
obligation on manufacturers to appoint a "qualified person" responsible for regulatory compliance, and provide for more strict 
clinical evidence requirements. Delays in receipt of, or failure to obtain, approvals and clearances for future products, or 
failure to comply with the regulations applicable to our current products, could result in delayed realization of product revenues 
or in substantial additional costs which could have a material adverse effect on our business or results of operations.  Clearance 
or approval by the FDA does not ensure marketing authorization by regulatory authorities in other countries or jurisdictions, 
and  marketing  authorization  by  one  foreign  regulatory  authority  does  not  ensure  marketing  authorization  by  regulatory 
authorities in other foreign countries or by the FDA. In addition, if our competitors’ new products and technologies reach the 
market before our products, they may gain a competitive advantage or render our products obsolete. See “Our Franchises - 
Competition” under each of our franchises in the “Our Business” section of this Annual Report for more information about 
our competitors. The ultimate success of our product development efforts will depend on many factors, including, but not 
limited to, our ability to create innovative designs and materials, provide innovative medical solutions and techniques for our 
customers, accurately anticipate and meet customers’ needs, commercialize new products in a timely manner and manufacture 
and deliver products in sufficient volumes on time.

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Moreover, research and development efforts may require a substantial investment of time and resources before we are able 
to determine the commercial viability of a new product, technology, material or other innovation. Even in the event that we 
are able to successfully develop innovations, they may not produce revenue in excess of the costs of development and may 
be quickly rendered obsolete as a result of changing customer preferences or the introduction by our competitors of products 
embodying new technologies or features.

Sales may decline if our customers do not receive adequate levels of coverage and reimbursement from third party payers 
for our products and if certain types of healthcare programs are adopted in our key markets.

In many countries, patients or healthcare providers that purchase our products (e.g., hospitals, physicians and other healthcare 
payers (principally national, state and private health insurance plans) to cover 
providers) rely on payments from 
all or a portion of the cost of our products. In institutional care settings, such as acute care hospitals, third party payments to 
providers are often made under a prospective payment system in the form of a pre-determined, “lump sum” amount based on 
a patient’s diagnosis and/or procedures. With few exceptions, there is no separate reimbursement for medical supplies such 
as ostomy supplies and wound dressings in hospital or other institutional settings. Reductions in lump sum payment amounts 
by payers has an indirect impact on our sales as hospital operating margins are compressed and hospitals, in turn, put pressure 
on manufacturer selling prices. Outside of the hospital, separate reimbursement of medical supplies exists in most developed 
countries. Reductions in reimbursement amounts for medical supplies in this setting can have a direct impact on our sales 
depending on the product categories impacted and the degree of the impact on reimbursement amounts and patient 

We believe that nurses, surgeons, hospitals and other healthcare providers may not use, purchase or prescribe our products 
payers do not provide adequate coverage of and reimbursement 
and patients may not purchase our products if these 
for the costs of our products or the procedures involving the use of our products. In the event that 
payers deny 
coverage or reduce their current levels of reimbursement, we may be unable to sell certain products on a profitable basis, 
thereby materially adversely impacting our results of operations. Further, 
payers are continuing to carefully review 
their coverage policies with respect to existing and new therapies and can, without notice, deny coverage for treatments that 
may include the use of our products.

Due to cost containment pressures in many countries, legislation has been passed, and we expect will continue to be introduced 
and passed, to limit governmental healthcare coverage and reimbursement expenditures. For example, in the U.S., the Medicare 
Prescription Drug, Improvement and Modernization Act of 2003 established a competitive bidding program for items of 
durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”), a category of products under which our products 
dispensed to patients for home use are classified. This competitive program - also referred to as “the Medicare DMEPOS 
Competitive Bidding Program” - is implemented by the Secretary of the HHS. The program replaces the existing DMEPOS 
fee schedule payment amounts with amounts derived from bids. Round 1 of the program went into effect January 1, 2011 in 
nine areas of the U.S. and reduced fees by an average of 32% compared to the 
Medicare fee schedule. Round 2 
of the program went into effect July 1, 2013 and resulted in payment amounts that are on average 45% less than Medicare’s 
fee schedule rates for eight product categories in 100 geographic markets in the U.S. Round 1 Recompete rates went into 
effect on January 1, 2014 and resulted in payment amounts; reimbursement rates from the re-bidding process were publicly 
released by CMS on October 1, 2013. CMS announced average savings of approximately 37% off the current standard Medicare 
payment rates in effect from the product categories included in competitive bidding. The Round 1 Recompete contract period 
for all product categories expires on December 31, 2016, and Round 1 2017 contracts are scheduled to become effective on 
January 1, 2017 in the same nine metropolitan statistical areas as the Round 1 Recompete. CMS is conducting the Round 2 
Recompete in the same geographic areas that were included in Round 2.  Round 2 Recompete contracts are scheduled to 
become effective on July 1, 2016 and will expire on December 31, 2018. 

In  addition,  the ACA  required  CMS  to  expand  competitive  bidding  further  to  additional  geographic  markets  or  to  use 
competitive bid pricing information to adjust the payment amounts otherwise in effect for areas that are not competitive bidding 
areas  by  January 1,  2016.  On  November  6,  2014,  CMS  published  a  final  rule  defining  methodologies  to  implement  this 
requirement and adjust the fee schedule amounts for DME in areas where competitive bidding programs are not implemented. 
CMS began phasing in these adjustments on January 1, 2016, before they will take full effect on July 1, 2016. Although no 
ConvaTec device categories were included in Round 1 or Round 2 of the Competitive Bidding Program, we cannot provide 
any assurances that our current or future products will not be subject to competitive bidding in the future, which could have 
a material adverse effect on our business, results of operations and financial condition.

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In the majority of the 
markets in which our products are sold, government healthcare systems mandate the coverage 
and reimbursement rates and clinical evidence requirements for medical devices and procedures. If adequate levels of coverage 
and reimbursement from 
payers are not obtained, sales of our products may decline. In addition, some insurance 
plans  in  the  U.S.  have  adopted,  or  are  considering  the  adoption  of,  a  system  in  which  the  providers  contract  to  provide 
comprehensive healthcare for a fixed cost per person. In the event that the U.S. considers the adoption of a national healthcare 
system in which prices are controlled and patient care is managed by the government, such regulation could have a material 
adverse effect on our business, results of operations and financial condition. See “Risk Factors- Risks Related to Our Regulatory 
Environment - National and state healthcare reform and cost control efforts include provisions that could adversely impact 
our business, results of operations and financial condition.”

Private insurers in a managed care system may attempt to control costs by authorizing fewer elective surgical procedures or 
by requiring the use of the least expensive products available. Many markets, including Canada, and some European and Asian 
countries, have in the past reduced reimbursement rates. Our ability to continue to sell certain products profitably in these 
markets may diminish if the government managed healthcare systems continue to reduce reimbursement rates for our products. 
In response to these and other pricing pressures, our competitors may lower the prices for their products. We may not be able 
to match the prices offered by our competitors, thereby adversely impacting our results of operations and future prospects.

Healthcare reform and cost control efforts include provisions that could adversely impact our business, results of operations 
and financial condition.

From time to time the passage of new healthcare laws and other governmental healthcare reform measures have significantly 
affected the manner in which healthcare services and products are dispensed and reimbursed. Major reform was passed in 
March 2010, when the President of the United States signed into law the ACA. Several provisions of the ACA specifically 
impact the medical device industry. In addition to changes in Medicare reimbursement for DME, prosthetics and supplies and 
an expansion of competitive bidding programs, the ACA imposed an annual federal excise tax on certain medical device 
manufacturers and importers. Specifically, for sales on or after January 1, 2013, manufacturers, producers, and importers of 
taxable  medical  devices  paid  as  an  excise  tax  2.3%  of  the  price  for  which  the  devices  are  sold.  Under  the  Consolidated 
Appropriations Act, 2016, this tax is suspended from January 1, 2016, to December 31, 2017, and, absent further legislative 
action, will be reinstated starting January 1, 2018. The total cost incurred by us for the medical device excise tax during 2015 
and 2014 was $1.7 million and $1.6 million, respectively. 

The ACA  also  establishes  new  Medicare  and  Medicaid  program  integrity  provisions,  including  expanded  documentation 
requirements for Medicare DME prescriptions written by physicians and more stringent procedures for screening competitive 
bidding program suppliers responsible for dispensing DME products to patients, along with broader expansion of federal fraud 
and abuse authorities. Although the eventual impact of the health care reform provisions of the ACA and recent regulatory 
changes are still uncertain, it is possible that the new laws, regulations and their guidelines will have a material adverse impact 
on our business, results of operations and financial condition.

Other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. On August 2, 2011, the 
Budget  Control Act  of  2011,  among  other  things,  created  measures  for  spending  reductions  by  Congress. A  Joint  Select 
Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 
2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several 
government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which 
went into effect on April 1, 2013 and, due to subsequent legislative amendments, will stay in effect through 2025 unless 
additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief 
Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging 
centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments 
to providers from three to five years. We expect that additional federal healthcare reform measures will be adopted in the 
future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, 
and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

Similarly, many U.S. states have adopted or are considering changes in state healthcare payer and regulatory policies as a 
result of state budgetary shortfalls. While 
expansions of the Medicaid program will have some positive impact 
on the volume of claims submitted and paid, it will also pressure state budgets further over the next few years. Medicaid 
changes implemented recently by several states have included expanded enrollment of beneficiaries into “managed care” 

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programs and reductions in provider and supplier reimbursement of “optional benefits,” including in some cases reduced 
reimbursement for our products and/or other Medicaid coverage restrictions. Optional benefits, which may include coverage 
of ostomy supplies and wound dressings, are those which states are not required to provide in order to qualify for matching 
federal funds. As states continue to face significant financial pressures, it is possible that state health policy changes will 
adversely affect our profitability.

Risks Related to Our Business

We operate in a highly competitive business environment, and our inability to compete effectively could adversely affect 
our business prospects, results of operations and financial condition.

We operate in highly competitive and fragmented markets. Our Wound Therapeutics franchise and the Hospital Care 
of our CCC franchise compete with both large and small companies, including several large, diversified companies with 
significant market share and numerous smaller niche companies, particularly in the wound care products market. Our Ostomy 
Care and Infusion Devices franchises and the AFI 
of our CCC franchise generally compete with a small number 
of competitors in the market. We may not be able to offer products similar to, or more desirable than, those of our competitors 
or at a price comparable to that of our competitors. Existing or new competitors could introduce innovative new technologies 
that may be preferred by our customers, which could have a direct impact on our businesses, either through market share 
losses or price reductions. Our competition could also decide to more aggressively compete on price, causing us and others 
in the industry to counter by reducing prices accordingly in an effort to maintain market share. This would impact profitability 
and potentially the attractiveness of the product and/or market segment.

In addition to our direct competitors who make products similar to ours, many of our advanced products compete with traditional 
products for the same applications. For example, because our advanced wound care products compete with conventional 
wound care products such as gauze, we also compete with manufacturers of such products. If we are not successful in driving 
the shift from conventional to advanced products, we may face greater competition from manufacturers who do not directly 
compete with us but make alternatives to our products.

We are also facing increased competition from our channel partners, especially in markets such as the U.S., Germany and the 
U.K. In some cases, channel partners have launched their own private label brands of our products to directly compete with 
us. If this practice increases, or if we are otherwise not able to compete effectively with our direct and indirect competitors 
as described above, our business, results of operations and financial condition may be adversely affected.

The  success  of  many  of  our  products  depends  heavily  on  acceptance  by  healthcare  professionals  who  prescribe  and 
recommend our products and by end users of our products, and our failure to maintain a high level of confidence in our 
products could adversely affect our business.

We maintain customer relationships with numerous specialized nurses, surgeons, primary care physicians, home healthcare 
providers,  other  specialist  physicians  and  other  healthcare  professionals.  We  believe  that  sales  of  our  products  depend 
significantly on their confidence in, and recommendations of, our products. In addition, our success depends on end users’ 
acceptance and confidence in the effectiveness, comfort and 
of our products, including our new products. In order 
to achieve acceptance by end users and healthcare professionals alike, we seek to educate patients and the healthcare community 
fectiveness of our products compared to 
as to the distinctive characteristics, perceived benefits, clinical efficacy and 
alternative products, including the products offered by our competitors. Acceptance of our products also requires effective 
training of patients and healthcare professionals in the proper use and application of our products. Failure to effectively educate 
and failure to continue to develop relationships with leading healthcare professionals 
and train our customers and 
and new patients could result in a less frequent recommendation of our products, which may adversely affect our sales and 
profitability.

Our  business  may  be  harmed  as  a  result  of  litigation,  particularly  if  the  number  of  product  liability  claims  increases 
significantly and/or our insurance proves inadequate.

From time to time we may be party to legal proceedings that arise in the ordinary course of business, including in connection 
with contractual disputes, which could have an adverse effect on our business, results of operations and financial condition. 
Additionally, the manufacture and sale of medical devices and related products exposes us to a significant risk of litigation, 
particularly product liability claims. From time to time, we have been, and we currently are, subject to a number of product 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

liability claims alleging that the use of our products resulted in adverse effects. In addition, we are exposed to claims that 
material design or manufacturing failures in our products, quality system failures, or other safety issues warrant the recall of 
some of our products. Even if we are successful in defending against any claims, such claims could nevertheless divert the 
time, energy and efforts of our management, result in substantial costs, harm our reputation, adversely affect the sales of all 
our products and otherwise harm our business. If there is a significant increase in the number of product liability claims, our 
business could be adversely affected.

We maintain product liability insurance that is subject to annual renewal and includes 
elements. Our existing 
product liability insurance coverage may be inadequate to satisfy liabilities we might incur. If a product liability claim or 
series of claims is brought against us for uninsured liabilities or is in excess of our insurance coverage limits, our business 
could suffer and our results of operations and financial condition could be materially adversely impacted.

Our international operations, particularly those in emerging markets, expose us to risks related to conducting business 
outside developed markets and may cause our profitability to decline due to increased costs.

The international scope of our operations exposes us to economic, regulatory and other risks, particularly outside developed 
markets. We intend to continue to pursue growth opportunities in emerging markets, which could expose us to additional risks 
associated with such sales and operations. Our operations outside the U.S., Europe and other developed markets are, and will 
continue to be, subject to a number of risks and potential costs, including:

•

•

•

•

•

•

•

•

•

•

diminished protection of intellectual property;

greater payables risk due to difficulty in collecting accounts receivable and longer collection periods;

trade protection measures and import or export licensing and/or product registration requirements;

difficulty in staffing, training and managing local operations;

differing legal and labor regulations;

labor disputes;

increased costs of transportation or shipping;

potential adverse tax consequences, including consequences from changes in tax laws and the imposition or increase
of withholding and other taxes on remittances and other payments by international subsidiaries, which, among other
things, may preclude payments or dividends from certain subsidiaries from being used for our debt service, and
exposure to adverse tax regimes;

political and economic instability; and

security risks associated with criminal activity in certain countries.

In addition, as we aim to grow our operations in emerging markets, we may become increasingly dependent on local distributors 
for our compliance and adherence to local laws and regulations that we may not be familiar with, and we cannot assure you 
that these distributors will adhere to such laws and regulations or adhere to our own business practices and policies. Any 
violation of laws and regulations by local distributors or a failure of such distributors to comply with our business practices 
and policies could result in legal or regulatory sanctions against us or potentially damage our reputation in that respective 
market. If we fail to manage these risks effectively, our business, results of operations and financial condition may be materially 
adversely affected.

We are exposed to market risk due to changes in currency exchange rates, which impact profitability measures and cash 
flows.

We manufacture and sell our products in various countries around the world and as a result of the global nature of our operations, 
we are exposed to risks arising from changes in currency exchange rates. Transactions that are to be settled in a currency that 
is not the functional currency of the transacting entity are recorded to the income statement at each remeasurement date or 
settlement date. Additionally, assets and liabilities of subsidiaries whose functional currency is not the U.S. Dollar are translated 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

into U.S. Dollars at the exchange rate at each balance sheet date. Any cumulative translation difference is recorded within 
equity.

Our primary net foreign currency translation exposures are the Euro, British Pound Sterling, and Danish Krone. Significant 
increases in the value of the U.S. Dollar relative to foreign currencies could have a material adverse effect on our results of 
operations. Assets and liabilities are converted based on the exchange rate on the balance sheet date, and income statement 
items are converted based on the average exchange rate during the period.

Where  possible,  we  manage  foreign  currency  risk  by  managing  same  currency  revenues  to  same  currency  expenses  and 
strategically denominating our debt in certain functional currencies in order to match with the projected functional currency 
exposures within our operations. We currently do not utilize foreign currency forward contracts. Refer to the "Quantitative 
and Qualitative Disclosure About Market Risk" section of the Management’s Discussion and Analysis of Financial Condition 
and Results of Operations within this Annual Report for more information.   

If we lose one of our key suppliers or one of our contract manufacturers stops making the raw materials and components 
used in our products, we may be unable to meet customer orders for our products in a timely manner or within our budget.

We rely on a limited number of suppliers for the raw materials and components used in our products. Wherever possible, we 
attempt to source materials from multiple suppliers. However, some key components and raw materials are from a single 
by the FDA. One or more of our suppliers may decide to cease 
source, and in some cases, these suppliers are 
supplying us with raw materials and components for reasons beyond our control. The FDA or other government regulations 
may require additional testing of any raw materials or components from new suppliers prior to our use of those materials or 
components. In addition, in the case of a device which is the subject of a PMA, we may be required to obtain prior permission 
from the FDA or another regulatory body (which may or may not be given), which could delay or prevent our access or use 
of such raw materials or components. If we are unable to obtain materials we need from our suppliers or our agreements with 
our suppliers are terminated, and we cannot obtain these materials from other sources, we may be unable to manufacture our 
products to meet customer orders in a timely manner or within our manufacturing budget. In that event, our business, results 
of operations and financial condition could be adversely affected.

In addition, we rely on third parties to manufacture some of our products as well as some subcomponents of our other products. 
contract  manufacturers  accounted  for  approximately  14.8%  of  our  cost  of  goods  sold  for  the  year  ended 
December 31, 2015. If we encounter a cessation, interruption or delay in the supply of the products purchased from our 
manufacturers, we may be unable to obtain such products through other sources on acceptable terms, within a 
reasonable amount of time or at all. In addition, if our agreements with the manufacturing companies are terminated, we may 
not be able to find suitable replacements within a reasonable amount of time or at all. Any such cessation, interruption or delay 
affecting our global supply chain may impair our ability to meet scheduled deliveries of our products to our customers and 
may cause our customers to cancel orders. In that event, our reputation, business, results of operations and financial condition 
may be adversely affected.

Many  of  our  products  are  sourced  from  only  a  single  internal  manufacturing  facility,  so  an  event  affecting  our 
manufacturing capabilities, such as a natural or man made disaster, could have a material adverse effect on our business.

We have 11 manufacturing operations located in eight countries. Significant portions of our products for certain franchises 
are produced in one or two manufacturing facilities as follows:

• Michalovce (Slovakia): majority of our CCC urinary bags and catheters;

•

•

•

Rhymney/Deeside (U.K.): majority of our Wound Therapeutics Hydrofiber Technology based products;

Haina (Dominican Rep): majority of our Ostomy Care pouches; and

Reynosa ID (Mexico): majority of our Infusion Device products.

For many of our products, we do not have redundancy or excess capacity, either in terms of space or equipment, to manufacture 
products at a different location in our network in the event of failure or unavailability of one of our facilities. In the event that 
any of our facilities is severely damaged or destroyed, including as a result of a natural or 
disaster, we would be 
manufacturers. In some cases, shifting production 
forced to shift production to our other facilities and/or rely on 

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to an alternate site could take three to six months or more, which could result in loss of sales, back orders, penalties, damage 
to our reputation, and loss of our customers to our competitors, among other things. Such an event could have a material 
adverse effect on our business, results of operations and financial condition.

We also have a facility in Schaffhausen, Switzerland which commenced operations in October 2009. Functions served in 
Schaffhausen include EMEA regional management, EMEA logistics and distribution management and global production and 
inventory planning as well as all supporting functions such as human resources, quality, finance, marketing and customer 
service for some of the European markets. The distribution operation manages regional distribution centers located in Germany, 
Poland, France, Italy, Spain, Sweden and Singapore.

We may experience delays or outages in our information technology system and computer networks.

We may be subject to information technology system failures and network disruptions. These may be caused by delays or 
disruptions due to system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications 
failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or similar events or disruptions. Because 
we have grown over the years through various acquisitions and our operations are geographically diverse, we have many 
disparate information technology systems across our organization, certain of which are outdated and due for replacement. As 
a result of these disparate information technology systems, we face the challenge of supporting older systems and implementing 
upgrades when necessary. We may in the future add applications to replace outdated systems and to operate more efficiently. 
Predictions regarding benefits resulting from the implementation of these projects are subject to uncertainties. We may not 
be  able  to  successfully  implement  the  projects  without  experiencing  difficulties.  In  addition,  any  expected  benefits  of 
implementing projects might not be realized, or the costs of implementation might outweigh the benefits realized.

A disruption in our information technology systems because of a catastrophic event or security breach could interrupt or 
damage our operations. In addition, we could be subject to reputational harm or liability if confidential customer information 
is misappropriated from our information technology systems. Despite our security measures and business continuity plans, 
these systems could be vulnerable to disruption, and any such disruption could negatively affect our financial condition and 
results of operations.

If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to 
our competitors and may not be able to operate our business profitably.

We rely on a combination of patents, trade secrets, copyrights, trademarks, license agreements and contractual provisions to 
establish and protect our intellectual property rights in our products and the processes for the development, manufacture and 
marketing of our products.

proprietary 

We use 
, trade secrets, processes and other proprietary information and currently employ 
various methods to protect this proprietary information, including confidentiality agreements, invention assignment agreements 
and proprietary information agreements with vendors, employees, independent sales agents, distributors, consultants, and 
others. However, these agreements may be breached. Governmental agencies or other national or state regulatory bodies may 
require the disclosure of such information in order for us to have the right to market a product. An agency or regulator may 
also disclose such information on its own initiative if it should decide that such information is not confidential business or 
trade secret information. Trade secrets, 
and other unpatented proprietary technology may also otherwise become 
known to or independently developed by our competitors.

patents relating to a number of our components and products and have patent 
In addition, we also hold U.S. and 
applications pending with respect to other components and products. We also apply for additional patents in the ordinary 
course of our business, as we deem appropriate. However, these precautions offer only limited protection, and would not, for 
example, protect against our proprietary information becoming known to, or being independently developed by, competitors. 
A limited number of our patents will also expire during the term of our currently outstanding debt instruments and we cannot 
patents will allow us to maintain a competitive advantage. Additionally, we cannot assure that our 
assure that 
existing or future patents, if any, will afford us adequate protection or any competitive advantage, that any future patent 
applications will result in issued patents or that our patents will not be circumvented, invalidated or declared unenforceable.

Additionally, our proprietary rights in intellectual property may be challenged, which could have a material adverse effect on 
our business, financial condition and results of operations. The wound care, ostomy care, infusion devices and continence 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

care industries are highly litigious with respect to the enforcement of patents and other intellectual property rights. In some 
cases, intellectual property litigation may be used to gain a competitive advantage. We have in the past and may in the future 
become a party to lawsuits involving patents or other intellectual property. If a third party brings a legal action against us, we 
may incur substantial costs in defending ourselves, and we cannot assure that such an action would be resolved in our favor. 
If such a dispute were to be resolved against us, we may be subject to significant damages, and the testing, manufacture or 
sale of one or more of our technologies or products may be enjoined. 

Any proceedings before a national patent and/or trademark governmental authority or in a national or state court could result 
in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued or pending 
patents. We could also incur substantial costs in any such proceedings. In addition, the laws of some of the countries in which 
our products are or may be sold may not protect our products and intellectual property to the same extent as other countries 
such as the U.S. or in Europe, if at all. We may also be unable to protect our rights in trade secrets, trademarks and unpatented 
proprietary technology in certain countries.

In addition, we hold patent, trademark and other intellectual property licenses from third parties for some of our products and 
on technologies that are necessary in the design and manufacture of some of our products. The loss of such licenses could 
prevent  us  from  manufacturing,  marketing  and  selling  these  products,  which  in  turn  could  harm  our  business,  results  of 
operations and financial condition.

Our business involves large customers and if we were to lose one or more of those customers or if one or more were to 
default in its obligations under applicable contractual arrangements, we could be exposed to potentially significant losses.

The medical device industry is concentrated, with relatively few companies accounting for a large percentage of sales in the 
markets that we target. No single customer accounted for more than 10% of our consolidated net sales for the years ended 
December 31, 2015 or 2014. However, we have large customers in each of our franchises. We are likely to experience increased 
customer concentration, particularly if there is further consolidation or 
within the medical device industry. For 
example, insulin pump manufacturers, our primary customers in our Infusion Devices franchise, have attempted to 
production of our infusion sets in the past. So far, these attempts have not been successful. However, future attempts or 
decisions by any of our customers to 
production of our products could have an adverse effect on our business, 
financial condition and results of operations. We also cannot assure that net sales to customers that have accounted for significant 
net sales in the past, either individually or as a group, will reach or exceed historical levels in any future period. The loss or 
a significant reduction of business from any of our major customers would adversely affect our results of operations and 
financial condition.

Loss of our key management and other personnel, or an inability to attract such management and other personnel, could 
impact our business.

We depend on our senior managers and other key personnel to run our business and on technical experts to develop new 
products and technologies. The loss of any of these senior managers or other key personnel could adversely affect our operations. 
Competition for qualified employees is intense, and the loss of qualified employees or an inability to attract, retain and motivate 
additional highly skilled employees required for the management, operation and expansion of our business could hinder our 
ability to expand, conduct research and development activities successfully and develop marketable products.  No assurances 
can be made that we will retain or successfully recruit senior managers, or that their services will remain available to us. 
Changes to our senior management team could result in a material business interruption as a result of losing their services 
and material costs, including as a result of severance or other termination payments. 

We are subject to cost containment efforts of group purchasing organizations, which may have a material adverse effect 
on our business, results of operations and financial condition.

Many  customers  of  our  products  have  joined GPOs  in  an  effort  to  contain  costs. GPOs  conduct  tender  processes  and/or 
negotiate pricing arrangements with medical supply manufacturers and distributors, and these negotiated prices are made 
available to a GPO’s affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated 
hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict compliance 
contract for another manufacturer’s products, we may be precluded from making sales to GPO members for the duration of 
efforts may cause us to lose market share to our 
the contractual arrangement. A failure to respond to GPOs’ 
competitors and could have a material adverse effect on our business, results of operations and financial condition.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

We are impacted by global economic and related credit and financial market problems that may pose additional risks and 
exacerbate existing risks to our business.

The global economy, as well as the credit and financial markets, may have an impact on demand for our products, availability 
and reliability of vendors and third party contract manufacturers, our ability to timely collect our accounts receivable and the 
availability of financing for acquisitions and working capital requirements. We may be impacted, in part, due to customers 
purchasing less frequently (through extending use of each product) and/or purchasing lower cost, less advanced products. The 
general economic situation in Europe, the U.S. and/or in the other regions in which we sell our products could contribute to 
those trends remaining a problem or becoming worse.

The ongoing impact from continued market volatility has impacted and could continue to impact our business in a variety of 
ways, including the following:

•

•

•

•

customers and GPOs could continue to exert downward pressure on the prices of our products;

shortage of available credit for working capital could lead customers who buy goods from us to curtail their purchases
or cause them difficulty in meeting payment obligations;

tightening of credit and disruption in the financial markets could disrupt or delay performance by our third party
vendors and contractors and adversely affect our business; or

problems in the credit and financial markets could limit the availability and size of alternative or additional financing
for our working capital or other corporate needs and could make it more difficult and expensive to obtain waivers
under or make changes to our existing credit arrangements.

If any of these (or other similar) risks were to materialize, our business, results of operations and financial condition may be 
adversely affected, and the risks could become more pronounced if the problems in the global economy and the credit and 
financial markets continue or worsen.

Consolidation in the healthcare industry could have an adverse effect on our revenues and results of operations.

Many healthcare industry companies, including medical device companies, are consolidating to create larger companies. As 
the healthcare industry consolidates, competition to provide products and services to industry participants may become more 
intense. In addition, many of our distribution channels and purchasing entities are consolidating, and industry participants 
may try to use their purchasing power to negotiate price concessions or reductions for the products that we manufacture and 
market. Consolidation may have an impact on price or may enable a competitor to offer a more complete portfolio of products 
to customers. If we are forced to reduce our prices or suffer other competitive disadvantages because of consolidation in the 
healthcare industry, our revenues could decrease, and our business, financial condition and results of operations could be 
adversely affected.

We could incur significant costs complying with environmental and health and safety requirements, or as a result of liability 
for contamination or other potential environmental harm caused by our operations.

Our operations are subject to national, state and local environmental laws, regulations and other requirements, including 
regulations governing the generation, use, manufacture, handling, transport, storage, treatment and disposal of, or exposure 
to, hazardous materials, discharges to air and water, the cleanup of contamination and occupational health and safety matters. 
For example, our research and development and manufacturing processes involve the use of hazardous and other materials 
subject to environmental regulation.

We cannot eliminate the risk of contamination or injury resulting from hazardous materials, and we may incur liability as a 
result of any contamination or injury. Under some environmental laws and regulations, we could also be held responsible for 
costs relating to any contamination at our past or present facilities and at third party waste disposal sites where we have sent 
waste.  These  could  include  costs  relating  to  contamination  that  did  not  result  from  any  violation  of  law,  and  in  some 
circumstances, contamination that we did not cause. We may incur significant expenses in the future relating to any failure to 
comply with environmental laws or regulations, including material fines and penalties. Any such future expenses or liability 
could have a significant negative impact on our financial condition and results of operations. The enactment of stricter laws 
or regulations, the stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

remediation of currently unknown environmental contamination at our own or third party sites may require us to make additional 
expenditures, which could be material.

We may not be able to successfully integrate businesses that we have acquired, or businesses we may acquire in the future, 
and  we  may  not  be  able  to  realize  the  anticipated  cost  savings,  revenue  enhancements  or  other  synergies  from  such 
acquisitions.

Our ability to successfully implement our business plan and achieve targeted financial results may be dependent on our ability 
to successfully integrate businesses that we acquire in the future. The process of integrating such acquired businesses involves 
risks. These risks include, but are not limited to:

•

•

•

•

•

•

•

•

•

demands on management related to integration processes;

diversion of management’s attention from the management of daily operations to the integration of newly acquired
operations;

difficulties in the assimilation of different corporate cultures, practices and sales and distribution methodologies;

difficulties in conforming the acquired company’s accounting books and records, internal accounting controls, and
procedures and policies to ours;

retaining the loyalty and business of the customers of acquired businesses;

retaining employees who may be vital to the integration of the acquired business or to the future prospects of the
combined businesses;

difficulties and unanticipated expenses related to the integration of departments and information technology systems,
including accounting systems;

difficulties  integrating  technologies  and  maintaining  uniform  standards,  such  as  internal  accounting  controls,
procedures and policies; and

unanticipated costs and expenses associated with any undisclosed or potential liabilities.

Failure to successfully transfer business operations and to otherwise integrate the former operations of any acquired businesses 
may result in reduced levels of revenue, earnings or operating efficiency than we have achieved or might have achieved if we 
had not acquired such businesses, and loss of customers of the acquired businesses.

Furthermore, even if we are able to integrate successfully the former operations of acquired businesses, we may not be able 
to realize the potential cost savings, synergies and revenue enhancements that were anticipated from the integration, either in 
the amount or within the timeframe that we expect, and the costs of achieving these benefits may be higher than, and the 
timing may differ from, what we expect. Our ability to realize anticipated cost savings, synergies and revenue enhancements 
may be affected by a number of factors, including, but not limited to, the following:

•

•

•

•

the use of more cash or other financial resources on integration and implementation activities than we expect;

increases in other expenses unrelated to the acquisitions, which may offset the cost savings and other synergies from
the acquisitions;

our  ability  to  eliminate  duplicative  back  office  overhead  and  overlapping  and  redundant  selling,  general  and
administrative functions, rationalize manufacturing capacity and shift production to more economical facilities; and

our ability to avoid labor disruptions in connection with any integration, particularly in connection with any headcount
reduction.

If we fail to realize anticipated cost savings, synergies or revenue enhancements, our financial results will be adversely affected, 
and we may not generate the cash flow from operations that we anticipated. 

We have significant goodwill and other intangible assets and potential impairment of goodwill and other intangibles may 
significantly impact our profitability.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Goodwill and intangible assets represent a significant portion of our total assets. Finite-lived intangible assets are subject to 
an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be 
recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events 
or changes in circumstances indicate that the asset may be impaired. If an impairment exists, we would be required to take 
an impairment charge with respect to the impaired asset. Events giving rise to impairment are difficult to predict and are an 
inherent risk in the medical device industry. As a result of the significance of goodwill and intangible assets, our financial 
condition and results of operations in a future period could be negatively impacted should such an impairment of goodwill or 
intangible assets occur. Refer to note 10 and note 11 to the Consolidated Financial Statements for additional information.

Our research and development effort for new products may be unsuccessful.

We incur research and development expenses to develop new products and technologies in an effort to maintain our competitive 
position in a market characterized by rapid rates of technological advancement. Our research and development efforts are 
subject to unanticipated delays, expenses and technical problems. There can be no assurance that any of these products or 
technologies will be successfully developed or that, if developed, will be commercially successful. In the event that we are 
unable to develop commercialized products from our research and development efforts or we are unable or unwilling to allocate 
amounts beyond our currently anticipated research and development investment, we could lose our entire investment in these 
new products and technologies. Any failure to translate research and development expenditures into successful new product 
introduction could have an adverse effect on our business. 

Risks Related to our Financial Profile

Our substantial leverage and debt service obligations could adversely affect our business and prevent us from fulfilling 
our obligations under our various debt instruments.

We are considered to be highly leveraged. As of December 31, 2015, our total indebtedness, excluding capital leases, was 
$2,606.3 million, in the aggregate, related to the term loans outstanding under our credit facilities and senior notes due 2018. 
Our credit facilities consist of (i) U.S. Dollar and Euro term loans (the “Term Loan Facilities”) and (ii) a revolving credit 
facility (the “Revolving Credit Facility” and collectively, the “Credit Facilities”). In addition, ConvaTec Finance International 
S.A. (“CFI”), a subsidiary of ConvaTec Healthcare A S.à r.l. (the “Parent”) has $900.0 million of CFI payment-in-kind notes 
(the "PIK Notes") due 2019 (collectively with our senior notes, the "Notes").  The Credit Facilities will mature on June 15, 
2020, provided that such date will be accelerated to (i) September 15, 2018 if more than 10% of the principal amount of our 
senior notes remain outstanding on such date or (ii) October 15, 2018 if more than 10% of the PIK Notes remain outstanding 
on such date. 

The degree to which we are leveraged could have important consequences to our lenders and noteholders, including, but not 
limited to:

• making it difficult for us to satisfy obligations with respect to our debt instruments;

•

•

•

•

•

increasing  our  vulnerability  to,  and  reducing  flexibility  to  respond  to,  general  adverse  economic  and  industry
conditions;

requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal, and
interest  on,  indebtedness,  thereby  reducing  the  availability  of  such  cash  flow  to  fund  working  capital,  capital
expenditures, acquisitions, joint ventures, product research and development or other general corporate purposes;

limiting our flexibility in planning for, or reacting to, changes in our business and the competitive environment and
the industry in which we operate;

placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly
leveraged; and

limiting our ability to borrow additional funds and increasing the cost of any such borrowing.

Any of these or other consequences or events could have a material adverse effect on our ability to satisfy debt obligations. 
We may also incur additional indebtedness, subject to the restrictions contained in our debt instruments, which may increase 
the risks noted above and elsewhere within this Annual Report. 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Our current corporate credit rating is Ba2 and B+ from Moody’s and Standard and Poor’s, respectively. A downgrade may 
increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.  

We will require a significant amount of cash to meet our obligations under our indebtedness and to sustain our operations, 
which we may not be able to generate or raise.

Our ability to make scheduled payments on or to refinance our debt obligations and to fund our ongoing operations, will 
depend on our future performance and our ability to generate cash, which, to a certain extent, is subject to prevailing global 
economic and market conditions and certain financial, competitive, legislative, legal, regulatory and other factors, many of 
which are beyond our control. Even if we were able to refinance or obtain additional financing, the costs of new indebtedness 
could be substantially higher than the costs of our existing indebtedness.  

If our cash flows and capital resources are insufficient to satisfy our debt service obligations or we are unable to refinance all 
or a portion of our indebtedness or obtain such refinancing on terms acceptable to us, we may be forced to sell assets, reducing 
or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance our debt will 
depend on the capital markets and our financial condition at such time. Our inability to generate sufficient cash flow to satisfy 
our debt service obligations or to refinance our obligations on commercially reasonable terms would have a material adverse 
effect on our business, financial condition and results of operations.

We are subject to restrictive debt covenants that may limit our ability to finance our future operations and capital needs 
and to pursue business opportunities and activities.

The agreements governing our indebtedness contain various covenants that limit our ability to finance our future operations 
and capital needs and our ability to pursue business opportunities and activities that may be in our interest. Among other 
things, these covenants restrict our ability to:

•

•

incur or guarantee additional indebtedness and issue certain preferred stock;

create or incur certain liens;

• make certain payments, including dividends or other distributions, with respect to the shares of such entity;

•

prepay or redeem subordinated debt or equity;

• make certain investments;

•

•

•

•

create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to, and on
the transfer of, assets to such entity;

sell, lease or transfer certain assets, including stock of restricted subsidiaries;

engage in certain transactions with affiliates; and

consolidate or merge with other entities.

All of these limitations are subject to significant exceptions and qualifications. In addition, we are subject to the affirmative 
and negative covenants contained in the agreement governing the Credit Facilities. In particular, we are required to maintain 
specified financial ratios and satisfy certain financial condition tests which become more restrictive over the life of such 
indebtedness. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot 
assure that we will meet them. 

A breach of any of these covenants, ratios, tests or restrictions could result in an event of default under one or more of our 
debt agreements, which could prompt the creditors to declare all amounts outstanding under the debt agreements, together 
with accrued interest, immediately due and payable and terminate the commitments to extend further credit.  In addition, any 
default under the agreement governing the Credit Facilities could lead to an event of default and acceleration under other debt 
instruments that contain cross default or cross acceleration provisions, including our senior notes indenture, as well as the 
PIK Notes indenture. If we were unable to repay those amounts, the creditors could proceed against the collateral granted to 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

them to secure that indebtedness. If our creditors under the debt agreements accelerate the repayment of borrowings, we may 
not have sufficient assets and funds to repay the borrowings under our debt agreements.

The loans under our existing Credit Facilities bear interest at floating rates that could rise significantly, increasing our 
costs and reducing our cash flow.

The loans under the Credit Facilities bear interest at floating rates of interest per annum equal to LIBOR and/or EURIBOR, 
or ABR (as defined in the Credit Facilities Agreement), as adjusted periodically, plus a spread. These interest rates could rise 
significantly in the future. For example, if interest rates were to increase by 1% from the interest rates in effect on December 31, 
2015, our cash interest payments related to the term loans outstanding under the Credit Facilities would have increased by 
approximately $16.1 million. Additionally, if we were fully drawn against our $200.0 million Revolving Credit Facility, our 
cash interest payments would have increased by approximately $9.5 million for the year ended December 31, 2015. Further 
increase by 1% from the interest rates in effect on December 31, 2015, would increase our cash interest payments under our 
Revolving Credit Facility by approximately $2.0 million.  To the extent that interest rates were to increase significantly, our 
interest expense would correspondingly increase, reducing our cash flow.

We may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence 
of certain events constituting a change of control as required by the indentures.

Upon the occurrence of certain events constituting a “change of control” under the indentures, we (or our parent company) 
would be required to offer to repurchase all outstanding Notes at a purchase price in cash equal to 101% of the principal 
amount thereof on the date of purchase plus accrued and unpaid interest to the date of purchase. If a change of control were 
to occur, we may not have sufficient funds available at such time (or we may be restricted under other existing contractual 
obligations) from making such required repurchases and any failure by us to make such required repurchases (without the 
consent of the applicable holders of the Notes) would constitute a default under the applicable indentures.

The interests of our principal shareholders may conflict with the interests of the Note holders.

The interests of our principal shareholders, in certain circumstances, may conflict with interests of holders of the Notes. As 
of the date of this annual report, each of Nordic Capital and Avista Capital Partners owns indirectly 69.85% and 30.15% of 
our shares, respectively. See “Principal Shareholders.” As a result, these shareholders have, and will continue to have, directly 
or indirectly, the power, among other things, to affect our legal and capital structure and our 
operations, as well 
as the ability to elect and change our management and to approve any other changes to our operations. For example, the 
shareholders could vote to cause us to incur additional indebtedness, to sell certain material assets or make dividends, in each 
case, so long as our indebtedness documents so permit. The incurrence of additional indebtedness would increase our debt 
service obligations and the sale of certain assets could reduce our ability to generate revenue, each of which could adversely 
affect holders of the Notes.

Risks Relating to Tax Matters 

We may not be able to maintain a competitive worldwide effective corporate tax rate.

While we believe that being incorporated in Luxembourg should help us maintain a competitive worldwide effective corporate 
tax rate, we cannot give any assurance as to what our effective tax rate will be because of, among other things, uncertainty 
regarding the tax policies of all the jurisdictions where we operate our business. Our actual effective tax rate may vary from 
our expectation and that variance could be material. Additionally, the tax laws of Luxembourg and other jurisdictions could 
change in the future, and such changes could cause a material change in our effective tax rate.  In particular, legislation may 
be enacted by the U.S. Congress and/or regulatory guidance may be promulgated by the U.S. Department of the Treasury 
("Treasury Department") and the IRS which could have a material adverse effect on our effective tax rate and/or require us 
to take further action, at potentially significant expense, to seek to preserve our effective tax rate.

Examination and audits by tax authorities could result in additional tax payments.

Our tax returns are subject to examination by various tax authorities, including the IRS in the U.S., the Denmark Tax Authority 
(“SKAT”), the Italian Revenue Agency (“AdE”), the New Zealand Inland Revenue, and the China Tax Authority in Shanghai. 
The IRS concluded examining our U.S. federal income tax return for 2012 resulting in no material change. SKAT commenced 
examining our Denmark corporate income tax returns for the years 2010 through 2014.  New Zealand Inland Revenue concluded 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

examining our New Zealand corporate income tax returns for 2009 through 2012 resulting in no material change. The AdE 
commenced examining our Italian corporate income tax returns for the years 2010 through 2014.  The China Tax Authority 
in Shanghai concluded examining our China corporate income tax return for 2013 and 2014 resulting in no material change. 
There is no guarantee that the China examination will not expand to also include prior years.

We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions. It is our intention 
to vigorously defend our prior tax returns. However, the calculation of our tax liabilities involves the application of complex 
tax regulations to our global operations in many jurisdictions. Therefore, any dispute with a tax authority may result in a 
payment that is significantly different from our current estimate of the tax liabilities associated with these returns. If payment 
of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities generally would result 
in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax 
liabilities proves to be less than the amount for which we are ultimately liable, we would incur additional charges to expense 
and such charges could have a material adverse effect on our business, results of operations, financial condition and cash 
flows.

Tax-related legislative and/or regulatory action in the U.S. or EU could materially and adversely affect us.

Legislation may be enacted by the U.S. Congress or EU Commission, and/or regulatory guidance may be promulgated by the 
Treasury Department, the IRS or EU Tax Authorities which could limit the availability of tax benefits or deductions that we 
currently claim, override tax treaties upon which we rely, or otherwise affect the taxes imposed on our worldwide operations. 
Such changes could have a material adverse effect on our effective tax rate and/or require us to take further action, at potentially 
significant expense, to seek to preserve our effective tax rate.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and 
Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should 
be read in conjunction with the audited consolidated financial statements, and notes thereto, prepared in accordance with 
United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") as of December 31, 2015 and 2014 and each 
of the two years in the period ended December 31, 2015 (the "2015 Financial Statements"). The 2015 Financial Statements 
and related notes beginning on page F-1 of this Annual Report. 

Forward-looking statements

This MD&A and other sections of this report contain "forward-looking statements" as defined by the safe harbor provisions 
of the United States Private Securities Litigation Reform Act of 1995. These statements include information relating to future 
events, future financial performance, strategies, expectations, competitive environment, regulation and availability of financial 
resources. These forward-looking statements may include, without limitation, statements regarding: the impact of global and 
local operating economic conditions on our financial results; the anticipated effect of new tax statutes; the impact of healthcare 
reform and new regulations on our business and our ability to offset any related pricing pressures; anticipated seasonal 
fluctuations in our results of operations; the effect of pending and future lawsuits, claims, proceedings and investigations, 
including those relating to environmental regulations, on our results of operations, cash flows, financial condition or liquidity; 
expectations regarding the adequacy of our cash and cash equivalents and other sources of liquidity for ongoing operations; 
expectations regarding investment plans and capital expenditures; projections, predictions, expectations, estimates or forecasts 
as to our business, financial and operational results and future economic performance; management's goals and objectives; 
and other similar matters that are not historical facts.  Forward-looking statements should not be read as a guarantee of 
future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance 
or results will be achieved.  Forward-looking statements are based on information available at the time those statements are 
made and management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties 
that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking 
statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of 
new information, future events or otherwise.  Please see "Risk Factors" within this Annual Report for a discussion of some 
of these risks and uncertainties. 

Presentation of financial information

CHB is a wholly owned subsidiary of the Parent. We are presenting the 2015 Financial Statements of CHB in this report.  The 
Parent has no significant business operations other than investments in CHB.  On August 12, 2013, the Parent completed a 
$900.0 million PIK Notes offering. As a result of the PIK Notes offering, we are required to present a summary of the primary 
financial statement reconciliation differences between CHB and the Parent.  Please refer to “Reconciliation to the Parent’s 
Financial Statements” within this Annual Report for further details.    

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Overview

We are a global medical products and technologies company, with leading market positions in ostomy care, wound therapeutics, 
continence and critical care, and infusion devices.  Our products provide a range of clinical and economic benefits, including 
infection prevention, protection of vulnerable skin, improved patient outcomes and reduced total cost of care.

We operate in attractive, growing markets where underlying trends are expected to create increased demand globally. A majority 
of our business is derived from medical consumables tied to the management of chronic conditions, generating consistent 
recurring revenues. We report sales in four major franchises: Wound Therapeutics, Ostomy Care, CCC, and Infusion Devices.

Wound Therapeutics.  Our Wound Therapeutics franchise includes advanced wound dressings and skin care products. These 
dressings and products are used for the management of acute and chronic wounds, such as those resulting from traumatic 
injury, burns, invasive surgery, diabetes, venous disease, immobility and other factors.

Ostomy Care.  Our Ostomy Care franchise includes devices, accessories and services for people with an ostomy or stoma (a 
surgically-created opening where bodily waste is discharged), commonly resulting from colorectal cancer, inflammatory bowel 
disease, bladder cancer and other causes.

Continence and Critical Care.  Our CCC franchise includes products for people with urinary continence issues related to 
spinal cord injuries, multiple sclerosis, spina bifida and other causes. The franchise also includes devices and products used 
in intensive care units and hospital settings.

Infusion  Devices.    Our  Infusion  Devices  franchise,  previously  referred  to  as  Infusion  Devices/Industrial  Sales,  provides 
disposable  infusion  sets  to  manufacturers  of  insulin  pumps  for  diabetes  and  similar  pumps  used  in  continuous  infusion 
treatments for other conditions. In addition, the franchise supplies a range of products to hospitals and the home healthcare 
sector.

Recent developments 

In November 2015, we announced a decision to cease operations at our HC manufacturing facility in Reynosa, Mexico by 
mid-2016. The decision was made as a result of our commercial strategy to rationalize our CCC portfolio, focusing on strategic 
products and eliminating certain non-strategic HC products with low profitability and limited growth potential (see "Our 
Business - Continence & Critical Care" within this Annual Report).  As a result of this strategy, in January 2016 we further 
announced our intention to cease operations at our HC manufacturing facility in Sungai-Petani, Malaysia by the end of 2016.

Following the completion of a comprehensive evaluation and analysis of our global manufacturing facilities utilization and 
strategy, in January 2016 we also announced a decision to cease manufacturing operations in Greensboro, U.S. by early 2017. 
This decision was based on the analysis of our sites that also support our Wound Therapeutics and Ostomy Care franchises, 
which will now focus on our sites in Deeside, U.K.; Haina, Dominican Republic; and Michalovce, Slovakia supported by our 
strategic materials conversion plants for Wound Therapeutics and Ostomy Care in Rhymney, U.K. and Herlev, Denmark. Our 
Quality Affairs,  Regulatory Affairs  and  Clinical  Global  Headquarters  and  other  global  functional  roles  also  located  in 
Greensboro are not affected by this decision.

42

ConvaTec Healthcare B S.à r.l. and Subsidiaries

Results of operations

The following table sets forth our net sales and expense items for each of the last two years: 

($ in millions)

Net sales(1)
Cost of goods sold
Gross profit

Selling and marketing expenses
General and administrative expenses
Research and development expenses
Impairment of goodwill and long lived assets
Operating income

Interest expense, net
Foreign exchange
Other expense (income), net
Loss on extinguishment of debt
Loss before income taxes

(Benefit) provision for income taxes
Net loss

_______________________________

Years Ended December 31,
2014
2015

$

1,650.5
799.3
851.2

346.9
221.9
41.2
12.2
229.0

397.3
29.7
0.7
26.9
(225.6)

(16.6)
(209.0) $

1,735.5
821.8
913.7

397.0
195.2
37.2
73.7
210.6

449.6
19.3
(0.1)
—
(258.2)

28.3
(286.5)

$

$

(1)

Net sales is comprised of sales of our products net of rebates and discounts.

The discussion below mentions net sales and certain costs and expenses on a constant exchange rate basis.  Net sales and costs 
and expenses on a constant exchange rate basis are a non-GAAP financial measure and should not be viewed as a replacement 
of GAAP results.  Such a measure is presented because we believe it enables us to focus on the actual performance related 
changes in the results of operations from year to year without the effects of exchange rates.

Net sales

Net sales increased 4.2% on a constant exchange rate basis, and decreased 4.9% on a reported basis in 2015, compared with 
the prior year.  The primary exchange rate movement that impacted net sales was the movement of the Euro compared to the 
U.S. Dollar. The average Euro exchange rate was $1.110 in 2015, compared to $1.329 in 2014.  The changes in our net sales 
are further described below under “Net sales by franchise”.

Net sales by franchise

The following table sets forth our net sales by franchise for each of the last two years and the percentage change on a reported 
and constant exchange rate basis:

($ in millions)
Net sales by franchise(1)
Wound Therapeutics
Ostomy Care
Continence & Critical Care
Infusion Devices
Total net sales

_______________________________

Years Ended December 31,

2015

2014

Change(2)

At 
constant

$

$

536.1
515.6
348.2
250.6
1,650.5

$

$

566.4
569.0
350.7
249.4
1,735.5

(5.3 )%
(9.4 )%
(0.7 )%
0.5 %
(4.9)%

5.3%
1.3%
5.9%
6.2%
4.2%

43

ConvaTec Healthcare B S.à r.l. and Subsidiaries

(1)

(2)

Net sales by franchise in 2014 contain reclassifications between franchises to conform to the current year presentation.

Represents the percentage change as reported.

Wound Therapeutics

At  a  constant  exchange  rate, Wound Therapeutics  net  sales  increased  5.3%  in  2015,  primarily  due  to  growth  across  our 
AQUACEL® product family. On a reported basis, net sales in our Wound Therapeutics franchise decreased $30.3 million, or 
approximately 5.3%, to $536.1 million in 2015 from $566.4 million in 2014.

Ostomy Care

At a constant exchange rate, Ostomy Care net sales increased 1.3% in 2015, primarily due to demand. On a reported basis, 
net sales in our Ostomy Care franchise decreased $53.4 million, or approximately 9.4%, to $515.6 million in 2015 from $569.0 
million in 2014. 

Continence & Critical Care

At a constant exchange rate, CCC net sales increased 5.9% in 2015, primarily due to the organic growth from our 180 Medical 
business.  On a reported basis, net sales in our CCC franchise decreased $2.5 million, or approximately 0.7%, to $348.2 million
in 2015 from $350.7 million in 2014.

Infusion Devices

At a constant exchange rate, Infusion Devices net sales increased 6.2% in 2015, primarily driven by volume growth in infusion 
devices partially offset by volume decreases in industrial sales. On a reported basis, net sales in our Infusion Devices franchise 
increased $1.2 million, or approximately 0.5%, to $250.6 million in 2015 from $249.4 million in 2014. 

Operating costs and expenses

The following is a summary of operating costs and expenses for each of the last two years and the percentage of each category 
compared with total net sales in the respective year. Percentages may not sum due to rounding.

($ in millions)
Operating costs and expenses:
Cost of goods sold
Selling and marketing
General and administrative
Research and development
Impairment of goodwill and long lived assets
Total operating costs and expenses

($ in millions)
Other costs and net expenses (income):
Interest expense, net
Foreign exchange
Other expense (income), net
Loss on extinguishment of debt
(Benefit) provision for income taxes

_______________________________

Years Ended December 31,

2015

2014

2015(1)

2014(1)

$

$

799.3
346.9
221.9
41.2
12.2
1,421.5

$

$

821.8
397.0
195.2
37.2
73.7
1,524.9

Years Ended December 31,

2015

2014

48.4%
21.0%
13.4%
2.5%
0.7%
86.1%

47.4%
22.9%
11.2%
2.1%
4.2%
87.9%

$

397.3
29.7
0.7
26.9
(16.6)

449.6
19.3
(0.1)
—
28.3

$

44

ConvaTec Healthcare B S.à r.l. and Subsidiaries

(1)

Represents the percentage of net sales.

Cost of goods sold

Cost of goods sold are primarily comprised of manufacturing and production costs, including raw materials, labor, overhead 
and  processing  costs  and  any  freight  costs  borne  by  us  in  the  transport  of  goods  to  us  from  suppliers,  depreciation  of 
manufacturing facilities and equipment and lower of cost or market adjustments to inventories.

Cost of goods sold decreased $22.5 million, to $799.3 million in 2015 from $821.8 million in 2014.  As a percentage of net 
sales, cost of goods sold increased to 48.4% in 2015 from 47.4% in 2014. Gross profit (net sales less cost of goods sold) 
decreased $62.5 million, or 6.8%, and gross profit margin (gross profit as a percentage of net sales) was 51.6% and 52.6%, 
in 2015 and 2014, respectively.  Gross profit margin excluding impacts from amortization of certain intangible assets and 
certain non-recurring costs in 2015 was 59.6%, as compared with 60.3% in 2014.  The decrease in gross profit margin is 
primarily driven by price, product mix and foreign exchange impact, partially offset by manufacturing efficiency savings and 
a Class I recall related to our Flexi-Seal® CONTROL Fecal Management System in the prior year.

Selling and marketing expenses

Selling and marketing expenses consisted of advertising, promotion, marketing, sales force, and distribution costs.  Selling 
and marketing expenses decreased $50.1 million, to $346.9 million in 2015 from $397.0 million in 2014. As a percentage of 
net sales, selling and marketing expenses were 21.0% and 22.9% in 2015 and 2014, respectively.  At a constant exchange rate, 
selling and marketing expenses decreased $9.9 million (2.5%), primarily due to a reduction in compensation costs mainly in 
the U.S. 

General and administrative expenses

 General and administrative expenses consisted of executive management, human resources, finance, information management, 
legal, facilities and other costs.  General and administrative expenses increased $26.7 million, or 13.7%, to $221.9 million in 
2015 from $195.2 million in 2014.  As a percentage of net sales, general and administrative expenses were 13.4% and 11.2%
in 2015 and 2014, respectively.  At a constant exchange rate, general and administrative expenses increased $37.8 million
(19.5%), primarily due to (i) an increase in consulting fees, (ii) an increase in professional service fees associated with a 
number  of  remediation  activities  that  were  undertaken  to  enhance  our  compliance  function  and  strengthen  our  control 
environment within finance, (iii) settlement of multi-year patent-related litigations, (iv) incremental compensation and benefit 
costs, and (v) higher share-based compensation expenses. These increases were partially offset by a decrease in severance 
costs associated with the closure of our operational headquarters in Skillman, New Jersey in 2014. Excluding restructuring, 
remediation,  litigation  settlement  losses,  share-based  compensation  and  certain  other  non-recurring  costs,  general  and 
administrative expenses increased by $7.7 million (4.9%) at a constant exchange rate.

We anticipate that our general and administrative expenses will increase in the future with continued focus on enhancing our 
controls and processes within our finance function and expanded legal and compliance obligations. These increases will likely 
include costs related to the hiring of additional personnel, payments to outside consultants, costs for lawyers and accountants, 
and higher insurance costs, among other expenses. Additionally, we anticipate an increase in payroll expense as a result of 
enhancing our compliance function as it relates to the sales and marketing of our products.

Research and development expenses 

R&D expenses consisted of product development and enhancement costs incurred within a centralized R&D function. R&D 
expenses increased $4.0 million, to $41.2 million in 2015 from $37.2 million in 2014.  As a percentage of net sales, R&D 
expenses were 2.5% and 2.1% in 2015 and 2014, respectively.  At a constant exchange rate, R&D expenses increased $6.5 
million (18.6%). The increase in R&D expense is primarily driven by regulatory compliance costs and spending on certain 
development programs, partially offset by lower FDA remediation costs. Excluding FDA remediation and certain non-recurring 
costs, R&D expenses increased by $11.8 million (39.7%) at a constant exchange rate.

Impairment of goodwill and long lived assets

In 2015, we recorded impairment charges of $12.2 million, primarily related to the write-down of the carrying value of our 
trade name. 

45

ConvaTec Healthcare B S.à r.l. and Subsidiaries

In 2014, we recorded impairment charges of $73.7 million, primarily related to (i) goodwill ($46.4 million), (ii) our trade 
name  ($16.6  million),  (iii)  the  intangible  assets  acquired  in  Symbius  acquisition  in  2014  ($4.3  million),  and  (iv)  the 
manufacturing facility located in Rhymney, U.K. ($3.2 million). 

Refer to note 10 and note 11 to the 2015 Financial Statements for further details related to the impairment charges on goodwill 
and intangible assets, respectively.

Other costs and net expenses (income)

Interest expense, net

Interest expense, net decreased $52.3 million, to $397.3 million in 2015 from $449.6 million in 2014, primarily due to (i) 
lower interest expense on preferred equity certificates (“PEC” or “PECs”) denominated in Euro driven by foreign currency 
impact, (ii) early redemption of 7.375% senior secured notes due 2017 (the "Secured Notes") in June 2015, and (iii) lower 
interest expense related to our long-term debt denominated in Euro as a result of the strengthening of the U.S. Dollar. These 
decreases were partially offset by incremental borrowings under the Credit Facilities as a result of the June 2015 refinancing.

Foreign exchange 

Foreign exchange is comprised of net gains and losses resulting from the re-measurement or settlement of transactions that 
are denominated in a currency that is not the functional currency of the transacting subsidiary. Foreign exchange loss increased
$10.4 million, to $29.7 million in 2015 from $19.3 million in 2014. The increase was primarily due to a foreign exchange net 
loss driven by (i) intercompany transactions, including loans transacted in non-functional currencies and (ii) foreign currency 
impact on re-measurement of our long-term debt denominated in non-functional currency.

Loss on extinguishment of debt

In 2015, we recognized loss on extinguishment of debt of $26.9 million related to (i) the redemption of the Secured Notes in 
June 2015 and (ii) the refinancing of the Credit Facilities in June 2015. 

(Benefit) provision for income taxes

During the year ended December 31, 2015, we recorded a benefit for income taxes of $16.6 million on a loss before income 
taxes of $225.6 million and for the year ended December 31, 2014, we recorded a provision for income taxes of $28.3 million
on a loss before income taxes of $258.2 million. The decrease in the provision for income taxes in 2015 as compared to 2014 
is primarily the result of a decrease in non-U.S. current tax provision partially offset by increase in U.S. current tax provision 
coupled with an increase in both non-U.S. and U.S. deferred tax benefit.

Net loss

As a result of the above, net loss decreased $77.5 million to a net loss of $209.0 million in 2015, compared to a net loss of 
$286.5 million in 2014.

46

ConvaTec Healthcare B S.à r.l. and Subsidiaries

Summary of quarterly results (unaudited)

The following table presents a summary of our unaudited quarterly results of operations in 2015 and 2014:

($ in millions)
Net sales(1)
Operating costs and expenses(2)
Operating income (loss)

Net loss

Adjusted EBITDA

_______________________________

2015

2014

Q1
$ 394.4
333.9
$ 60.5

Q2
$ 408.1
345.9
$ 62.2

Q3
$ 412.6
341.0
$ 71.6

Q4
$ 435.4
400.7
$ 34.7

Q1
$ 429.3
373.9
$ 55.4

Q2
$ 445.0
364.0
$ 81.0

Q3
$ 453.2
359.0
$ 94.2

Q4
$ 408.0
428.0
$ (20.0)

$ (74.4) $ (76.9) $ (33.5) $ (24.2) $ (70.6) $ (52.6) $ (23.4) $ (139.9)

$ 111.1

$ 115.2

$ 123.0

$ 124.7

$ 113.7

$ 136.2

$ 146.5

$ 103.5

(1)

(2)

At a constant exchange rate, net sales increased 14.4% in the fourth quarter of 2015, reflecting an increase across all of our franchises, primarily
driven by increased demand, along with the impact of a large reduction in distributor inventories in the fourth quarter of 2014. On a reported basis, 
net sales increased $27.4 million, or approximately 6.7%, to $435.4 million in the fourth quarter of 2015 from $408.0 million in the fourth quarter
of 2014.

During the fourth quarter of 2015 and 2014, we recognized impairment charges of $12.2 million and $73.7 million, in the aggregate, respectively, 
primarily related to goodwill and intangible assets. Refer to note 10 and note 11 to the 2015 Financial Statements for information regarding the
impairment charges on goodwill and intangible assets, respectively.

EBITDA and Adjusted EBITDA

We believe that EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA (EBITDA 
adjusted to exclude other income and expense items that are excluded by management in assessing the operating performance 
of the business) are useful indicators of our ability to incur and service our indebtedness and can assist investors and other 
parties to evaluate us.  It should be noted that our definition of EBITDA and Adjusted EBITDA may not be comparable to 
similar measures disclosed by other companies. We believe that Adjusted EBITDA as a supplementary non-GAAP financial 
measure  may  be  used  to  meaningfully  evaluate  a  company’s  future  operating  performance  and  cash  flow.    In  addition, 
management also uses EBITDA and Adjusted EBITDA to assess and measure our operating performance.  Accordingly, this 
information has been disclosed to permit a more complete and comprehensive analysis of our operating performance, consistent 
with how our business performance is evaluated by management.

We define EBITDA as the net loss for the year before (benefit) provision for income taxes, loss on extinguishment of debt, 
other expense (income), net, foreign exchange, interest expense, net, and depreciation and amortization.  Adjusted EBITDA 
represents  EBITDA  as  adjusted  to  exclude  costs  or  gains  that  are  excluded  by  management  in  assessing  the  operating 
performance of the business, such as assets impairments, restructuring and remediation expenses, and other cash and non-
cash items, including non-cash share-based compensation. EBITDA and Adjusted EBITDA are not measurements of financial 
performance under GAAP, are not audited and should not replace measures of liquidity or operating profit that are derived in 
accordance with GAAP.  The following table reconciles net loss to EBITDA and provides a further reconciliation of EBITDA 
to Adjusted EBITDA, including realized foreign exchange gain/loss for 2015 and 2014:

47

ConvaTec Healthcare B S.à r.l. and Subsidiaries

$

($ in millions)
Net loss

(Benefit) provision for income taxes
Loss on extinguishment of debt
Other expense (income), net
Foreign exchange
Interest expense, net
Depreciation and amortization
EBITDA

Adjustments (a):

Goodwill and long lived asset impairments(b)
Restructuring and other related costs(c)
Remediation costs(d)
Share-based compensation
Other(e)

Total Adjustments
Adjusted EBITDA

Realized foreign exchange gain (loss)

Adjusted EBITDA, including realized foreign exchange gain (loss)

$

_______________________________

Years Ended December 31,
2014
2015

(209.0) $
(16.6)
26.9
0.7
29.7
397.3
180.1
409.1

12.2
6.5
14.1
9.0
23.1
64.9
474.0
7.5
481.5

$

(286.5)
28.3
—
(0.1)
19.3
449.6
191.2
401.8

73.7
13.6
10.3
(0.2)
0.7
98.1
499.9
(10.6)
489.3

(a)

(b)

(c)

(d)

(e)

Represent transactions/items that are excluded by management in assessing the operating performance of the business.  Such activity
is excluded from EBITDA to derive Adjusted EBITDA.

Primarily  relates  to  impairment  charges  on  goodwill  and  intangible assets.  Refer  to  note  10  and  note  11  to  the  2015  Financial
Statements for information regarding the impairment charges on goodwill and intangible assets, respectively.

In 2015, we recorded $6.5 million of restructuring and other related costs, of which $4.5 million, $1.8 million, and $0.2 million
were recorded in general and administrative expenses, cost of goods sold, and R&D expenses, respectively, within our Consolidated
Statements of Operations. In 2014, restructuring and other related costs were recorded in general and administrative expenses within
our  Consolidated  Statements  of  Operations.  Refer  to  note  5  of  the  2015  Financial  Statements  for  further  details  related  to  the
restructuring costs.

In 2015, we recorded $14.1 million of remediation costs, of which $12.1 million and $2.0 million were recorded in general and
administrative expenses and R&D expenses, respectively, within our Consolidated Statements of Operations. In 2014, we recorded
$10.3  million  of  remediation  costs,  of  which  $7.4  million  and  $2.9  million  were  recorded  in  R&D  expenses  and  general  and
administrative  expenses,  respectively,  within  our  Consolidated  Statements of  Operations.  Remediation  costs  include  regulatory
compliance costs related to the FDA activities and professional service fees associated with activities that were undertaken to enhance
our compliance function and strengthen our control environment within finance.

In 2015, we recorded $23.1 million in other costs, of which $21.0 million and $2.1 million were recorded in general and administrative
expenses and cost of goods sold, respectively, within our Consolidated Statement of Operations. These costs were mainly related
to a settlement of multi-year patent-related litigations and corporate development activities. Refer to note 17 to the 2015 Financial
Statements for further information regarding the settlement.

Liquidity and capital resources

As of December 31, 2015 and 2014, our cash and cash equivalents were $269.6 million and $234.0 million, respectively. 
Additionally, as of December 31, 2015, we had $197.4 million of availability under our revolving credit facility.  Restricted 
cash was $8.6 million as of December 31, 2015.

Pursuant to the Fourth Amendment to the Credit Agreement dated June 15, 2015 (the "Amended Credit Facilities Agreement"), 
and pursuant to Section 4.06 of the indenture dated December 22, 2010 (the “Indenture”) governing the senior notes (the “U.S. 

48

ConvaTec Healthcare B S.à r.l. and Subsidiaries

Dollar Senior Notes” and the “Euro Senior Notes”) (collectively the “Senior Notes”), we are permitted in certain circumstances 
to make certain payments that would otherwise be restricted.  As of December 31, 2015, we had the capacity to make such 
restricted payments up to an amount of $328.8 million.

Our primary source of liquidity is cash flow generated from operations. Historically, the 
nature of our product 
offerings has resulted in significant recurring cash inflows. In 2015 and 2014, we generated $100.0 million and $147.3 million
of cash from operating activities, respectively. Significant cash uses included (i) interest payments of $257.9 million and 
$270.9 million in 2015 and 2014, respectively, (ii) capital expenditures of $36.7 million and $44.7 million in 2015 and 2014,
respectively, and (iii) income tax payments of $42.2 million and $40.4 million in 2015 and 2014, respectively. In addition to 
the  above,  significant  cash  uses  in  2014  included  $73.6  million  of  debt  repayments  and  $42.5  million  for  the  Symbius 
acquisition. 

Our business may not continue to generate cash flow at current levels and, if we are unable to generate sufficient cash flow 
from operations to service our debt, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, 
refinance all or a portion of our existing debt or obtain additional financing. We may not be able to complete these initiatives 
on a timely basis, on satisfactory terms, or at all. Our ability to make scheduled principal payments or to pay interest on or to 
refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to 
general  conditions  in  or  affecting  the  U.S.  healthcare  industry  and  to  general  economic,  political,  financial,  competitive, 
legislative and regulatory factors beyond our control.

We believe that our business has characteristics of strong cash flow generation. Our strengths include the recurring, non-
discretionary nature of our products, our diverse product offering and geographic footprint, and our strong market position of 
our leading brands. We believe that our existing cash on hand, combined with our operating cash flow and available borrowings 
under the Credit Facilities will provide sufficient liquidity to fund current obligations, working capital and capital expenditure 
requirements, as well as future investment opportunities.       

Cash flows

The following table displays cash flow information for each of the last two years:

($ in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Supplemental cash flow information
Income taxes paid
Interest paid

Cash flows from operating activities

Years Ended December 31,

2015

2014

$

$

$
$

100.0
(36.5)
(8.3)
(19.6)
35.6
234.0
269.6

42.2
257.9

$

$

$
$

147.3
(88.2)
(73.6)
(22.9)
(37.4)
271.4
234.0

40.4
270.9

Net cash provided by operating activities was $100.0 million and $147.3 million in 2015 and 2014, respectively.  The following 
table sets forth the components of net cash provided by operating activities for each of the last two years:

49

ConvaTec Healthcare B S.à r.l. and Subsidiaries

($ in millions)
Adjusted EBITDA
Realized foreign exchange gain (loss)
Cash interest payments
Cash tax payment
Other payments
Working capital increase
Net cash provided by operating activities

Years Ended December 31,

2015

2014

$

$

474.0
7.5
(257.9)
(42.2)
(46.8)
(34.6)
100.0

$

$

499.9
(10.6)
(270.9)
(40.4)
(27.8)
(2.9)
147.3

Cash interest payments decreased $13.0 million, to $257.9 million in 2015 from $270.9 million in 2014, primarily due to the 
redemption of the Secured Notes in June 2015 and lower interest payments on our long-term debt denominated in Euro as a 
result of the strengthening of the U.S. Dollar. These decreases were partially offset by higher interest payments in 2015 related 
to the PECs and incremental borrowings under the Credit Facilities as a result of the June 2015 refinancing. Refer to note 12 
to the 2015 Financial Statements for additional information regarding the June 2015 refinancing.

The other payments increased $19.0 million, to $46.8 million in 2015 from $27.8 million in 2014, primarily due to (i)  payments 
related to Management Equity Plan (“MEP”) awards of $8.4 million in 2015, (ii) an increase in payments of $5.6 million, in 
the aggregate, related to remediation and compliance costs, and (iii) a settlement payment made in 2015 related to multi-year 
patent-related litigations (refer to note 17 to the 2015 Financial Statements for further information). These increases were 
partially offset by a decrease in payments of (i) $8.4 million made towards the settlement of the Medtronic related liabilities 
and (ii) $7.8 million related to restructuring charges. 

The working capital increase of $34.6 million and $2.9 million in 2015 and 2014, respectively, was primarily related to timing 
of receipts and payments in the ordinary course of business.

Cash flows from investing activities

Net cash used in investing activities decreased $51.7 million, to $36.5 million in 2015 from $88.2 million in 2014. The decrease 
in net cash used in investing activities was primarily related to (i) a decrease of $42.5 million related to the Symbius acquisition 
in January 2014 and (ii) a decrease of $8.0 million in capital expenditures primarily as a result of our investment in 180 Medical 
operations in 2014. 

Cash flows from financing activities 

Net cash used in financing activities decreased $65.3 million, to $8.3 million in 2015 from $73.6 million in 2014, primarily 
due to (i) an increase of $431.1 million of net borrowings under the Credit Facilities, primarily as a result of the refinancing 
in June 2015, partially offset by (ii) $338.5 million paid on the redemption of the Secured Notes in June 2015, and (iii) $27.3 
million of deferred financing fees paid (including call premium of $12.5 million paid on the redemption of the Secured Notes 
in June 2015) in connection with refinancing of the Credit Facilities in June 2015.  Refer to note 12 to the 2015 Financial 
Statements for additional information regarding the June 2015 refinancing. 

Debt 

Our long-term debt consists of the Senior Notes and the Credit Facilities. Our current corporate credit rating is Ba2 and B+ 
from Moody’s and Standard and Poor’s, respectively. A downgrade may increase our cost of borrowing and may negatively 
impact our ability to raise additional debt capital.  

As of December 31, 2015, we had total debt outstanding, excluding capital leases of $2,606.3 million, net of $1.8 million of 
unamortized original issue discount and $20.5 million of unamortized deferred financing fees. We were in compliance with 
all of our covenants related to our outstanding debt as of December 31, 2015.  See note 12 to the 2015 Financial Statements 
for detailed information regarding our long-term debt.

Contractual obligations

The following table summarizes our contractual obligations as of December 31, 2015: 

50

ConvaTec Healthcare B S.à r.l. and Subsidiaries

($ in millions)
Long-term debt obligations, including interest(1)
Lease obligations
Purchase obligations(2)
Total

______________________________

Total

2016

Payments Due by Period
2017
and 2018

2019
and 2020

$

3,254.9
64.3
96.7

$

198.5
18.3
42.7

$

1,392.8
26.3
28.8

1,663.6
11.0
20.6

Thereafter
—
$
8.7
4.6

3,415.9

$

259.5

$

1,447.9

$

1,695.2

$

13.3

$

$

(1)

(2)

Expected interest payments assume repayment of the principal amount of the debt obligations at maturity.

Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding which primarily
include (i) capital expenditures, (ii) minimum inventory purchases, and (iii) obligations for warehouse, distribution, and freight
services.

The above table does not reflect obligations related to the Series 1, 2 and 3 PECs we issued to Avista Capital Partners and 
Nordic Capital (the "Sponsors") for an aggregate amount of €1,289.7 million  ($2,026.7 million) at the time of the acquisitions. 
The PECs are mandatorily redeemable by us in 2047 or upon the occurrence of a liquidation event.  The PECs are included 
within total liabilities, as presented in the 2015 Financial Statements, at an amount of $2,716.4 million (€2,500.9  million) and 
$2,879.1  million  (€2,379.9  million),  inclusive  of  accrued  and  unpaid  interest  of  $1,315.6  million  (€1,21 1.2  million)  and 
$1,318.9 million (€1,090.2  million), for the years ended December 31, 2015 and 2014, respectively.   See "Certain relationships 
and  related  party  transactions  -  Mandatorily  redeemable  preferred  equity  certificates"  and  note  13  to  the  2015  Financial 
Statements for further discussion of the PECs.  

In addition, the above table does not reflect (i) $32.4 million of total unrecognized tax benefit for uncertain tax positions 
because we cannot make a reliable estimate of the period in which the liability will be payable, if ever, and (ii) a commitment 
related to a service agreement entered in January 2016. See note 17 to the 2015 Financial Statement for further discussion 
related to the service agreement. 

Critical accounting policies and estimates

The 2015 Financial Statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements 
requires  us  to  make  estimates  and  assumptions  that  affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of 
contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses 
during the reporting period. Critical accounting policies are those that require application of management’s most subjective 
and/or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently 
uncertain and may change in subsequent periods. We base our estimates on historical experience and other factors that we 
believe to be reasonable under the circumstances. On an ongoing basis, we review our estimates to ensure that these estimates 
appropriately reflect changes in our business and new information as it becomes available. If historical experience and other 
factors we use to make these estimates do not reasonably reflect future activity, our results of operations and financial condition 
could be materially impacted. The following is not intended to be comprehensive list of all of our accounting policies. Our 
significant accounting policies are more fully described in note 2 to the 2015 Financial Statements. The critical accounting 
policies described below are areas in which management's judgment in determining estimates and assumptions might produce 
materially different results.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Revenue Recognition 

Our revenues are derived from sales of products and are recognized when substantially all the risks and rewards of ownership 
have transferred to the customer, there is persuasive evidence that an arrangement exists, the price is fixed and determinable, 
and collectability is reasonably assured. Generally, products are insured through delivery, and revenue is recognized upon the 
date of receipt by the customer. When all of the aforementioned revenue recognition criteria are not met, we defer revenue, 
until such time all of the criteria are met. Revenues are recognized net of provisions for estimated returns and chargebacks, 
discounts,  rebates  and  estimated  sales  allowances  based  on  historical  experience  and  updated  for  changes  in  facts  and 
circumstances, as appropriate. We establish these provisions concurrently with the recognition of revenue. Amounts collected 
from customers and remitted to government authorities, such as value-added taxes in foreign jurisdictions, are presented on 
a net basis in our Consolidated Statements of Operations and do not impact net product sales. 

We offer cash discounts for prompt payment and allowances. Provisions for cash discounts are estimated at the time of sale 
and recorded as direct reductions to accounts receivable and revenue. We estimate provisions for cash discounts and allowances 
based on contractual sales terms with customers, an analysis of unpaid invoices, and historical payment experience. Estimated 
cash discounts and allowances have historically been predictable and less subjective, due to the limited number of assumptions 
involved, the consistency of historical experience, and the fact that we generally settle these amounts shortly after incurring 
the liability. 

We  continually  monitor  our  product  sales  provisions  and  evaluate  the  estimates  used  as  additional  information  becomes 
available. We make adjustments to these provisions periodically to reflect new facts and circumstances that may indicate that 
historical experience may not be indicative of current and/or future results. We are required to make subjective judgments 
based primarily on our evaluation of current market conditions and trade inventory levels related to our products. This evaluation 
may result in an increase or decrease in the experience rate that is applied to current and future sales, or an adjustment related 
to past sales, or both. 

Share-Based Compensation 

Generally, compensation expense is recognized on a straight-line basis over the vesting period. Certain features of share-based 
awards require the awards to be accounted for as liabilities as opposed to equity.  Liability awards are required to be updated 
to fair value at the end of each reporting period until settlement. Share-based compensation cost is measured at the grant date 
based  on  the  fair  value  of  the  award. The  fair  value  of  our  equity  was  estimated  using  an  income  approach  and  further 
substantiated with a market approach. The income approach was deemed to be the most indicative of our estimated fair value 
in an orderly transaction between market participants and was consistent with the methodology used for the equity valuation 
in prior years. Under the income approach, we determined fair value using the discounted cash flow method which was based 
on an analysis of our projected financial information, significant debt-free cash flow assumptions, discount rate, terminal 
value, and indication of value. Under the market approach, we utilized publicly-traded comparable company information to 
determined trailing and forward multiples that were used to value our equity for which the Black-Scholes pricing model was 
utilized. Inherent in the Black-Scholes model were assumptions related to expected volatility, option life, risk-free interest 
rate and dividend yield. The expected volatility was estimated based on historical volatilities of comparable companies.  The 
risk-free interest rate was based on the U.S. Treasury yield curve in effect at the grant date with a term equal to the contractual 
term of the stock option. 

Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our 
business, that cover a wide range of matters, including, among others, government investigations, product and environmental 
liability, and tax matters. We are required to accrue for such loss contingencies if it is probable that the outcome will be 
unfavorable and if the amount of the loss can be reasonably estimated. If the estimate of a probable loss is a range and no 
amount within the range is more likely, we accrue the minimum amount of the range. Further, we do not recognize gain 
contingencies until realized. We evaluate our exposure to loss based on the progress of each contingency, experience in similar 
contingencies, and consultation with our legal counsel. We re-evaluate all contingencies as additional information becomes 
available.  Given  the  uncertainties  inherent  in  complex  litigation  and  other  contingencies,  these  evaluations  can  involve 
significant judgment about future events. The ultimate outcome of any litigation or other contingency may be material to our 
results of operations, financial condition, and cash flows. For a discussion of our current legal proceedings, see note 17 to the 
2015 Financial Statements. 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Income Taxes 

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. 
Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of 
assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the 
current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial 
and tax bases of the assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates 
that apply to taxable income in effect for the years in which those tax attributes are expected to be recovered or paid, and are 
adjusted for changes in tax rates and tax laws when changes are enacted.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be 
realized. The assessment of whether or not a valuation allowance is required often requires significant judgment including 
the long-range forecast of future taxable income and the evaluation of tax planning strategies and ability to carry back any 
losses under the relevant tax law. Adjustments to the deferred tax valuation allowances are recorded in the period when such 
assessments are made. 

We apply the principles of the income tax accounting guidance that addresses the accounting for uncertainty in income taxes 
recognized in an enterprise’s financial statements as well as the determination of whether a tax position is effectively settled 
for the purpose of recognizing previously unrecognized tax benefits. In accordance with the aforementioned guidance, we 
evaluate  all  tax  positions  using  a  more-likely-than-not  threshold  and  measurement  attribute  for  the  financial  statement 
recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions 
taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable 
or receivable, or adjustments to deferred taxes, or both.

Accounts Receivable

Credit is extended to customers based on the evaluation of the customer’s financial condition. Creditworthiness of customers 
is evaluated on a regular basis. Accounts receivable consists of amounts billed and currently due from customers. An allowance 
for doubtful accounts is maintained for estimated losses that result from the failure or inability of customers to make required 
payments. In determining the allowance, consideration includes the probability of recoverability based on past experience 
and general economic factors. Certain accounts receivable may be fully reserved when specific collection issues are known 
to exist, such as pending bankruptcy. We charge off uncollectible receivables at the time it is determined the receivable is no 
longer collectable. We do not charge interest on past due amounts. The analysis of receivable recoverability is monitored and 
the bad debt allowances are adjusted accordingly.  Accounts receivable are also reduced at the time of revenue recognition to 
reflect prompt pay discounts chargebacks. 

Goodwill 

Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same 
as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to 
sell the unit as a whole in an orderly transaction between market participants. We assign goodwill recorded in connection with 
acquisitions to its six reporting units. The fair value of each reporting unit was estimated on the first day of the fourth quarter 
of 2015 and compared to its carrying value. In determining the fair value of each reporting unit, we use a weighted-average 
combination of both market and income approaches. The market approach to estimating fair value is based primarily on 
applying external market information to a historical earnings measure. The income approach to estimating fair value is based 
on a discounted value of estimated future cash flows of the reporting unit. If the carrying amount of a reporting unit exceeds 
its fair value, then we will record an impairment loss for the excess of the carrying value of goodwill over its implied fair 
value. At October 1, 2015, we determined that none of the goodwill associated with our reporting units was impaired.

Impairment of Long-Lived Assets

Intangible assets with finite lives and other long-lived assets, such as property, plant and equipment, are reviewed for impairment 
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate 
the recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated undiscounted future 
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, 
an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the 

53

ConvaTec Healthcare B S.à r.l. and Subsidiaries

asset. In 2014, we recorded impairment charges of $10.1 million, in the aggregate, related to property, plant and equipment 
and finite-lived intangible assets. For further details, see note 9 and note 11 to the 2015 Financial Statements regarding the 
impairment charges on property, plant and equipment and finite-lived intangible assets, respectively. 

Indefinite-lived intangible assets consisting of trade names are tested for impairment annually, or more frequently if events 
or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-
lived  intangible  assets  are  recognized  based  solely  on  a  comparison  of  their  fair  value  to  carrying  value,  without 
consideration of  any  recoverability  test.   A  discounted  cash  flow  analysis  is  typically  used  to  determine  fair  value  using 
estimates  and  assumptions  that  market  participants  would  apply.  Some  of  the  estimates  and  assumptions  inherent  in  a 
discounted cash flow model include the amount and timing of projected future cash flows, and the discount rate used to 
reflect  the  risks  inherent  in  the  future  cash  flows. A  change  in  any  of  these  estimates  and  assumptions  could  produce  a 
different  fair  value,  which  could  have  a  material  impact  on  our  results  of  operations.    In  2015  and  2014,  we  recorded 
impairment  charges  in  the  aggregate  of  $12.2  million  and  $17.2  million,  respectively,  related  to  indefinite-lived  trade 
names. Refer to note 11 to the 2015 Financial Statements for further details.

New Accounting Standards

Information regarding the recently issued new accounting guidance (adopted and not adopted as of December 31, 2015) 
is contained in note 2 to the 2015 Financial Statements.

Quantitative and qualitative disclosure about market risk

We are, in the normal course of business, exposed to a variety of market risks, including foreign exchange rate risk and 
interest  rate  risk.  Our  risk  management  strategy  aims  to  minimize  the  adverse  effects  of  these  risks  on  our  financial 
performance.  We have not entered into any transactions in derivative financial instruments for trading purposes.  

Foreign currency risk

We  manufacture  and  sell  our  products  in  various  countries  around  the  world.  As  a  result  of  the  global  nature  of  our 
operations, we are exposed to market risk due to changes in currency exchange rates; however our foreign currency risk is 
diversified.  Our  primary  net  foreign  currency  translation  exposures  are  the  Euro,  British  Pound  Sterling,  and  Danish 
Krone.Where possible, we manage foreign currency risk by managing same currency revenues in relation to same currency 
expenses  and  strategically  denominating  our  debt  in  certain  functional  currencies  in  order  to  match  with  the  projected 
functional currency exposures within our operations and thereby minimizing foreign currency risk.  As a result, the impact 
of  the  fluctuations  in  the  market  values  of  assets  and  liabilities  and  the  settlement  of  foreign  currency  transactions  are 
reduced. We currently do not utilize foreign currency forward contracts to reduce our foreign currency risk, although we 
continue to evaluate our foreign currency exposures in light of the current volatility in the foreign currency markets.  

Interest rate risk

As of December 31, 2015, we had $745.0 million and €250.0 million ($271.6 million) principal amount of issued fixed rate 
 A change in interest 
debt and $796.0 million and €751.2 million ($816.0 million) principal amount of variable rate debt. 
rates on variable rate debt impacts our pre-tax earnings, whereas a change in interest rates on fixed rate debt impacts the 
fair value of debt. 

We are subject to interest rate risk on our variable rate debt as changes in interest rates could adversely affect earnings and 
cash  flows.  A  100 basis-points  increase  in  interest  rates  would  have  an  annualized  pre-tax  effect  of  approximately 
$16.1 million in our Consolidated Statements of Operations and Cash Flows, based on current outstanding borrowings and 
effective interest rates on our variable rate debt. Our credit facility term loans are subject to a LIBOR or EURIBOR floor, 
therefore  an  increase  in  interest  rates  would  only  impact  interest  expense  on  those  term  loans  to  the  extent  LIBOR  or 
EURIBOR exceeds the floor. 

Reconciliation to the Parent’s Financial Statements

On August  12,  2013,  ConvaTec  Finance  International  S.A.  (“CFI”),  a  subsidiary  of  the  Parent  and  sister  entity  to  CHB, 
successfully completed a $900.0 million PIK Notes offering, at an offering price of 99.0%. The net proceeds from the offering 

54

ConvaTec Healthcare B S.à r.l. and Subsidiaries

were used to repay PECs of the Parent in the amount of $873.1 million and to pay additional related fees and expenses.  The 
PIK Notes mature on January 15, 2019 and are subject to cash interest payments of 8.25% every January 15 and July 15, 
commencing on January 15, 2014.  PIK interest, if cash interest is not elected to be paid, will accrue at 9.00% per annum.  All 
interest owed will be paid by CFI directly to the holders of the PIK Notes.  The PIK Notes are recorded on the balance sheet 
of CFI, whose financial information is ultimately consolidated by the Parent.  The PIK Notes are non-recourse to CHB and 
thus exclusively the obligation of CFI and the Parent.

In order to fund CFI’s interest expense on the PIK Notes, it is anticipated that CHB will distribute certain accrued PEC interest 
to the Parent. The PECs allow for distribution of interest to the extent permitted by our restricted payment capacity, a specified 
leverage ratio and other provisions outlined in the Amended Credit Facilities Agreement and the Indenture governing the 
Senior Notes. In 2015, we made payments of $74.2 million, in the aggregate, of accrued PEC interest to the Parent. We 
anticipate that we will have the necessary restricted payment capacity to fund semi-annual cash interest payments to the Parent 
going forward. The cash interest payments are incremental to the interest due on our long-term debt and will reduce our 
operating cash flows going forward.  The timing of our cash interest payments to the Parent will be on or around January 15 
and July 15.  On January 12, 2016, we made an additional payment of $37.1 million of accrued PEC interest to the Parent. 
As approved by the Board of Directors, the amount of the cash interest paid by CHB will reduce the equivalent amount of 
accrued PEC interest on CHB’s Consolidated Balance Sheet.  As of December 31, 2015, the current portion of accrued PEC 
interest on CHB’s Consolidated Balance Sheet which approximated the amount of accrued interest on the PIK Notes on the 
Consolidated Balance Sheet of the Parent was $34.2 million. 

In  connection  with  the  PIK  Notes  offering,  we  are  required  to  present  a  summary  of  the  primary  financial  statement 
reconciliation differences between CHB and the Parent.  Please refer to the “Presentation of financial information” in the 
beginning of the MD&A for further information regarding our financial presentation requirements.  We believe that the 2015 
Financial Statements of CHB, prepared in accordance with U.S. GAAP, fairly represent the operating activities of the Parent, 
with the exception of the differences discussed below.

Prior to the PIK Notes offering, the primary differences between the consolidated financial statements of CHB and the Parent 
for each period were related to the management fees paid to our Sponsors, the accumulated value of the loan between CHB 
and the Parent resulting from the management fees paid, the amount of accrued interest on this loan.  The management fee, 
including other related fees, results in $3.0 to $4.0 million of incremental general and administrative expenses per year on the 
Parent’s Consolidated Statements of Operations.  Further differences resulting directly from the PIK Notes offering include 
incremental long-term debt on the Parent’s Consolidated Balance Sheet along with an incremental amount of capitalized 
deferred financing fees associated with the issuance of the PIK Notes, an incremental amount of mandatorily redeemable 
PECs liability on the balance sheet of CHB, differences in related interest expense and foreign currency remeasurement gains 
and losses generated from an on-lending arrangement of a long-term-investment nature. This on-lending arrangement was 
created between CFI and the Parent in the amount of $900.0 million, specifically as a result of the PIK Notes offering.  Further 
details regarding the differences noted on each of the respective financial statements are as follows:  

Consolidated Balance Sheets (Unaudited)

As of December 31, 2015, total assets and total liabilities combined with stockholder’s deficit differed by $100.9 million on 
the Parent’s Consolidated Balance Sheet (unaudited), as compared to the balance sheet of CHB.  The differences are confined 
to the following line items: 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

($ in millions)
Assets:
  Cash and cash equivalents
  Receivables, net
  Other assets(1)
Total Assets Difference

Liabilities and Stockholder's Deficit:
  Accounts payable, accrued expenses and other current
  liabilities
  Long-term debt
  Mandatorily redeemable preferred equity certificates
  Retained deficit
  Accumulated other comprehensive income (net of tax)
Total Liabilities and Stockholder's Deficit Difference

_______________________________

As of December 31,

Parent

CHB

Differences

$

$

$

$

269.8
232.1
168.2

268.7
3,471.5
2,001.5
(2,798.6)
373.0

269.6
231.9
67.7

267.5
2,585.0
2,682.2
(2,866.1)
546.6

$

$

$

$

0.2
0.2
100.5
100.9

1.2
886.5
(680.7)
67.5
(173.6)
100.9

(1)

Primarily relates to the asset recognized as a result of the hedging agreement between the Parent and Cidron Healthcare Limited ("Cidron")
(a related party, which is not included in the consolidated financial statements of the Parent) entered to eliminate exposure to Euro/
U.S. Dollar fluctuation associated with the re-measurement of an intercompany loan between the Parent and CFI.

Consolidated Statements of Operations (Unaudited)

In 2015, the total net loss for the Parent was $156.8 million, as compared to a total net loss for CHB of $209.0 million. The 
total difference of $52.2 million is primarily related to the foreign exchange adjustment due to the hedging agreement (as 
described above), which was partially offset by an incremental amount of interest expense, Sponsor fees, and foreign exchange 
impact on PIK interest expense payment recorded in the Parent’s unaudited Consolidated Statements of Operations. The 
Parent’s increased interest expense as compared to that of CHB is driven by an incremental amount of interest-bearing debt 
and a higher interest rate on a portion of that debt.  

Consolidated Statements of Cash Flows (Unaudited)

As of December 31, 2015, total cash and cash equivalents on the Parent’s unaudited Consolidated Balance Sheet was $269.8 
million, as compared to total cash and cash equivalents on CHB of $269.6 million. There was no significant difference in total 
net cash provided by or used in operating, financing or investing activities for the year ending December 31, 2015.  

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Board of Directors

The persons set forth below are the current members of our Board of Directors. 

Management

Name
Magnus Lundberg
Paul Moraviec
Toni Weitzberg
Raj Shah
Thomas Vetander
Thompson Dean
David Burgstahler
Kunal Pandit
Claes-Johan Geijer
Els Alwyn
Vincent Vigneron

Position
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director

Magnus Lundberg  Magnus Lundberg is the Chairman of the ConvaTec Board of Directors. Mr. Lundberg served as President 
and  Chief  Executive  Officer  ("CEO")  of  Phadia  AB,  a  medical  diagnostics  company,  from  1999  until  2011.  Earlier, 
Mr. Lundberg served as Vice President of Chiron Corporation and President of Chiron Vaccine & Therapeutics, and held 
management positions at Pharmacia Corporation. Mr. Lundberg holds a Master of Science degree in Biology and Biochemistry 
from Abo Akademi in Turku, Finland. Mr. Lundberg is a member of several additional Boards of Directors, including Atos 
Medical AB (Chairman) and Airsonett AB (Chairman).

Paul Moraviec  Refer to "Leadership Team" section for further details.

Toni Weitzberg  Toni Weitzberg is a Partner at NC Advisory AB, advisor to the Nordic Capital funds. Mr. Weitzberg joined 
NC Advisory AB in 2000 from the Pharmacia group, where he held various positions including Senior Vice President of 
Europe at the Pharmacia & Upjohn Company. He earned a Master of Business Administration degree from the University of 
Wisconsin and a Bachelor of Science degree in Economics and Business Administration from the University of Uppsala. 
Mr. Weitzberg is also a member of the Boards of Directors of Acino and Handicare.

Raj Shah  Raj Shah is a Partner at NC Advisory LLP, advisor to the Nordic Capital funds. Dr. Shah joined Nordic Capital in 
2015 from Goldman Sachs International, where he served since 2004 and most recently as Co-Head of EMEA Healthcare 
Investment Banking. Prior to that, Dr. Shah originally trained as a cardiac surgeon and is a Fellow of the Royal College of 
Surgeons.

Thomas Vetander   Thomas Vetander is a Principal at NC Advisory AB, advisor to the Nordic Capital funds. Mr. Vetander 
joined Nordic Capital in 2006 from McKinsey & Company in Stockholm, where he worked as a Management Consultant 
from  2004  to  2006.  Mr.  Vetander  holds  a  Master  of  Science  degree  in  Engineering  Physics  from  the  Royal  Institute  of 
Technology in Stockholm and a Bachelor of Science degree in Business Administration and Economics from the Stockholm 
University School of Business.

Thompson  Dean   Thompson  Dean  is  a 

Partner  and 

at Avista  Capital  Partners.  Mr. Dean  was  a 

of Avista Capital Partners in 2005. Prior to that, he led DLJ Merchant Banking Partners for 10 years as 

Partner and was Chairman of several DLJ Investment Committees. He holds a Master of Business Administration degree with 
high distinction from Harvard Business School where he was a Baker Scholar, and a Bachelor of Arts degree from the University 
of Virginia where he was an Echols Scholar. Mr. Dean is currently a member of several additional Boards including Acino 
Holdings, Sidewinder Drilling, Zest Anchors, Trimb Holding AB, Databank, and VWR International.

David Burgstahler  David Burgstahler is the President and Co-Managing Partner of Avista.  He was a founding partner of 
Avista since 2005 and since 2009, has been President of Avista.  Prior to forming Avista, he was a partner of DLJ Merchant 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Banking Partners. He was at DLJ Investment Banking from 1995 to 1997 and at DLJ Merchant Banking Partners from 1997 
through 2005. Prior to that, he worked at Andersen Consulting (now known as Accenture) and McDonnell Douglas (now 
known as Boeing). He holds a Bachelor of Science in Aerospace Engineering from the University of Kansas and a Master of 
Business Administration from Harvard Business School. He currently serves as a Director of ACP Mountain Holdings, Inc., 
AngioDynamics Inc., INC Research Holdings, Lantheus Holdings, Inc., Strategic Partners, Inc., Osmotica Holdings Corp. 
and WideOpenWest, LLC. He previously served as a Director of Warner Chilcott plc and BioReliance Holdings, Inc.

Kunal Pandit   Kunal Pandit is a Principal at Avista Capital Partners. Mr. Pandit joined Avista Capital Partners in 2010. Prior 
to joining Avista, Mr. Pandit was at DLJ Merchant Banking Partners in London, and prior to that was a member of the leveraged 
finance group and the investment banking department at Lehman Brothers in London. Mr. Pandit received a Master of Arts 
degree and a Bachelor of Arts degree with honors from Cambridge University, as well as a Master of Business Administration 
degree with honors from the Wharton School at the University of Pennsylvania. He currently serves as a director of Acino 
Holdings, Trimb Holding AB and Guala Closures.

Claes-Johan Geijer  Claes-Johan Geijer is an independent Director and Advisor based in Luxembourg. Mr. Geijer has a 
background in international industrial corporations, venture capital and banking. He served in various management positions 
in Swedish Match, Stora and Lexmar in Sweden and abroad before moving into banking where he held various positions in 
Swedbank and Carnegie, most recently as Group Head of private banking in the Carnegie Group. Mr. Geijer holds a Bachelor 
of Science degree in Economics and Business Administration from the Stockholm School of Economics. Mr. Geijer is a 
member of several Boards of Directors within and outside of Luxembourg.

Els Alwyn  Els Alwyn is a Director of Nordic Capital Luxembourg companies.  Ms. Alwyn joined Nordic Capital in May 
2011. Previously, she worked at Nauta Dutilh and was admitted as an "Advocaat" to the Rotterdam Bar in 1997. Ms. Alwyn 
worked in the Corporate Finance teams of Norton Rose and Watson Farley Williams in Singapore, Gilbert & Tobin in Sydney 
and the investment funds team at Ogier in Jersey. Ms. Alwyn studied Law at the Erasmus University Rotterdam and holds a 
Master of Law degree.

Vincent Vigneron  Vincent Vigneron is the Finance Director of ConvaTec Luxembourg entities. Mr. Vigneron joined ConvaTec 
in 2010. Prior to that, he worked as an audit Senior Manager at PricewaterhouseCoopers in France and Luxembourg for 
10 years, specializing in international structures. He earned a Master of Finance degree and a Master of Management, Audit 
and Accounting degree from the University of Orleans in France. 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Leadership Team

The persons set forth below are the current members of our Leadership Team.

Name
Paul Moraviec
Nigel Clerkin
Ron Howell
Tim Moran
Antonio La Regina
John Lindskog
George Poole
Michael Sgrignari
Marc Reuss
Adam Deutsch
Douglas LeFort
Fiona Adam
Stephen Bishop
Mads Haugaard
Christian Hoengaard
Robert Steele

Position
Chief Executive Officer
Chief Financial Officer
Chief Executive Officer, 180 Medical
President Americas
President EMEA
President, B2B and Infusion Devices
President APAC
Executive Vice President, Operations
Executive Vice President, Human Resources
Executive Vice President and General Counsel
Senior Vice President, Corporate Development
Vice President and General Manager, Wound Therapeutics
Vice President, Research & Development
Vice President and General Manager, Continence & Critical Care
Vice President and General Manager, Ostomy Care
Executive Vice President, Quality and Regulatory Affairs

Paul Moraviec  Paul Moraviec is the CEO of ConvaTec. Mr. Moraviec joined ConvaTec in 2009 as President of EMEA, 
which is our largest geographic region. Mr. Moraviec has a track record of driving growth in major global healthcare companies 
across a number of medical device specialties including orthopedics, neurosurgery, diabetes and general surgery. Mr. Moraviec 
has held international leadership roles with Johnson & Johnson, Abbott Laboratories and Bausch and Lomb, as well as CEO 
roles with two early-stage venture capital funded companies. Mr. Moraviec holds a Master's degree in Marketing from Kingston 
University Business School in the U.K.

Nigel Clerkin   Nigel Clerkin is the Chief Financial Officer ("CFO") of ConvaTec. Mr. Clerkin was previously Executive 
Vice President and CFO of Elan Corporation, plc, a Dublin-based biotechnology company. He was part of a senior team that 
built significant shareholder value at Elan, culminating in its sale to Perrigo, a pharmaceutical manufacturer, in December 
2013. Mr. Clerkin joined Elan in 1998 and held a series of roles in strategic planning and finance prior to being named CFO 
in 2011. Earlier in his career, Mr. Clerkin was an auditor with KPMG. He holds a Bachelor's and Master's degree in accounting 
from Queens University, Belfast, and is a fellow of Chartered Accountants Ireland.

Ron Howell    Ron Howell is CEO of 180 Medical, ConvaTec’s business partner and a leader in the home delivery of disposable, 
intermittent catheters and urologic medical supplies in the U.S. Mr. Howell has been part of the 180 Medical family since 
2005. He was appointed CEO in 2015 after serving in various roles within the organization, most recently as Chief Operating 
Officer. Mr. Howell holds a Bachelor's degree in Organizational Leadership from Southern Nazarene University.

Tim Moran   Tim Moran is President of the Americas at ConvaTec. Mr. Moran joined ConvaTec in 2015 from Medtronic, 
where he was Vice President and General Manager of the Patient Care and Safety Division.  Prior to Medtronic, Mr. Moran 
was promoted to roles of increasing responsibility in sales, marketing and general management within Tyco Healthcare and 
Covidien. Prior to joining Kendall, he held sales positions with a number of medical and communications technology firms 
in the U.S. Mr. Moran holds a Bachelor of Arts degree in Organizational Communication from the State University of New 
York at Geneseo.

Antonio La Regina   Antonio La Regina is President of ConvaTec's EMEA region. Mr. La Regina joined ConvaTec in 2006 
as Managing Director for Italy. In 2011, he was appointed Vice President and General Manager of U.K./Ireland and Italy/
Greece. Most recently, he served as Vice President and General Manager for western and southern EMEA. Prior to joining 
ConvaTec, Mr. La Regina worked for Zambon Group and BMS in both Italy and France in a variety of commercial and 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

functional roles. He holds a degree in Biology, a Ph.D in Pharmacology and completed the General Management Program at 
CEDEP-INSEAD Business School in Fontainebleau in France. He is a member of the Eucomed Board of Directors.

John Lindskog   John Lindskog is the President of Infusion Devices. Mr. Lindskog joined ConvaTec in 2008 when, as General 
Manager of Unomedical’s Infusion Device business unit, he helped lead the integration of Unomedical into ConvaTec. His 
25 years of experience in the infusion devices industry began at Pharma-Plast, which later merged with Maersk Medical and 
became Unomedical. Mr. Lindskog holds a Bachelor's degree in Business Administration through the internal academy at the 
East Asiatic Company in Denmark, and a Graduate certificate in Business Administration from Copenhagen Business School.

George Poole   George Poole is President of ConvaTec's APAC region. Mr. Poole joined ConvaTec in 2015 from Medtronic, 
where he spent 14 years in leadership roles in commercial, marketing, operations and general management. For the last five 
years at Medtronic, Mr. Poole was a key member of Medtronic’s Asia Pacific management team, most recently serving as 
Vice President/Managing Director, Southeast Asia. Prior to Medtronic, he served in sales positions with Welch Allyn and 
Olympus America. Mr. Poole holds a Bachelor of Science degree in Economics from the State University of New York at 
Cortland.

Michael Sgrignari   Michael Sgrignari is Executive Vice President of Operations at ConvaTec. Mr. Sgrignari joined ConvaTec 
in 2015 from Medtronic's Covidien group, where he was Senior Vice President of Quality and Operations. Mr. Sgrignari joined 
Covidien’s predecessor company, Tyco Healthcare's U.S. Surgical Division, in 1991. He advanced through roles of increasing 
responsibility, and in 2007, as Vice President of Global Operations for Tyco Healthcare, he led the operations planning in the 
spin-off to form Covidien. Mr. Sgrignari holds a Bachelor of Science degree in Manufacturing Engineering from Boston 
University.

Marc Reuss    Marc Reuss is Executive Vice President of Human Resources at ConvaTec. Mr. Reuss joined ConvaTec in 
2015 from Novartis, where he was Global Head of Human Resources at the Vaccines and Diagnostics division, and, most 
recently, at Sandoz, Novartis' large generics division. Previously, Mr. Reuss spent eight years with Boston Scientific, serving 
in senior international Human Resources roles, and began his career at a number of leading aerospace, financial services and 
high-technology companies. He holds a Bachelor of Arts degree in Psychology from Potsdam College in New York state and 
a Master's degree in Human Resources from Emmanuel College in Boston.

Adam Deutsch   Adam Deutsch is Executive Vice President and General Counsel of ConvaTec. Mr. Deutsch joined ConvaTec 
in 2014 from Biomet, Inc., a leading global medical device company. His roles included Corporate Vice President and Associate 
General Counsel - Litigation, Investigations & Risk Management, as well as Chief Compliance Officer. Prior to joining Biomet, 
Mr. Deutsch was a partner and associate with prominent law firms based in Chicago. He holds a Bachelor of Arts degree from 
Rutgers University and a Juris Doctor degree from New York University School of Law.

Douglas  LeFort      Douglas  LeFort  is  Senior Vice  President  of  Corporate  Development  at  ConvaTec.  Mr.  LeFort  joined 
ConvaTec in 2011 from Freehand Surgical Ltd., where he was CEO from 2009 to 2011. Prior to joining Freehand Surgical 
Ltd., he held leadership positions with Abbott Laboratories Diabetes Care Division, Chiron Corporation and SC Johnson Inc. 
Mr. LeFort holds a Master of Business Administration from Henley Management College in the U.K.

Fiona Adam   Fiona Adam is the Vice President and General Manager of ConvaTec’s Wound Therapeutics business.  Ms. 
Adam joined ConvaTec in 1997 in the U.K. and later moved to the U.S. to manage the global commercialization of Flexi-
Seal® FMS in 2004. Prior to ConvaTec, Ms. Adam held sales and marketing roles at both Baxter Healthcare and Colgate 
Palmolive. Ms. Adam graduated from The Royal Veterinary College, London, and completed her business studies at The 
Chartered Institute of Marketing and Ashridge Business School in the U.K.

Stephen Bishop   Stephen Bishop is the Vice President, Research & Development at ConvaTec. Mr. Bishop joined ConvaTec 
in 1990.  Prior to joining ConvaTec, Mr. Bishop worked in R&D at Amersham International and UniLever’s Unipath division. 
Mr. Bishop holds a Bachelor's degree in Biochemistry from the University of Southampton and a postgraduate diploma in 
Industrial Pharmaceutical Studies from the University of Brighton, and is a Member of the Society of Biology.

Mads Haugaard   Mads Haugaard is the Vice President and General Manager of ConvaTec’s Continence & Critical Care 
business. Mr. Haugaard joined ConvaTec in 2008 as Marketing Manager of Unomedical’s Infusion Device business unit and 
has since held several positions as Marketing Director and Sales Director in ConvaTec’s business-to-business franchise. Prior 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

to joining ConvaTec, Mr. Haugaard held international marketing roles with Unomedical and Radiometer Medical. Mr. Haugaard 
holds a Master’s degree in International Business and Modern Languages from Odense University, Denmark.

Christian Hoengaard    Christian Hoengaard is Vice President and General Manager of Ostomy Care at ConvaTec. Mr. 
Hoengaard joined ConvaTec in 2015 from Coloplast, where he held a number of senior roles in global marketing and sales, 
most recently as Global Head of Consumer Marketing and Sales. Prior to joining Coloplast, Mr. Hoengaard was Global Head 
of Marketing at Damco International, part of global shipping conglomerate Maersk. He holds a Master of Science in Economics 
and Business Administration from Copenhagen Business School. He also attended Ashridge Business School and London 
Business School.

Robert Steele   Robert Steele is the Executive Vice President of Quality and Regulatory Affairs. Mr. Steele joined ConvaTec 
in 2014 from Stryker. His most recent role was Vice President of Regulatory Affairs, Quality Assurance and Clinical. Prior 
to Stryker, Mr. Steele held a variety of roles with medical technologies company KCI, including Vice President of Global 
Quality. Mr. Steele began his career as an engineer working at medical device manufacturing companies in the U.K. Mr. Steele 
holds a Bachelor of Arts degree in Electro Mechanical Engineering from Open University as well as two National Certificates 
in Mechanical Engineering and one in Electronic Engineering. He is a Chartered Engineer and Chartered Quality professional.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Principal Shareholders

The following table sets forth certain information concerning the significant shareholders of the Company.  The Company is 
a wholly owned subsidiary of the Parent. The Parent is a wholly owned subsidiary of Cidron, which in turn is wholly owned 
by Nordic Capital and Avista Capital Partners.

Name of Shareholder
Nordic Capital(2)
Avista Capital Partners(3)
Total

_______________________________

Total Percentage of Shares 
Beneficially Owned (%)(1)
69.85%
30.15%
100.00%

(1)

(2)

(3)

Nordic Capital and Avista Capital Partners ownership is shown pre-management dilution.  Refer to note 13 to the 2015 Financial
Statements in regards to management’s equity ownership in the Company.

Nordic Capital Fund VI, Nordic Capital Fund VII and certain co-investors.

Avista Capital Partners LP, Avista Capital Partners II LP and their affiliated funds and co-invest vehicles.

The following is a brief description of each of our significant beneficial shareholders:

Nordic Capital

Nordic Capital private equity funds create value in their investments through committed ownership and by targeting strategic 
development  and  operational  improvements.  Founded  in  1989,  Nordic  Capital  was  one  of  the  private  equity  pioneers  in 
northern Europe and has invested in a large number of companies operating in different sectors and regions.

Nordic  Capital’s  core  investment  principles  are  based  on  a  dedicated  partnership  with  the  management  of  its  portfolio 
companies.

Nordic Capital has significant experience in the healthcare sector, currently owning nine healthcare companies and having 
previously owned a further nine.

Avista Capital Partners

Founded in 2005, Avista Capital Partners is a leading private equity firm with offices in New York, London, and Houston. 
Avista Capital Partners strategy is to make controlling or influential minority investments in growth oriented healthcare, 
energy, media, consumer and industrial companies.  Through its team of seasoned investment professionals and industry 
experts, Avista Capital Partners seeks to partner  with exceptional management teams to invest in and add  value to well-
positioned businesses.

Avista Capital Partners has significant experience in the healthcare sector, having completed fifteen healthcare investments 
since Avista Capital Partners closed on its inaugural fund.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Certain Relationships and Related Party Transactions

The following is a summary of certain provisions of the instruments evidencing our material indebtedness.  This summary 
does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents.  In 
addition, please note that the provisions outlined below reflect facts and information about the debt instruments as of December 
31, 2015.  For further information regarding our existing indebtedness, please refer to note 12 and note 13 to the 2015 
Financial Statements. 

Management agreement

In connection with the acquisition of ConvaTec from BMS, on August 1, 2008, our Parent entered into a management agreement 
with Nordic Capital VII Limited, a Jersey limited company (together with any investment funds managed or advised by such 
entity, “Nordic”), Avista Capital Holdings, LP, a Delaware limited partnership (together with any investment funds managed 
or advised by such entity, “Avista”), and Cidron pursuant to which Nordic and Avista provide us and our affiliates with financial 
advisory and strategic planning services (the “Management Agreement”). Pursuant to the Management Agreement, we pay, 
on behalf of our Parent, Nordic an annual fee of $2.1 million and Avista an aggregate annual fee of $0.9 million, in each case 
payable in equal quarterly installments.  In the event that Nordic and its affiliates hold less than 10% of the outstanding ordinary 
shares of Cidron, the fee payable to Nordic shall be decreased to $0. In the event that Avista and its affiliates hold less than 
10% of the outstanding ordinary shares of Cidron, the fee payable to Avista shall be decreased to $0.

In addition, in the event of any subsequent business combination, including a sale of the business or an initial public offering 
of common stock (a “Subsequent Transaction”), payment will be made to each of Nordic and Avista, on a pro rata basis in 
proportion to their respective equity ownership immediately prior to such Subsequent Transaction, a fee which is customary 
in amount for such transactions, provided that such fee is approved by the Board of Directors of Cidron and that such fee shall 
not exceed 2% of the transaction value of such Subsequent Transaction.

The Management Agreement shall renew automatically on an annual basis unless terminated because neither Nordic nor Avista 
continue to hold at least 10% of the outstanding ordinary shares of Cidron or Cidron initiates an initial public offering of 
equity of Cidron or its successor entity. In the event of a transaction which results in termination of the Management Agreement, 
a lump sum payment will be made to Nordic and Avista in an amount equal to the aggregate fee which in each case would 
otherwise be payable to them during the period from the closing of such transaction until the completion of the then-remaining 
initial term or renewal term of the Management Agreement.

Pursuant to the Management Agreement, our Parent also agreed to pay to or on behalf of each of Nordic and Avista, promptly 
as billed (i) all reasonable out-of-pocket expenses incurred by Nordic and Avista in connection with the services rendered 
under the Management Agreement, (ii) all reasonable out-of-pocket expenses incurred by Nordic and Avista in connection 
with its investment in Cidron including, without limitation, its continued ownership of shares of the capital stock of Cidron, 
and (iii) all reasonable and documented out-of-pocket expenses incurred by each director appointed to the board of directors 
of a ConvaTec company in connection with attending regular and special meetings of such board of directors and any committee 
thereof. Also, we paid, on behalf of our Parent, certain fees to Nordic and Avista in connection with the ConvaTec Acquisition 
and the Unomedical Acquisition. 

In the event that a payment in respect of the annual fee payable to Nordic or Avista would result in a breach or event of default 
pursuant to an instrument of indebtedness to which any of the ConvaTec companies are a party (the “Indebtedness”) such 
payment shall not be paid to the extent that the payment of such amount would result in such breach or default, but instead 
shall be accrued on the books of the Parent and shall bear interest at 8.0% per annum. Furthermore, pursuant to the Management 
Agreement, the Parent shall not agree to any amendment of the terms of the Indebtedness which would specifically prohibit 
the payment of the annual fees under the Management Agreement or impose any higher financial test ratio or other pre-
condition more onerous than any terms of the Indebtedness in effect on the date of the Management Agreement. The Parent 
also agreed that, in the event that any ConvaTec companies incur additional indebtedness, such company shall not grant in 
favor of the holders of such additional indebtedness a covenant or right specifically prohibiting the payment of the annual 
fees under the Management Agreement or imposing any higher financial test ratio or other pre-condition more onerous than 
is applicable to the Indebtedness.

The Parent also agreed (i) to indemnify Nordic, Avista and their respective affiliates, partners, directors, officers, employees, 
agents and controlling persons for any and all losses, suits, proceedings, demands, judgments, claims, damages and liabilities 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

relating to or arising out of the services contemplated by the Management Agreement and (ii) to reimburse all costs and 
expenses in connection with any pending or threatened claim, action or proceeding arising there from, except where such loss 
is found to have resulted from the indemnified party’s willful misconduct or gross negligence.

Loan facility agreement

Additionally, we entered into a loan agreement with Cidron. Per this agreement, money will be loaned to Cidron to enable 
Cidron to repurchase Management Equity Plan Units that have been issued to employees or directors.  Interest on the loan 
accrues at 7.0% per annum. The outstanding loan and interest shall be due and payable at Cidron’s option. 

Mandatorily redeemable preferred equity certificates

In conjunction with the ConvaTec and Unomedical acquisitions and related transactions, we issued Series 1, 2 and 3 preferred 
equity certificates for an aggregate amount of €1,289.7 million  ($2,026.7 million) at the time of the acquisitions to the Parent. 

In accordance with their terms, the PECs are mandatorily redeemable by us upon the occurrence of certain events, including 
maturity of the Series 1 and 2 PECs on July 27, 2047 and the Series 3 PECs on August 27, 2047 or our liquidation (which 
includes voluntary or involuntary liquidation, insolvency, dissolution, or winding up of our affairs). Provided that a certain 
consolidated leverage test is met and no event of default is continuing or will arise, we may also voluntarily redeem, prepay, 
refinance or convert into equity any or all of the PECs in cash, shares, new PECs or property subject to a specified cap. PECs 
have priority over the common and preferred stock in the distribution of dividends. PECs were entitled to interest equivalent 
ranging from approximately 13% to 14% of the par value per annum on a cumulative basis, which was amended effective 
July 1, 2011 to a range of 7% to 9% of the par value per annum on a cumulative basis. PEC interest accrues monthly and 
compounds on an annual basis.

On a redemption (whether mandatory or voluntary), the accrued but unpaid interest on the PECs shall be payable only if and 
to the extent that we can make any payment out of funds available net of tax, we will not be insolvent after making such 
payment and such payment is permitted under the agreement governing the existing Credit Facilities. The par value of the 
PECs shall be payable only if and to the extent that we will not be insolvent after making such payment and such payment is 
permitted under the agreement governing the existing Credit Facilities. With respect to payment rights, redemption and rights 
upon liquidation, the PECs rank in priority to our share capital but subordinate to all our other present and future obligations 
including the existing Credit Facilities and the Notes.

The PECs are also subject to the subordination agreement described below under "Subordination agreement”.

The holders of the PECs do not have voting rights in respect to us by reason of ownership of the PECs. The PECs can only 
be transferred to other PEC holders, shareholders or affiliates of PEC holders or shareholders, and our consent is required to 
each transfer.

The PECs are included within total liabilities, as presented in our 2015 Financial Statements, at an amount of $2,716.4 million
(€2,500.9  million)  and  $2,879.1  million  (€2,379.9  million),  inclusive  of  accrued  and  unpaid  interest  of  $1,315.6  million
(€1,21 1.2 million) and $1,318.9 million (€1,090.2 million ) for the years ended December 31, 2015 and 2014, respectively.

Subordination agreement

Pursuant to a Subordination Agreement between, among others, CHB, ConvaTec Healthcare C S.à r.l., ConvaTec Healthcare 
D S.à r.l. (collectively, the “Subordinated Obligors”), the Agent on behalf of the Lenders under the existing Credit Agreement 
and the agent on behalf of the holders of the Senior Notes (collectively, the “Senior Representatives”), the PECs are subordinated 
in right of payment to the payment in full of the obligations under the Credit Facilities and the Senior Notes (collectively, the 
“Senior Obligations”). The Subordinated Obligors have agreed that until the payment in full of the Senior Obligations (i) in 
the event of any bankruptcy proceeding involving any borrower or guarantor of the Senior Obligations, no distribution in 
cash, securities or other property will be made to the Subordinated Obligors on account of the PECs, (ii) subject to certain 
exceptions set forth in the documentation relating to the Senior Obligations, distributions in cash, securities or other property 
to the Subordinated Obligors on account of the PECs will be restricted, (iii) no enforcement actions will be taken with respect 
to the PECs, and (iv) if any payments or distributions with respect to the PECs are made in violation of the Subordination 
Agreement, the Subordinated Obligor receiving such distribution will pay such amounts over to the Senior Representatives.

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

Description of Certain Financing Arrangements

The following is a summary of certain provisions of the debt instruments evidencing our material indebtedness. This summary 
does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents. In 
addition, please note that the provisions outlined below reflect facts and information about the debt instruments as of December 
31, 2015. For further information regarding our existing indebtedness, please refer to note 12 and note 13 to the 2015 Financial 
Statements and “Certain relationships and related party transactions—Mandatorily redeemable preferred equity certificates” 
within this Annual Report. 

The Amended Credit Facilities Agreement

Our Amended Credit Facilities Agreement consists of the Credit Facilities as follows: (i) $800.0 million U.S Dollar and €755.0 
million  term  loans,  (ii)  a  $200.0  million  Revolving  Credit  Facility,  and  (iii)  incremental  unfunded  term  facilities  (the 
"Incremental Term Facilities"), which will be available on the terms set out below. 

The Revolving Credit Facility makes available $200.0 million of committed financing of which up to $40.0 million will be 
available for utilization by way of issuance of letters of credit and up to $25.0 million for borrowings on same-day notice, 
referred to as swingline loans. Borrowings under the Revolving Credit Facility are used to finance our general corporate and 
working capital needs and are available for drawing in U.S. Dollars, Euros, and British Pound Sterling.

The Incremental Term Facilities, as amended, are unfunded commitments and may be available in one or more additional 
tranches of term loans or an increase to one or more tranches of existing term loans denominated in either U.S. Dollars and/
or Euros or an increase to the commitments under the Revolving Credit Facility provided that a certain leverage ratio is not 
exceeded and we satisfy certain requirements, including: no default or event of default, pro forma compliance with financial 
covenants, minimum borrowing amounts of $15.0 million and a maturity date and weighted average life-to-maturity of each 
individual loan within the Incremental Term Facilities that is greater than the weighted average maturity date of the Term 
Loan Facilities. Additionally, should the yield on the Incremental Term Facilities exceed the yield on the tranche of the Term 
Loan Facilities denominated in the same currency as such Incremental Term Facilities by more than 0.50%, then the yield on 
such tranche of the Term Loan Facilities will automatically increase such that the yield on such tranche of the Term Loan 
Facilities shall be 0.50% below the yield on the Incremental Term Facilities.  

The borrowers under the Credit Facilities are ConvaTec Inc., ConvaTec Healthcare E S.A. (the “Issuer”), ConvaTec Dominican 
Republic, Inc., ConvaTec Limited, and ConvaTec Holdings U.K. Limited (collectively, the "Borrowers").  The Credit Facilities 
are guaranteed by each of the borrowers along with certain of our remaining wholly-owned subsidiaries, which generate the 
majority of our consolidated Adjusted EBITDA (as defined in “EBITDA and Adjusted EBITDA” in the MD&A within this 
Annual Report). The Borrowers along with certain of our wholly-owned subsidiaries that guarantee the Credit Facilities are 
herein after referred to as the “Guarantors”, as defined in the Amended Credit Facilities Agreement. JPMorgan Chase Bank, 
N.A is both the collateral agent (the “Collateral Agent”) and administrative agent (the “Administrative Agent”) under the
Amended Credit Facilities Agreement.  As security for our obligations under the Credit Facilities, the Borrowers and certain
of the other Guarantors have granted an all asset lien subject to some exceptions.

Repayments and prepayments

The Credit Facilities will mature on June 15, 2020, provided that such date will be accelerated to (i) September 15, 2018 if 
more than 10% of the principal amount of the Senior Notes remain outstanding on such date or (ii) October 15, 2018 if more 
than 10% of the PIK Notes remain outstanding on such date. Any amounts still outstanding under the respective facilities at 
such times will be immediately due and payable.

Subject to certain conditions, we may voluntarily prepay our utilizations under the Credit Facilities in a minimum amount of 
$1.0 million (or its equivalent) for term loans or revolving loans and $100,000 (or its equivalent) for swingline loans.  Amounts 
repaid under the Term Loan Facilities may not be reborrowed. We may also voluntarily permanently cancel all or part of the 
available revolving commitments under the Credit Facilities in a minimum amount of $1.0 million (or its equivalent) by giving 
three business days’ prior notice to the Administrative Agent under the Credit Facilities.

In addition to voluntary prepayments, we are required to mandatorily prepay the Term Loan Facilities in full or in part in 
certain circumstances and subject to certain criteria, from the proceeds of asset sales above a specified threshold, the issuance 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

or incurrence of debt and from excess cash flow. Prior to the Refinancing, during the second quarters of 2015 and 2014, we 
made mandatory repayments of $43.6 million and $73.5 million, respectively, for excess cash retained in the business. In 
addition, in May 2015, we also made principal payment of $4.1 million related to the Credit Facilities. During the six months 
ended December 31, 2015, we made the scheduled September and December 2015 amortization payments applicable to the 
Credit Facilities, resulting in an aggregate principal reduction of $8.2 million.  At December 31, 2015, we estimated that we 
will  make  a  mandatory  prepayment  of  approximately  $17.4  million  in  the  second  quarter  of  2016.  The  estimated  2016 
mandatory prepayment will be applied against the remaining quarterly installments due under the Term Loan Facilities and 
then to the remaining installments thereafter on a pro rata basis, in accordance with the terms outlined in the Amended Credit 
Facilities Agreement.

Interest and fees

Borrowings under the Credit Facilities bear interest at either a Euro (EURIBOR) or U.S. Dollar (LIBOR) base rate, or an ABR 
(as defined below). EURIBOR interest is associated with borrowings under the Term Loan Facility denominated in Euros 
while borrowings under the Term Loan Facility denominated in Dollars may, at our option, be subject to LIBOR interest or 
ABR. Borrowings under the Revolving Credit Facility denominated in Euros may bear interest at either ABR or EURIBOR 
and borrowings denominated in any currencies other than Euros (including U.S. Dollars) may bear interest at either ABR or 
LIBOR. ABR, as defined in the Amended Credit Facilities Agreement, is the greater of (a) the Prime Rate (as defined in the 
Amended Credit Facilities Agreement), (b) the Federal Funds Effective Rate (as defined in the Amended Credit Facilities 
Agreement) plus 0.50% and (c) the Eurodollar Rate (as defined in the Amended Credit Facilities Agreement) for a one-month 
interest period plus 1.00%. The applicable margins for borrowing under the Term Loan Facilities are 3.25% with respect to 
both EURIBOR and LIBOR borrowings and 2.25% with respect to ABR borrowings. The applicable margins for revolving 
borrowings are 3.75% with respect to EURIBOR and LIBOR borrowings and 2.75% with respect to ABR borrowings. LIBOR 
and EURIBOR are each subject to a 1.0% floor and ABR margin is subject to a floor of 2.0%, in each case, for borrowings 
under the Term Loan Facilities. Each margin will step down by 25 basis points upon decreasing our consolidated total net 
leverage ratio to 3.50 to 1.00 or less.

We are required to pay a commitment fee of 0.75% per annum, quarterly in arrears, on available but unused commitments 
under the Revolving Credit Facility.

We are also required to pay fees related to the issuance of letters of credit and certain fees to the Administrative Agent and 
the security agent in connection with the Credit Facilities.

Covenants

The Credit Facilities contain customary operating and negative covenants including but not limited to covenants limiting:

•

•

•

incurrence of indebtedness;

incurrence of liens;

guarantee of obligations;

• mergers, consolidations, liquidations, dissolutions and other fundamental changes;

•

•

•

•

•

•

•

sales of assets;

dividends and other payments in respect of capital stock subject to an available amount built by retained excess cash flow;

acquisitions;

prepayments of debt and modifications of debt and organizational documents in a manner material and adverse to the
Lenders;

transactions with affiliates;

changes in fiscal year;

negative pledge clauses and clauses restricting subsidiary distributions; and

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ConvaTec Healthcare B S.à r.l. and Subsidiaries

•

changes in lines of business.

The Credit Facilities also require the Borrowers and each guarantor to observe certain customary affirmative covenants. Each 
set of annual and quarterly financial statements provided by us to the Administrative Agent under the Credit Facilities include 
a consolidated balance sheet, income and cash flow statement.

Financial covenants

Our financial and operating performance are monitored by financial covenants, which require us to ensure that the ratio of 
Consolidated First Lien Indebtedness minus Eligible Cash to Consolidated EBITDA, each as defined in the Amended Credit 
Facilities Agreement, does not exceed an agreed level at the end of any fiscal quarter when there are any loans or letters of 
credit in excess of $10 million (unless cash collateralized at 103% of their stated value) outstanding under the Revolving 
Credit Facility.

Events of default

The Credit Facilities contain customary events of default (subject in certain cases to agreed grace periods, thresholds and other 
qualifications), including but not limited to the following:

•

•

nonpayment of principal when due;

nonpayment of interest, fees or other amounts;

• material inaccuracy of a representation or warranty when made;

•

•

•

•

violation of certain covenants;

cross default to material indebtedness (including a cross default with respect to an Event of Default under, and as defined
in, the Indentures);

bankruptcy and related insolvency events of ConvaTec or its subsidiaries (other than immaterial subsidiaries);

certain ERISA/pension obligation events;

• material judgments;

•

•

•

actual or asserted invalidity of any guarantee, security document or subordination provisions or non-perfection of security
interest;

changes in the passive holding company activity of ConvaTec Healthcare B S.à r.l., ConvaTec Healthcare C S.à r.l.  or
ConvaTec Healthcare D S.à r.l.; and

a change of control.

The occurrence of an Event of Default (as defined in the Amended Credit Facilities Agreement) would, subject to agreed grace 
periods, thresholds and other qualifications, allow the lenders to accelerate all or part of the outstanding utilizations and/or 
terminate their commitments and/or declare all or part of their utilizations payable on demand and/or declare that cash cover 
in respect of letter of credit facilities is immediately due and payable.

Governing law

The Credit Facilities and any non-contractual obligation arising out of or in connection with it are governed by and construed 
and interpreted in accordance with New York law.

Intercreditor Agreement

The  Collateral Agent,  the Administrative Agent,  as  authorized  representative  for  lenders  under  the  Credit  Facilities,  and 
Deutsche  Trustee  Company  Limited,  as  authorized  representative  for  the  holders  of  the  Secured  Notes,  entered  into  an 
intercreditor agreement (as the same may be amended from time to time, the “Intercreditor Agreement”) on December 22, 
2010.  The Secured Notes were terminated and paid off simultaneously with an amendment to the Credit Facilities on June 

67

ConvaTec Healthcare B S.à r.l. and Subsidiaries

15, 2015 and so the Intercreditor Agreement no longer governs the relationship between the holders of the Secured Notes and 
the lenders under the Credit Facilities.  The Intercreditor Agreement was not terminated, however, as it may be amended from 
time to time in the future to add other parties (or their authorized representative) holding other indebtedness permitted to be 
secured on a first lien basis ( “Other First Lien Obligations”) that is permitted to be incurred under the Credit Facilities and 
that is permitted to be secured by first priority liens on the assets and property (such assets and property, the “Shared Collateral”) 
of the Issuer and the Guarantors that secure the obligations under the Credit Facilities (such obligations, including obligations 
under  certain  specified  swap  agreements  and  cash  management  agreements  with  lenders  and  their  affiliates,  the  “Credit 
Agreement Obligations”).

If additional Other First Lien Obligations are added under the Intercreditor Agreement in the future, the “Requisite Holders” 
will have the right to direct the Collateral Agent with respect to foreclosing upon, and taking other actions with respect to, the 
Shared Collateral, and the holders of each other series of First Lien Obligations will not have the right to take actions with 
respect to  the Shared  Collateral. “Requisite Holders”  means (i) at  any time the  aggregate principal amount of  the Credit 
Agreement Obligations is greater than 25% of the aggregate principal amount of the sum of the Credit Agreement Obligations 
and the Other First Lien Obligations (together, the “First Lien Obligations”), the holders of a majority of the outstanding 
principal amount of the Credit Agreement Obligations at such time; provided that at any time after the Other Authorized 
Representative  Enforcement  Date  and  during  which  the  conditions  giving  rise  to  such  Other Authorized  Representative 
Enforcement Date are continuing and for so long as the Requisite Holders as determined pursuant to this clause (i) (without 
giving effect to this proviso) shall not have directed the Collateral Agent to commence any enforcement actions under the 
Intercreditor Agreement, the “Requisite Holders” shall be the holders of a majority in aggregate principal amount of the then 
outstanding  Other  First  Lien  Obligations  and  (ii) at  any  time  the  aggregate  principal  amount  of  the  Credit Agreement 
Obligations is equal to or less than 25% of the aggregate principal amount of the First Lien Obligations, the holders of a 
majority of the outstanding principal amount of any then outstanding First Lien Obligations.

“Other Authorized Representative Enforcement Date” means the date which is 150 days (throughout which 150-day period 
the aggregate principal amount of the Other First Lien Obligations is at least 50.1% of the aggregate principal amount of the 
First Lien Obligations) after the occurrence of both (i) an Event of Default (under and as defined in any agreement governing 
any Other First Lien Obligations) and (ii) the Collateral Agent’s and each other authorized representative’s receipt of written 
notice from the authorized representative with respect to the agreement referred to in clause (i) certifying that (x) the aggregate 
principal amount of the Other First Lien Obligations is at least 50.1% of the aggregate principal amount of the then outstanding 
First Lien Obligations and that an Event of Default (under and as defined in the agreement governing the Other First Lien 
Obligations  for  which  it  is  the  authorized  representative)  has  occurred  and  is  continuing  and  (y) such  Other  First  Lien 
Obligations are currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with 
the terms of such agreement; provided that the Other Authorized Representative Enforcement Date shall be stayed and shall 
not occur and shall be deemed not to have occurred with respect to any Shared Collateral (1) at any time the Administrative 
Agent or the Collateral Agent (on behalf of the Administrative Agent or the other Secured Parties (as defined in the Credit 
Facilities)) has commenced and is diligently pursuing any enforcement action with respect to such Shared Collateral or (2) at 
any time the grantor that has granted the security interest in such Shared Collateral is then a debtor under or with respect to 
(or otherwise subject to) any insolvency or liquidation proceeding.

Only the Collateral Agent shall act or refrain from acting with respect to the Shared Collateral (including with respect to any 
intercreditor agreement with respect to any Shared Collateral), and then only on the instructions of the Requisite Holders, 
(ii) the Collateral Agent shall not follow any instructions with respect to such Shared Collateral (including with respect to any
intercreditor agreement with respect to any Shared Collateral) from any holder of First Lien Obligations other than the Requisite
Holders and (iii) no other holder of First Lien Obligations (other than the Requisite Holders) shall or shall instruct the Collateral
Agent to, commence any judicial or non-judicial foreclosure proceedings with respect to, seek to have a trustee, receiver,
liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or
power with respect to, or otherwise take any action to enforce its security interest in or realize upon, or take any other action
available to it in respect of, any Shared Collateral (including with respect to any intercreditor agreement with respect to any
Shared Collateral), whether under any agreement governing First Lien Obligations, applicable law or otherwise. No holder
of First Lien Obligations will contest, protest or object to any foreclosure proceeding or action brought by the Collateral Agent
or any other exercise by the Collateral Agent of any rights and remedies relating to the Shared Collateral, or to cause the
Collateral Agent to do so.

68

ConvaTec Healthcare B S.à r.l. and Subsidiaries

If an Event of Default (as defined in the applicable agreement governing First Lien Obligations) has occurred and is continuing, 
and the Collateral Agent is taking action to enforce rights in respect of any Shared Collateral, or any distribution is made in 
respect of any Shared Collateral in any bankruptcy case of the Issuer or the Guarantors or any holder of First Lien Obligations 
receives any payment pursuant to any intercreditor agreement (other than the Intercreditor Agreement) with respect to any 
Shared Collateral, then the proceeds of any sale, collection or other liquidation of any such collateral and the proceeds of any 
such distribution (subject, in the case of any such distribution, to the immediately following paragraph) to which the First 
Lien Obligations are entitled under any intercreditor agreement (other than the Intercreditor Agreement) shall be applied 
among the First Lien Obligations on a ratable basis, after payment of all amounts owing to the Collateral Agent.

Notwithstanding the foregoing, with respect to any Shared Collateral for which a third party (other than a holder of First Lien 
Obligations) has a lien or security interest that is junior in priority to the security interest of any series of First Lien Obligations 
but senior (as determined by appropriate legal proceedings in the case of any dispute) to the security interest of any other 
series of First Lien Obligations (such third party an “Intervening Creditor”), the value of any Shared Collateral or proceeds 
which are allocated to such Intervening Creditor shall be deducted on a ratable basis solely from the Shared Collateral or 
proceeds to be distributed in respect of the series of First Lien Obligations with respect to which such impairment exists.

If the Issuer or any Guarantor becomes subject to any bankruptcy case, the Intercreditor Agreement provides that if Issuer or 
any Guarantor shall, as debtor(s)-in-possession, move for approval of financing (“DIP Financing”) to be provided by one or 
more lenders (the “DIP Lenders”) under Section 364 of the U.S. Bankruptcy Code or the use of cash collateral under Section 363 
of the U.S. Bankruptcy Code, each holder of First Lien Obligations agrees that it will raise no objection to any such financing 
or to the liens on the Shared Collateral securing the same (“DIP Financing Liens”) or to any use of cash collateral that constitutes 
Shared Collateral, if the Requisite Holders support such DIP Financing or such DIP Financing Liens or use of cash collateral 
(and (i) to the extent that such DIP Financing Liens are senior to the liens on any such Shared Collateral for the benefit of the 
Requisite Holders, each other holder of First Lien Obligations will subordinate its Liens with respect to such Shared Collateral 
on the same terms as the liens of the Requisite Holders (other than any liens of any holders of First Lien Obligations constituting 
DIP Financing Liens) are subordinated thereto, and (ii) to the extent that such DIP Financing Liens rank pari passu with the 
liens on any such Shared Collateral granted to secure the First Lien Obligations of the Requisite Holders, each other holder 
of First Lien Obligations will confirm the priorities with respect to such Shared Collateral as set forth herein), in each case 
so long as (A) the holders of First Lien Obligations of each series retain the benefit of their liens on all such Shared Collateral 
pledged to the DIP Lenders, including proceeds thereof arising after the commencement of such proceeding, with the same 
priority vis-a-vis all the other holders of First Lien Obligations (other than any liens of the holders of First Lien Obligations 
constituting DIP Financing Liens) as existed prior to the commencement of the bankruptcy case, (B) the holders of First Lien 
Obligations of each series are granted liens on any additional collateral pledged to any holders of First Lien Obligations as 
adequate protection or otherwise in connection with such DIP Financing or use of cash collateral, with the same priority vis-
a-vis the holders of First Lien Obligations as set forth in the Intercreditor Agreement, (C) if any amount of such DIP Financing 
or cash collateral is applied to repay any of the First Lien Obligations, such amount is applied pursuant to the terms of the 
Intercreditor Agreement and (D) if any holders of First Lien Obligations are granted adequate protection with respect to the 
First Lien Obligations subject to the Intercreditor Agreement, including in the form of periodic payments, in connection with 
such DIP Financing or use of cash collateral, the proceeds of such adequate protection are applied pursuant to the Intercreditor 
Agreement; provided that the holders of First Lien Obligations of each series shall have a right to object to the grant of a Lien 
to secure the DIP Financing over any collateral subject to Liens in favor of the holders of First Lien Obligations of such series 
or its authorized representative that shall not constitute Shared Collateral; and provided, further, that the holders of First Lien 
Obligations receiving adequate protection shall not object to any other holder of First Lien Obligations receiving adequate 
protection comparable to any adequate protection granted to such holders of First Lien Obligations in connection with a DIP 
Financing or use of cash collateral.

The holders of First Lien Obligations acknowledge that the First Lien Obligations of any series may, subject to the limitations 
set  forth  in  the  other  agreement  governing  First  Lien  Obligations,  be  increased,  extended,  renewed,  replaced,  restated, 
supplemented, restructured, repaid, refunded, refinanced or otherwise amended or modified from time to time, all without 
affecting the priorities set forth in the Intercreditor Agreement defining the relative rights of the holders of First Lien Obligations 
of any series.

69

ConvaTec Healthcare B S.à r.l. and Subsidiaries

Issuer Loans

ConvaTec Healthcare E S.A., as lender and Issuer, and ConvaTec Healthcare D S.à r.l., as borrower, entered into the Issuer 
Loan, pursuant to which the Issuer lent to ConvaTec Healthcare D S.à r.l. an amount equal to the aggregate principal amount 
of the proceeds from the issuance of the Senior Notes and from the Term Loan (replacing the Secured Notes refinanced in 
June 2015), less certain costs and expenses.

The Issuer Loans constitute 

agreements without incorporating the terms of the Indentures.

The Issuer Loans are made and are payable in Euros and/or U.S. Dollars. All amounts payable under the Issuer Loans are 
payable to such account or accounts as the Issuer may designate.  The Issuer Loans are a term loan and a senior unsecured 
obligation of ConvaTec Healthcare D S.à r.l.

The Issuer assigned its rights in respect of the Issuer Loans as security for its obligations in respect of the Borrowers’ obligations 
in respect of the Credit Facilities.

70

ConvaTec Healthcare B S.à r.l. and Subsidiaries

Glossary

acute fecal incontinence or AFI.......... Also known as encopresis or soiling, and refers to the temporary involuntary passage 
of stool in adults or children, which occurs in the critical care setting and is most 
prevalent in ICUs, burn units, hospices and 

care facilities

acute wound........................................ Typically a surgical incision or traumatic wound whose causation is acute
Adhesive Coupling Technology™..... ConvaTec brand of proprietary adhesive fastening technology to connect the pouch 
to the skin barrier in a low profile design without a raised “snap on” ring; utilized 
by the ESTEEM synergy T
Includes dressings, pastes, and gels as well as of
compression and negative 
pressure  therapy  devices  that  promote  wound  healing  by  a  variety  of  methods 
(depending on the product) including effectively managing wound exudate, keeping 
environment,  protecting  the 
the  wound  moist  in  an  occlusive  or 
wound, managing infection, improving circulation and so forth

advanced wound care.........................

Ostomy System

AQUACEL® ..................................... ConvaTec advanced wound dressing, utilizing Hydrofiber Technology
AQUACEL® Ag................................ ConvaTec 

antimicrobial  advanced  wound  dressing,  utilizing 

Hydrofiber Technology

CE mark.............................................. European  regulatory  marking  to  signify  compliance  with  applicable  regulatory 

standards

chronic wound.................................... Complex wounds that are caused by repeated insults, which do not heal rapidly in 
the absence of interventional therapies, and, which include pressure, venous, arterial, 
and diabetic foot ulcers

Pouches collecting fecal output typically used as 
patients with formed to 

stool

disposable pouches for 

ConvaTec Moldable Technology™  .. ConvaTec brand for proprietary technology allowing for the skin barrier opening to 
be “molded” by hand (rather than cut with scissors) to customize the shape of the 
barrier for a patient’s unique stoma characteristics

colorectal cancer................................. Also known as colon/rectal cancer or bowel cancer, the surgery for which may result 

in the creation of a stoma

colostomy........................................... The  ostomy  procedure  in  which  the  colon  or  the  rectum  is  brought  through  the 

abdominal wall to allow for the passage of feces

conventional wound care.................... Generally involves products that provide “dry” healing if used as a primary dressing, 
or  are  supplementary  to  a  primary  moist  wound  healing  product  (serving  as  a 
secondary  dressing  to  hold  the  primary  dressing  in  place  and/or  absorb  excess 
exudate).  Examples  include  dressings  such  as  gauze  and  bandages,  and  fixation 
products such as adhesive strips and tapes
drainable pouches............................... Ostomy pouches possessing an opening at the bottom of the pouch for more frequent 
integrated 

draining of liquid stool or urine; closed with either a clip or a V
closure called InvisiClose

DuoDERM®   .................................... ConvaTec  brand  of  hydrocolloid  dressing  that  provides  a  moist  wound  healing 
to  the  skin  through  ConvaTec’s  proprietary 

environment  and 
Durahesive Technology

Durahesive®   ..................................... ConvaTec brand for proprietary skin adhesion technology with optimized properties 

to allow for 

adhesion 

effluent   ............................................. Generally refers to the feces or urine coming out of the body through an artificial 

opening such as a stoma

ESTEEM® ......................................... ConvaTec brand for a 

Ostomy System, 

or drainable pouch, 

with upgraded features similar to those found on 

systems

71

ConvaTec Healthcare B S.à r.l. and Subsidiaries

ESTEEM synergy®   .......................... ConvaTec brand for a T

Ostomy System employing the patented Adhesive 
Coupling  Technology  that  allows  for  a  low  profile  and  flexibility  typical  of  a 
drainable  and  urostomy 

system.  This  system  also  offers 

pouches

exudate............................................... Fluid, cells or cellular debris that has filtered from the circulatory system into a 
lesion or area of inflammation and deposited in tissues or on tissue surfaces and 
leaking out of the wound
ConvaTec brand  of  fecal  containment  device  designed  to  safely  and  effectively 
contain  and  divert  liquid  fecal  matter  to  protect  patients’  wounds  from  fecal 
contamination and reduce risk of skin breakdown and the spread of infection

® fecal management 
system or FMS   ............................

Foam.................................................. Typically, 

dressing  with 

feel  used  for  exuding 

wounds and for skin protection

hydrocolloid....................................... Dressing containing a polymeric hydrocolloid material which dissolves, gels, swells 
(or exhibits some combination of these actions) upon interaction with exudate to 
provide a moist wound healing environment. Hydrocolloid dressings are typically 
used for wounds with light to moderate exudates

Hydrofiber® Technology.....................  ConvaTec  proprietary  technology  based  on  the  unique  gelling  properties  of 
Hydrofiber materials; serves as the basis of the AQUACEL® , AQUACEL® Ag, and 
AQUACEL® Foam products
ConvaTec  proprietary  integrated  closure  system  utilized  in  drainable  ostomy 
pouches

InvisiClose™ .....................................

.

key opinion leader.............................. A medical industry term that refers to physicians who influence their peers’ medical 

practice
A system that combines as a single, integrated unit the skin barrier surrounding the 
stoma and the pouch collecting the effluent
ostomy ............................................... A surgical procedure in which an opening for the passage of feces or urine is created 
through the abdominal wall in patients with decreased small intestine, colon, rectum 
or bladder function

Regulatory clearance to market a medical device; usually reserved for 
Class III devices. The FDA will approve a PMA application if the application is 
found  to  have  reasonable  assurance  that  the  device  is  safe  and  effective  for  its 
intended purpose

Regulatory  process  requiring  the  device  be  deemed  as  safe  and  effective  as,  or 
substantially equivalent to, a legally marketed device that is not subject to 
approval (i.e. the “predicate” device)

skin barrier (wafer)............................. The 
barrier connecting to the ostomy pouch in either an integrated 
unit 
ostomy system), 
which  serves  to  secure  the  pouch  to  the  body  and  surround  the  stoma  opening, 
protecting the skin around the stoma from toxic effluent

ostomy system) or as a separate piece 

Sponsors or equity sponsors ............. Refers to Nordic Capital and Avista Capital Partners
stoma ................................................. The end of a shortened intestine that is surgically brought to and protrudes slightly 
from the abdominal surface in an ostomy procedure; the stoma lacks both sensation 
and sphincter control, hence preventing the patient from controlling the intestinal 
effluent

Stomahesive ® .................................... ConvaTec brand of proprietary skin adhesion technology for 

adhesion 

properties 

4 days)

 Natura® pouch system....... ConvaTec’s 

ostomy system that attaches via a plastic 
coupling mechanism that is snapped together, providing an audible click to let the 
user  know  it  is  secure.  Compatible  with  ConvaTec  Moldable  Technology  skin 
barriers, this system also offers 
Ostomy system which separate adhesive bodyside wafers and connecting pouches; 
includes both closed-end, drainable and urostomy pouches

drainable and urostomy pouches

72

ConvaTec Healthcare B S.à r.l. and Subsidiaries

urostomy............................................ A surgically created opening in the abdominal wall to divert urine to the exterior. 
This can be done by either diverting, using a part of the urinary tract or via a loop 
of the ileum

urostomy pouches............................... Ostomy pouches collecting urine only, and which possess a special valve or spout 

which adapts to either a leg bag or night drain tube for overnight urine collection

73

Index to financial statements

Consolidated Financial Statements of ConvaTec Healthcare B S.à r.l. and Subsidiaries (the “Company”) 

Independent Auditor’s Report
Consolidated Balance Sheets of the Company as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2015 and 2014
Consolidated Statements of Changes in Stockholder’s Deficit for the years ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to the Consolidated Financial Statements

F-2
F-4
F-5
F-6
F-7
F-8
F-9

F-6FFFfsFFd2

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Consolidated Balance Sheets
(All dollar amounts expressed in millions of U.S. dollars, except share and per share data)

As of December 31,

2015

2014

Assets
Current Assets:
  Cash and cash equivalents
Receivables, net
  Inventories
  Deferred income taxes, net
  Prepaid expenses and other current assets
Total Current Assets

  Property, plant and equipment, net
  Goodwill
  Intangible assets, net
  Deferred income taxes, net
  Restricted cash
  Other assets
Total Assets

Liabilities and Stockholder's Deficit
Current Liabilities:
  Accounts payable
  Short-term portion of long-term debt
  Accrued expenses and other current liabilities
  Accrued compensation
  Deferred revenue
  Accrued rebates and returns
  Deferred income taxes
Total Current Liabilities

  Long-term debt
  Mandatorily redeemable preferred equity certificates
  Accrued preferred equity certificates interest
  Deferred income taxes
  Other liabilities
Total Liabilities

Commitments and contingencies (note 17)

Stockholder's Deficit:
Preferred stock- €1 ($1.25) par value as of December 31, 2015 and 2014;
20,000 shares issued and outstanding at December 31, 2015 and 2014
Common stock- €1 ($1.25) par value as of December 31, 2015 and 2014;
112,157,883 shares issued and outstanding at December 31, 2015 and 2014
  Retained deficit
  Accumulated other comprehensive income (net of tax)
Total Stockholder's Deficit

$

$

$

$

$

$

269.6
231.9
229.0
14.0
39.5
784.0

255.1
838.1
1,697.2
6.0
5.7
56.0
3,642.1

95.7
21.5
100.7
43.6
4.3
18.5
4.7
289.0

2,585.0
1,400.8
1,281.4
210.7
54.0
5,820.9

—

140.7
(2,866.1)
546.6
(2,178.8)

Total Liabilities and Stockholder's Deficit

$

3,642.1

$

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

234.0
241.9
250.1
10.7
32.7
769.4

263.7
973.2
1,893.2
8.3
7.3
47.7
3,962.8

80.3
43.7
127.5
46.5
15.2
19.0
12.7
344.9

2,653.9
1,560.2
1,284.7
244.6
49.1
6,137.4

—

140.7
(2,657.1)
341.8
(2,174.6)

3,962.8

F-6FFFfsFFd2
F-4

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Consolidated Statements of Operations
(All dollar amounts expressed in millions of U.S. dollars)

Net sales
Cost of goods sold
Gross profit

Selling and marketing expenses
General and administrative expenses
Research and development expenses
Impairment of goodwill and long lived assets
Operating income

Interest expense, net
Foreign exchange
Other expense (income), net
Loss on extinguishment of debt
Loss before income taxes

(Benefit) provision for income taxes

Net loss

Years Ended December 31,
2014
2015

$

$

1,650.5
799.3
851.2

346.9
221.9
41.2
12.2
229.0

397.3
29.7
0.7
26.9
(225.6)

(16.6)

$

(209.0) $

1,735.5
821.8
913.7

397.0
195.2
37.2
73.7
210.6

449.6
19.3
(0.1)
—
(258.2)

28.3

(286.5)

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

F-5

ConvaTec Healthcare B S.à r.l. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(All dollar amounts expressed in millions of U.S. dollars)

Net loss
Foreign currency translation, including a tax expense of $19.7 in 2015 and
$23.3 in 2014
Other
Total Comprehensive Loss

$

$

Years Ended December 31,
2014
2015

(209.0) $

205.9
(1.1)
(4.2) $

(286.5)

243.8
0.6
(42.1)

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

F-6

ConvaTec Healthcare B S.à r.l. and Subsidiaries
Consolidated Statements of Changes in Stockholder’s Deficit
(All dollar amounts expressed in millions of U.S. dollars, except share data)

Preferred Stock

Common Stock

Shares

Amount

Shares

Amount

Retained
Deficit

Accumulated
Other
Comprehensive
Income

Total

January 1, 2014

20,000

— 112,157,883

$

140.7

$ (2,367.4) $

94.2

$

(2,132.5)

(286.5)

—

(286.5)

Net loss
Foreign currency translation,
including a tax expense of
$23.3 million
Other

—

—
—

—

—
—

—

—
—

—

—
—

(3.2)
—

December 31, 2014

20,000

— 112,157,883

140.7

(2,657.1)

Net loss
Foreign currency translation,
including a tax expense of
$19.7 million
Other

—

—
—

—

—
—

—

—
—

—

—
—

(209.0)

—
—

247.0
0.6

341.8

—

205.9
(1.1)

243.8
0.6

(2,174.6)

(209.0)

205.9
(1.1)

December 31, 2015

20,000

— 112,157,883

$

140.7

$ (2,866.1) $

546.6

$

(2,178.8)

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

F-7

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Consolidated Statements of Cash Flows
(All dollar amounts expressed in millions of U.S. dollars)

Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization
Income taxes
Impairment of goodwill and long lived assets
Foreign exchange loss
Non-cash interest expense
Amortization and write-off of deferred financing fees and original issue discount
Loss on extinguishment of debt
Share-based compensation
Other

Change in operating assets and liabilities:

Receivables, net
Inventories
Prepaid expenses and other assets
Deferred revenue
Accounts payable and accrued expenses
Other liabilities
U.S. and foreign income taxes
Other, net

Net cash provided by operating activities

Cash flows from investing activities:
Acquisition, net of cash acquired
Purchases of property, plant and equipment and capitalized software
Other, net
Net cash used in investing activities

Cash flows from financing activities:
Issuance of long-term debt, net of discount
Repayments of long-term debt
Payments of deferred financing fees
Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

Supplemental cash flow information:
Income taxes paid
Interest paid
Non-cash investing activities:
Accrued capital expenditures included in accounts payable and accrued expenses

Years Ended December 31,
2014
2015

$

(209.0) $

(286.5)

180.1
(53.3)
12.2
32.3
131.9
9.2
26.9
9.0
2.0

(11.4)
(3.3)
(5.2)
(10.9)
(2.5)
1.9
(5.4)
(4.5)
100.0

—
(36.7)
0.2
(36.5)

1,649.9
(1,630.9)
(27.3)
(8.3)

(19.6)

35.6

234.0

269.6

$

42.2
257.9

8.6

$
$

$

$

$
$

$

191.2
(11.4)
73.7
22.8
160.6
11.9
—
(0.9)
(1.3)

42.3
(22.6)
(7.3)
(2.8)
(19.8)
2.7
(0.3)
(5.0)
147.3

(42.5)
(44.7)
(1.0)
(88.2)

—
(73.6)
—
(73.6)

(22.9)

(37.4)

271.4

234.0

40.4
270.9

2.0

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

F-8

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

1. Basis of Presentation and Business Description

Basis of Presentation and Initial Capitalization

On August 1, 2008, ConvaTec was acquired by Cidron Healthcare Limited (“Cidron”), an entity owned by Nordic Capital 
and Avista Capital Partners (the “Equity Sponsors”), from Bristol-Myers Squibb (the “ConvaTec Acquisition”).  In connection 
with the ConvaTec Acquisition, Cidron formed a wholly owned subsidiary, ConvaTec Healthcare A S.à r.l. (the “Parent”). The 
Parent, a Luxembourg domiciled holding company, then incorporated a wholly owned subsidiary, ConvaTec Healthcare B 
S.à r.l. (“CHB” or the “Company”). CHB, a Luxembourg domiciled holding company, incorporated sub-holding companies 
to purchase the net assets/shares of ConvaTec. Subsequent to the ConvaTec Acquisition, a wholly owned subsidiary of the 
Company  acquired  the  stock  of  Unomedical  Holdings  a/s  (“Unomedical”)  on  September  2,  2008  (the  “Unomedical 
Acquisition”).  In conjunction with the ConvaTec Acquisition and the Unomedical Acquisition, the Company issued Series 
1, 2 and 3 mandatorily redeemable preferred equity certificates ("PECs"), entered into a Senior Facilities Agreement and 
Mezzanine Agreement and borrowed cash from the Parent, which was then converted to common stock of the Company.  
Subsequently, on December 22, 2010, all of the Company’s outstanding long term obligations under the Senior Facilities 
Agreement and Mezzanine Facilities Agreement were refinanced through the entry into credit facilities and the issuance of 
secured and unsecured private placement bonds. 

The accompanying consolidated financial statements (the "Consolidated Financial Statements") have been prepared by the 
Company  in  United  States  ("U.S.")  dollars  and  in  accordance  with  U.S.  generally  accepted  accounting  principles  (“U.S. 
GAAP”), applied on a consistent basis.  The Consolidated Financial Statements of the Company do not include the accounts 
of Cidron or the Parent. The Company considers the U.S. Dollar to be its functional currency. 

Business Description

The  Company  develops,  manufactures  and  markets  innovative  medical  technologies,  in  particular  products  for  ostomy 
management, advanced chronic and acute wound care, continence care, sterile single-use medical devices for hospitals, and 
infusion sets used in diabetes treatment infusion devices.  Principal brands include Natura®, SUR-FIT®, Esteem®, AQUACEL®, 
DuoDERM®,  Flexi-Seal®,  and  Unomedical.  These  products  are  marketed  worldwide,  primarily  to  hospitals,  medical 
professionals, and medical suppliers.  The Company relies on an internal sales force, and sales are made through various 
distributors around the world.  The Company manufactures these products in the U.S., the United Kingdom (“U.K.”), the 
Dominican Republic, Denmark, Slovakia, Mexico, Belarus, and Malaysia. The Company, through its wholly owned subsidiary, 
180 Medical Holdings, Inc. (“180 Medical”), also distributes disposable, intermittent urological catheters to customers in the 
U.S.  

2.  Significant Accounting Policies 

Basis of Consolidation

The Consolidated Financial Statements include all subsidiaries controlled by the Company. All intercompany balances, intra-
division balances and transactions have been eliminated. 

Use of Estimates

In preparing the Consolidated Financial Statements, management is required to make certain estimates and assumptions that 
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial 
statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by 
management include: (i) annual goodwill and indefinite-lived asset impairment tests; (ii) sales allowances including chargeback 
and product return accruals; (iii) legal contingencies; and (iv) the determination of fair value of the Management Executive 
Plan ("MEP"), Annual Equity Program ("AEP"), and Management Incentive Plan ("MIP") awards.  Management also makes 
significant estimates in recording the allowance for its doubtful accounts, inventory reserves, income tax reserves and valuation 
allowances. Estimates by their nature are based on judgment and available information at the time; as such, actual results may 
differ from estimated results. 

F-9

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the 
Company's business and new information as it becomes available. If historical experience and other factors used by management 
to make these estimates do not reasonably reflect future activity, the Company's results of operations, financial position, and 
cash flows could be materially impacted. 

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with maturities of three months or less when purchased.

Restricted Cash

In certain instances, there are requirements to set aside cash for guarantees on the payment of value added taxes, custom duties 
on imports, tender programs, and vehicle/office leases by financial institutions on the Company’s behalf.  Total restricted 
balances were $8.6 million and $7.8 million at December 31, 2015 and 2014, respectively, of which $2.9 million and $0.5 
million were current assets and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Revenue Recognition

The Company’s revenues are derived from sales of products and are recognized when substantially all the risks and rewards 
of ownership have transferred to the customer, there is persuasive evidence that an arrangement exists, the price is fixed and 
determinable,  and  collectability  is  reasonably  assured.  Generally,  products  are  insured  through  delivery  and  revenue  is 
recognized upon the date of receipt by the customer. When all of the above mentioned revenue recognition criteria are not 
met, the Company defers revenue, until such time all of the criteria are met. Revenues are reduced at the time of recognition 
to reflect expected product returns and chargebacks, discounts, rebates and estimated sales allowances based on historical 
experience and updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction 
of revenue. Amounts collected from customers and remitted to government authorities, such as value-added taxes in foreign 
jurisdictions, are presented on a net basis in the Company's Consolidated Statements of Operations and do not impact net 
product sales.  

Sales Rebates, Chargebacks and Product Return Accruals

Accruals for sales rebates and discounts, as well as for product returns, are established in the same period the related revenue 
is recognized, resulting in a reduction to sales and the establishment of a liability for amounts unpaid, and are included in 
Accrued rebates and returns in the Consolidated Balance Sheets. An accrual is recorded based on an estimate of the proportion 
of recorded revenue that will result in a rebate or return. Chargebacks are also established in a similar manner and are recorded 
as a reduction to accounts receivable.

Income Taxes 

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes.  
Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of 
assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the 
current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial 
and tax bases of the assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates 
that apply to taxable income in effect for the years in which those tax attributes are expected to be recovered or paid, and are 
adjusted for changes in tax rates and tax laws when changes are enacted. 

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be 
realized. The assessment of whether or not a valuation allowance is required often requires significant judgment including 
the long-range forecast of future taxable income and the evaluation of tax planning strategies and ability to carry back any 
losses under the relevant tax law. Adjustments to the deferred tax valuation allowances are recorded in the period when such 
assessments are made. 

The Company applies the principles of the income tax accounting guidance that addresses the accounting for uncertainty in 
income taxes recognized in an enterprise’s financial statements as well as the determination of whether a tax position is 
effectively settled for the purpose of recognizing previously unrecognized tax benefits. In accordance with the aforementioned 
guidance, the Company evaluates all tax positions using a more-likely-than-not threshold and measurement attribute for the 

F-10

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences 
between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to 
income taxes payable or receivable, or adjustments to deferred taxes, or both.

Fair Value of Financial Instruments

The estimated fair values of cash and cash equivalents, receivables, prepaid expenses and other assets, accounts payable, 
accrued expenses and other liabilities approximate their carrying values due to their short-term maturities. The fair value of 
PECs approximate their carrying values due to the holders’ ability to redeem the instruments at face value at issuance. The 
fair values of marketable securities and long-term debt are valued based on the quoted market prices for same or similar 
investment characteristics and debt issuances. 

Accounts Receivable

Credit is extended to customers based on the evaluation of the customer’s financial condition. Creditworthiness of customers 
is evaluated on a regular basis. Accounts receivable consists of amounts billed and currently due from customers. An allowance 
for doubtful accounts is maintained for estimated losses that result from the failure or inability of customers to make required 
payments. In determining the allowance, consideration includes the probability of recoverability based on past experience 
and general economic factors. Certain accounts receivable may be fully reserved when specific collection issues are known 
to exist, such as pending bankruptcy. The Company charges off uncollectible receivables at the time it is determined the 
receivable is no longer collectable. The Company does not charge interest on past due amounts. The analysis of receivable 
recoverability is monitored and the bad debt allowances are adjusted accordingly.  Accounts receivable are also reduced at 
the time of revenue recognition to reflect prompt pay discounts and chargebacks. 

Concentration of Credit Risk

Financial instruments that potentially expose the Company to credit risk consist primarily of cash and cash equivalents and 
accounts receivable, which are generally not collaterized or factored.  However, in some instances, the Company does have 
recourse and non-recourse factoring agreements, where certain accounts receivable balances are transferred to unrelated third 
parties.  Refer to note 7 titled "Receivables, Net" for further information.  

The Company sells its products primarily through an internal sales force and sales are made through various distributors 
around the world. For the year ended December 31, 2015, no single customer generated more than 10% of our net sales. Credit 
risk with respect to accounts receivable is generally diversified due to the large dispersion of customers across many different 
industries  and  geographies.  Exposure  to  credit  risk  is  managed  through  credit  approvals,  credit  limits  and  monitoring 
procedures. The Company’s business generally involves large customers and if one or more of those customers were to default 
in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses.  
However, management believes that its customers have a stable financial condition and the reserves for potential losses are 
adequate. 

Inventories

Inventories are stated at the lower of cost or market with the cost principally determined using an average cost method. The 
cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and indirect production 
overhead. Production overhead comprise indirect material and labor costs, maintenance and depreciation of the machinery 
and production buildings used in the manufacturing process as well as costs of production administration and management. 

The Company evaluates the carrying value of inventories on a regular basis, taking into account such factors as historical and 
anticipated future sales compared with quantities on hand, the price the Company expects to obtain for products in their 
respective markets compared with historical cost and the remaining shelf life of goods on hand.

Property, Plant and Equipment

Property, plant and equipment are reported at cost, less accumulated depreciation. Replacements of major units of property 
are capitalized and replaced properties are retired. Replacements of minor components of property and repair and maintenance 
costs are charged to expense as incurred. Depreciation is calculated using the straight-line method, commencing when the 
assets become available for productive use, based on the following estimated useful lives:

F-11

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Buildings
Building equipment and depreciable land improvements
Machinery, equipment and fixtures
Other equipment

20 - 50 years
15 - 40 years
5 - 20 years
3 - 5 years

Leasehold improvements and assets under capital lease arrangements are amortized over the lesser of the asset's estimated 
useful life or the term of the respective lease. Maintenance costs are expensed as incurred. Construction-in-progress reflects 
amounts incurred for property, plant, equipment construction or improvements that have not been placed in service. Interest 
is capitalized in connection with the construction of qualifying capital assets during the period in which the asset is being 
installed and prepared for its intended use. Interest capitalization ceases when the construction of the asset is substantially 
complete and the asset is available for use. Capitalized interest cost is depreciated on a straight-line method over the estimated 
useful lives of the related assets. 

Intangible Assets

Intangible assets are reported at cost, less accumulated amortization.  Intangible assets with finite lives are amortized over 
their estimated useful lives.  Amortization is calculated using the straight-line method based on the following estimated useful 
lives:

Patents, trademarks, and licenses
Technology
Capitalized software
Contracts and customer relationships
Non-compete agreements
Trade names(1)

_______________________________

3 - 20 years
10 - 18 years
3 - 10 years
2 - 20 years
3 - 5 years
10 years

(1) 

Trade  names  useful  lives  shown  in  the  table  above  does  not  include  the  Company's,  Unomedical,  and  Symbius  Medical,  LLC 
(“Symbius”) trade names, which have indefinite useful lives and are not amortizable. See note 3 titled "Business Combination" and 
note 11 titled "Intangible Assets, Net" for further information regarding the Symbius and the Company's trade names, respectively.

Internal-use Software Costs 

Internal-use software, whether purchased or developed, is capitalized and amortized using the straight-line method. Generally, 
internal-use software is amortized over an estimated useful life of three to five years, excluding ConvaTec's legacy internal-
use software, which is amortized over an estimated useful life of seven to ten years. Costs associated with internal-use software 
are expensed during the design phase until the point of which the project has reached the application development stage. 
Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent they will result in 
added functionality. Software maintenance and training costs are expensed in the period in which they incurred. The Company 
capitalized $3.3 million and $1.7 million of internal-use software in 2015 and 2014, respectively.  Amortization expense for 
capitalized software was $5.6 million and $6.2 million in 2015 and 2014, respectively. 

Impairment of Long-Lived Assets

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the 
carrying value of an asset may not be recoverable. If indicators of impairment are present, the asset is tested for recoverability 
by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived 
from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired 
and its carrying value is written down to fair value, based on the related estimated discounted future cash flows. 

Indefinite-lived intangible assets consisting of trade names are tested for impairment annually or more frequently if events or 
changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-lived 
intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value, without 
consideration of any recoverability test. In the evaluation of indefinite-lived intangible assets for impairment, the Company 
may perform a qualitative assessment to determine if it is more likely than not that an indefinite-lived intangible asset is 

F-12

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. If it is not, no further 
analysis is required. If it is determined, based on a qualitative assessment, that it is more likely than not that the indefinite-
lived intangible asset is impaired it will require a quantitative impairment test. The impairment test consists of a comparison 
of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair 
value, an impairment loss is recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted 
carrying amount of the intangible asset is its new accounting basis. Refer to note 11 titled "Intangible Assets, Net" for further 
details.

Goodwill

Goodwill represents the excess of the purchase price in acquired businesses over the fair value of the identifiable net assets 
acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit 
is the same as, or one level below, an operating segment. 

An interim goodwill impairment test in advance of the annual impairment assessment may be required if events or changes 
in circumstances occur that indicate an impairment might be present. In the evaluation of goodwill for impairment, the Company 
may perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less 
than its carrying amount. If it is not, no further analysis is required. If it is, a prescribed two-step goodwill impairment test is 
performed to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized 
for that reporting unit, if any.  In the first step of the test, a fair value is calculated for each of the identified reporting units, 
and that fair value is compared to the carrying value of the reporting unit, including the reporting unit’s goodwill. If the fair 
value of the reporting unit exceeds its carrying value, there is no impairment, and the second step of the test is not performed. 
If the carrying value of a reporting unit exceeds its fair value, then the second step of the test is required.  The second step of 
the test compares the implied fair value of the reporting unit’s goodwill to its carrying value. If the implied fair value of the 
reporting unit’s goodwill is in excess of its carrying value, no impairment is recorded. If the carrying value is in excess of the 
implied fair value, an impairment charge equal to the excess is recorded.  

During the fourth quarter of 2015, the Company performed its annual goodwill impairment test and determined that none of 
the goodwill associated with its reporting units was impaired.

Contingencies

In the normal course of business, the Company is subject to loss contingencies, such as claims and assessments arising from 
litigation and other legal proceedings government investigations, product and environmental liability, and tax matters. Accruals 
for loss contingencies are recorded when the Company determines that it is both probable that a liability has been incurred 
and the amount of loss can be reasonably estimated. If the estimate of the amount of the loss is a range and some amount 
within the range appears to be a better estimate than any other amount within the range, that amount is accrued as a liability. 
If no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued as a 
liability. These accruals are adjusted periodically as assessments change or additional information becomes available.

If no accrual is made for a loss contingency because the amount of loss cannot be reasonably estimated, the Company will 
disclose contingent liabilities when there is at least a reasonable possibility that a loss or an additional loss may have been 
incurred.

Shipping and Handling Costs

The Company typically does not charge customers for shipping and handling costs. Shipping and handling costs expensed in 
2015 and 2014 were $71.9 million and $77.7 million, respectively.  These costs are included in selling and marketing expenses. 

Advertising and Promotion Costs

Advertising costs comprise product samples, print media and promotional materials. Advertising and promotion costs are 
expensed as incurred. Advertising and promotion costs expensed in 2015 and 2014 were $35.9 million and $39.5 million, 
respectively. These costs are included in selling and marketing expenses. 

Interest Expense

F-13

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Interest expense includes standby fees and the amortization of debt discounts and deferred financing costs. Interest costs are 
expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is capitalized. 
The capitalized interest recorded in 2015 and 2014 was not material. 

Research and Development

Research  and  development  expenses  are  comprised  of  costs  incurred  in  performing  research  and  development  activities 
including payroll and benefits, clinical manufacturing and pre-launch clinical trial costs, manufacturing development and 
scale-up costs, product development and regulatory costs, contract services and other outside contractor costs, research license 
fees, depreciation and amortization of lab facilities, and lab supplies. Research and development costs are expensed as incurred. 
For milestones achieved prior to regulatory approval of the product, such payments are expensed as research and development. 
Milestone payments made in connection with regulatory approvals, including non-U.S. regulatory approvals, are capitalized 
and amortized to cost of products sold over the estimated useful life of the approved product.  No milestone payments were 
made in connection with regulatory approvals, including non-U.S. regulatory approvals and additional indications during 
2015 or 2014.  

Share-Based Compensation

The Company’s Parent grants share-based compensation to employees under the AEP, the MEP, and the MIP. Certain features 
of share-based awards require the awards to be accounted for as liabilities as opposed to equity.  Liability awards are required 
to be updated to fair value at the end of each reporting period until settlement. Share-based compensation cost is measured at 
the grant date based on the fair value of the award. Share-based compensation expense is recognized on a straight-line basis 
over the vesting period. Fair value of the Company's equity is estimated using an income approach and further substantiated 
with a market approach. The income approach is deemed to be the most indicative of the Company’s estimated fair value in 
an orderly transaction between market participants and is consistent with the methodology used for the equity valuation in 
prior years. Under the income approach, the Company determines fair value using the discounted cash flow method which is 
based on an analysis of the Company’s projected financial information, significant debt-free cash flow assumptions, discount 
rate, terminal value, and indication of value. Under the market approach, the Company utilizes publicly-traded comparable 
company information to determine trailing and forward multiples that are used to value its equity for which the Black-Scholes 
pricing model is utilized. Inherent in the Black-Scholes model are assumptions related to expected volatility, option life, risk-
free  interest  rate  and  dividend  yield.  The  expected  volatility  is  estimated  based  on  historical  volatilities  of  comparable 
companies.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date with a term equal 
to the contractual term of the stock option. 

Share-based compensation is recognized in general and administrative expenses. Refer to note 15 titled "Employee Stock 
Benefit Plans" for a further description of the plans and the relevant accounting guidance applied by the Company.

Comprehensive Income 

Comprehensive income comprises net income and other comprehensive income. Other comprehensive income includes items 
such  as  foreign  currency  translation  adjustments  and  certain  pension  benefit  plan  adjustments.  Accumulated  other 
comprehensive income is recorded as a component of stockholder's deficit.

Foreign Currency Translation and Transactions

The assets and liabilities of the Company’s foreign operations having a functional currency other than the U.S. Dollar are 
translated into U.S. Dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the 
reporting period for revenue and expense accounts. The related equity accounts of subsidiaries are translated into U.S. Dollars 
at the historical rate of exchange. The cumulative foreign currency translation adjustment is recorded as a component of 
accumulated other comprehensive income in stockholder's deficit.

Foreign currency exchange gains and losses resulting from the re-measurement or settlement of transaction balances that are 
denominated in a currency other than an operation's functional currency and that are not of a long-term investment nature are 
recognized in net income.

Adoption of New Accounting Standards   

F-14

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

In April 2015, the Financial Accounting Standards Board ("FASB") issued guidance titled, Interest—Imputation of Interest 
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs which requires debt issuance costs to be presented in 
the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a 
debt discount.  The guidance is effective for fiscal years beginning after December 15, 2015, and interim periods beginning 
after December 15, 2016.  As permitted, the Company early-adopted this guidance in the fourth quarter of 2015. The adoption 
of this guidance, which was applied retrospectively and impacted presentation only, resulted in a reclassification of $31.9 
million as of December 31, 2014 from Other assets to Long-term debt (treated as a reduction to Long-term debt) on the 
Consolidated Balance Sheet. There was no impact on the Company's results of operations. In August 2015, the FASB issued 
guidance  about  the  presentation  and  subsequent  measurement  of  debt  issuance  costs  associated  with  line-of-credit 
arrangements. As permitted under this guidance, the Company will continue to present debt issuance costs associated with 
revolving-debt arrangements as assets.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2015

In February 2016, the FASB issued guidance titled, Leases (Topic 842) to increase transparency and comparability among 
companies by requiring recognition of lease assets and liabilities on the balance sheet and disclosure of key information about 
leasing arrangements.  The guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods 
within fiscal years beginning after December 15, 2020, with early application permitted. The guidance is required to be adopted 
at the earliest period presented using a modified retrospective approach.  The Company is evaluating the impact of adoption 
of this guidance on its Consolidated Financial Statements.  

In January 2016, the FASB issued guidance titled, Financial Instruments (Subtopic 825-10): Recognition and Measurement 
of Financial Assets and Financial Liabilities which amends the guidance on the classification and measurement of financial 
instruments.  Although it retains many current requirements, it significantly revises an entity's accounting related to (i) the 
classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for 
financial liabilities measured at fair value.  The guidance is effective for annual periods beginning after December 15, 2018, 
and interim periods within annual periods beginning after December 15, 2019.  Early application is permitted for annual 
periods beginning after December 15, 2017.  Adoption of this guidance is not expected to have a material impact on the 
Company’s Consolidated Financial Statements.

In November 2015, the FASB issued guidance titled, Income Taxes (Topic 740): Balance Sheet Classification of Deferred 
Taxes which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial 
position,  thereby  simplifying  the  current  guidance  under  which  an  entity  must  separate  deferred  taxes  into  current  and 
noncurrent amounts.  The guidance is effective for annual periods beginning after December 15, 2017, and interim periods 
within annual periods beginning after December 15, 2018.  Early application is permitted as of the beginning of an interim 
or annual reporting period.  The guidance may be applied either prospectively to all deferred tax liabilities and assets or 
retrospectively to all periods presented.  As this guidance relates to presentation only, the adoption of this guidance will not 
have a material impact on the Company’s Consolidated Financial Statements.

In July 2015, the FASB issued guidance titled, Inventory (Topic 330): Simplifying the Measurement of Inventory which requires 
inventory to be measured at the lower of cost and net realizable value, thereby simplifying the current guidance under which 
an entity must measure inventory at the lower of cost or market.  The guidance defines net realizable value as the estimated 
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  
The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning 
after December 15, 2017.  Early application is permitted and the guidance should be applied prospectively as of the beginning 
of an interim or annual reporting period.  The Company is evaluating the impact of adoption of this guidance on its Consolidated 
Financial Statements.  

In May 2014, the FASB issued new guidance titled, Revenue from Contracts with Customers (Topic 606) and the International 
Standards Board (“IASB”) has issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents 
completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition 
guidance for U.S. GAAP and IFRS. The new guidance affects any entity that either enters into contracts with customers to 
transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the 
scope  of  other  standards.  This  guidance  will  supersede  the  revenue  recognition  requirements  in  Topic  605,  Revenue 
Recognition, and most industry-specific guidance. The FASB recently voted to defer this standard’s effective date for one 

F-15

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

year.  For nonpublic entities, the amendments are now effective for annual reporting periods beginning after December 15, 
2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is 
permitted as of the following: (i) annual reporting periods beginning after December 15, 2016, including interim periods or 
(ii) annual reporting periods beginning after December 15, 2016, and interim periods within annual reporting periods beginning 
one year after the annual reporting period of initial application of the new standard. The Company continues to assess the new 
standard, as well as amendments to the standard that have been proposed by FASB, and has not yet determined the adoption 
date or the impact to the Company's Consolidated Financial Statements.

3.  Business Combination

In  accordance  with  the  Company’s  business  strategy  to  selectively  pursue  strategic  and  complementary  acquisitions,  the 
Company has acquired the business, as described below. The acquisition is included in the Consolidated Financial Statements 
from the acquisition date.  

On January 1, 2014, the Company through its subsidiary, 180 Medical, acquired all of the voting interest in Symbius, a national 
home medical supply company for a total consideration of $44.0 million. Of the consideration paid, $3.5 million was initially 
funded into escrow, primarily to satisfy potential future indemnity obligations, of which $0.5 million was released in 2014 
and the remaining escrow balance of $3.0 million was released in 2015. Symbius provides urological and other medical 
supplies nationally, as well as durable medical equipment on a regional basis. The addition of Symbius extended the Company’s 
ability to serve customers directly. 

The transaction has been accounted for in accordance with the acquisition method of accounting. The purchase price allocation 
of the acquisition resulted in the following:

Cash and cash equivalents
Receivables, net(a)
Inventories
Prepaid expenses and other current assets
Property, plant and equipment, net
Intangible assets(b)
Goodwill(c)
  Total assets acquired
Current liabilities
  Total liabilities assumed
  Net assets acquired

_______________________________

Amounts
Recognized

1.3
4.7
1.5
0.5
1.1
17.7
21.3
48.1
(4.1)
(4.1)
44.0

$

$

(a) 

The fair value of trade receivables acquired was $4.7 million, with the gross contractual amount being $6.8 million, of which $2.1 
million is expected to be uncollectible.

(b) 

The following table summarizes the fair values and associated useful lives assigned to intangible assets:

F-16

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Finite-lived intangible assets:
   Patents, trademarks, and licenses
   Contracts and customer relationships(1)
   Non-compete agreements(1)

Indefinite-lived intangible assets:
   Trade name(1)
Total Intangible Assets

_______________________________

Weighted Average
Useful Life

Amounts
Recognized

3 years
8.5 years
5 years

Indefinite lived

$

$

0.4
13.0
2.7
16.1

1.6
17.7

(1) 

In the fourth quarter of 2015, the Company recognized an impairment charge of $0.2 million related to the trade name. 
In the fourth quarter of 2014, the Company recognized impairment charges of $4.3 million, in the aggregate, related to 
these intangible assets. See note 11 titled "Intangible Assets, Net" for further information. 

(c) 

The goodwill from the acquisition consists of $1.3 million arising from assembled workforce and the remaining $20.0 million from 
synergies and economies of scale which are expected from the combined operations of 180 Medical and Symbius. Goodwill of $19.7 
million is deductible for tax purposes. 

4.  Related Parties 

The Parent maintains an agreement with the Equity Sponsors (the “Management Agreement”), whereby the Equity Sponsors 
provide certain management advisory services. For services rendered by the Equity Sponsors, an annual fee of $3.0 million
is payable in equal quarterly installments. The Company also pays other specified fees on behalf of the Parent, in accordance 
with the Management Agreement.  During the years ended December 31, 2015 and 2014, the Company paid (i) $3.0 million
in contractual fees to the Equity Sponsors on behalf of the Parent for services rendered in both years and (ii) an additional 
$1.5 million and $2.1 million for other fees, respectively.  The Consolidated Balance Sheets include a receivable from the 
Parent recorded in Other assets in the amount of $32.7 million and $26.1 million as of December 31, 2015 and 2014, respectively.  
The receivable is inclusive of accrued interest on the outstanding balance. 

Additionally, the Company loans money to Cidron in connection with the repurchase of MEP units. Interest on the loan accrues 
at 7.0% per annum.  The outstanding loan and interest shall be due and payable at the option of Cidron. As of December 31, 
2015 and 2014, the total outstanding loan amount of $16.9 million and $7.5 million, respectively, is recorded as equal and 
offsetting amounts within Stockholder’s equity. See note 15 titled "Employee Stock Benefit Plans" for further discussion 
regarding the MEP.

In connection with the Company’s initial capitalization, the Company issued PECs for an aggregate amount of € 1,289.7 
million. See note 13 titled "Mandatorily Redeemable Preferred Equity Certificates" for further discussion. 

The Company's net sales included $7.6 million and $9.1 million, in 2015 and 2014, respectively, of net sales to a related party.

F-17

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

5.  Restructuring

2015 Initiatives

In  2015,  the  Company  incurred  restructuring  charges  for  business  restructuring  activities,  primarily  related  to  severance 
benefits  for  involuntary  workforce  reductions  associated  with  the  closure  of  the  Company's  Hospital  Care  ("HC") 
manufacturing facility in Reynosa, Mexico. The Company's Infusion Devices ("ID") franchise, which has a separate existing 
facility in Reynosa, Mexico, plans to expand and repurpose the HC plant to support its manufacturing operations and its 
customers. During the year ended December 31, 2015, the Company recorded pre-tax charges of $2.1 million associated with 
these activities, of which $1.2 million, $0.7 million, and $0.2 million were recorded in Cost of  goods sold, General and 
administrative expenses, and Research and development expenses, respectively, in the Consolidated Statements of Operations.

2014 Initiatives

In 2014, the Company incurred restructuring charges for business restructuring activities, primarily related to termination 
benefits for involuntary workforce reductions associated with closure of the Company's operational headquarters in Skillman, 
New Jersey and the termination of certain executive management team members. All business activities performed at the 
facility in Skillman, New Jersey were transferred to other ConvaTec sites around the world. During the year ended December 31, 
2014, the Company recorded pre-tax charges of $13.7 million associated with these activities. These costs were recorded in 
General and administrative expenses in the Consolidated Statements of Operations.

Restructuring charges and spending against liabilities associated with the activities described above were as follows:

Employee Termination Liability
2014
Initiatives

2015
Initiatives

Total

Balance at January 1, 2014
     Charges
     Spending
     Changes in estimate
Balance at December 31, 2014
     Charges
     Spending
     Changes in estimate
Balance at December 31, 2015

$

$

— $
—
—
—
—
2.1
—
—
2.1

$

2.1
13.7
(11.0)
(0.1)
4.7
—
(3.2)
(0.2)
1.3

$

$

2.1
13.7
(11.0)
(0.1)
4.7
2.1
(3.2)
(0.2)
3.4

Liabilities above are included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

6.  Income Taxes 

The components of loss before income taxes were: 

U.S.
Non-U.S.

Years Ended December 31,

2015

2014

$

$

$

76.9
(302.5)
(225.6) $

54.7
(312.9)
(258.2)

The above amounts are categorized based on the location of the taxing authorities.

The (benefit) provision for income taxes consisted of:

F-18

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Current:
U.S. Federal
U.S. States
Non-U.S.

Deferred:
U.S. Federal
U.S. States
Non-U.S.

Effective Tax Rate

Years Ended December 31,

2015

2014

$

1.4
4.0
29.8
35.2

(26.2)
(0.4)
(25.2)
(51.8)
(16.6) $

—
2.0
38.5
40.5

9.0
0.6
(21.8)
(12.2)
28.3

$

$

The Company’s (benefit) provision for income taxes in 2015 and 2014 was different from the amount computed by applying 
the statutory U.S. Federal income tax rate to loss before income taxes, as a result of the following (percentages may not sum 
due to rounding):

Years Ended December 31,

2015

2014

2015(1)

2014(1)

Loss before income taxes
U.S. statutory rate
State taxes, net of federal effect
Foreign/U.S. tax differential
Foreign permanent items and tax credits
Domestic permanent items and tax credits
Valuation allowances
U.S. and foreign uncertain tax positions
Repatriation of foreign income
Deferred impact of tax rate changes
Other

$

$

(225.6) $
(79.0)
2.2
35.4
12.7
5.9
28.4
(0.2)
(18.1)
(7.0)
3.1
(16.6) $

(258.2)
(90.4)
2.4
15.7
32.5
5.0
55.5
0.2
2.8
(0.8)
5.4
28.3

35.0 %
(1.0)%
(15.7)%
(5.6)%
(2.6)%
(12.6)%
0.1 %
8.0 %
3.1 %
(1.4)%
7.4 %

35.0 %
(0.9 )%
(6.1 )%
(12.6 )%
(1.9 )%
(21.5 )%
(0.1 )%
(1.1 )%
0.3 %
(2.1 )%
(11.0)%

_______________________________

(1) 

Represents the percentage of loss before income taxes.

Deferred Taxes and Valuation Allowance

The components of current and non-current deferred income tax assets (liabilities) as of December 31, 2015 and 2014 were:

F-19

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

2015

2014

Deferred tax assets:

Inventory
Loss carryforward
Employee benefits
Other
Total deferred tax assets before valuation allowance
Less: valuation allowance
Net deferred tax assets

Deferred tax liabilities:

Equity
Other
Fixed assets and intangibles
Total deferred tax liabilities

Deferred tax liabilities, net

Recognized as:
Deferred Income Taxes—Current
Deferred Income Taxes—Non-Current
Total

$

$

$

$

$

5.1
487.9
3.3
81.4
577.7
(522.7)
55.0

(38.1)
(5.5)
(206.8)
(250.4)
(195.4) $

$

9.3
(204.7)
(195.4) $

7.7
519.7
1.0
44.7
573.1
(532.8)
40.3

(24.2)
(21.5)
(232.9)
(278.6)
(238.3)

(2.0)
(236.3)
(238.3)

The Company had U.S. federal net operating loss carryforwards of $142.5 million and $304.5 million and foreign net operating 
loss carryforwards of $1,575.5 million and $1,420.0 million as of December 31, 2015 and 2014, respectively.  The Company 
has state net operating loss carryforwards of $110.8 million and $150.1 million as of December 31, 2015 and 2014, respectively. 
The U.S. net operating loss carryforwards will begin to expire in 2021 and fully expire in 2035. Foreign net operating loss 
carryforwards expire at various points in time with the most significant having an indefinite expiration date.  

The valuation allowance was $522.7 million and $532.8 million as of December 31, 2015 and 2014, respectively.  The Company 
has concluded, based on the standard set forth in the FASB Codification related to income taxes that it is more likely than not 
that the Company will not realize any benefit from the deferred tax assets related to remaining U.S. net operating losses and 
Luxembourg net operating losses. The Company has decreased its valuation allowance by $10.1 million as of December 31, 
2015. This decrease primarily relates to the utilization of net operating losses in the U.S.

Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations 
provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result  
if there is an ownership change before the utilization or expiration of unused net operating losses and credits. 

The Company is not indefinitely reinvested in its unremitted earnings. However, if such earnings were remitted, they would 
generally not be subject to income tax due to the application of favorable domestic law and tax treaties. The Company has 
accrued $3.4 million and $21.5 million as of December 31, 2015 and 2014, respectively, related to taxes that would be due 
in certain jurisdictions where a remittance of earnings would be subject to tax. 

The Company conducts business in various countries throughout the world and is subject to tax in numerous jurisdictions. As 
a result of its business activities, the Company files a significant number of tax returns that are subject to examination by 
various Federal, state and foreign tax authorities.  Tax examinations are often complex, as tax authorities may disagree with 
the treatment of items reported by the Company and may require several years to resolve.  The liability for unrecognized tax 
benefits represents a reasonable provision for taxes that could be paid if various taxing authorities did not agree with the tax 
positions taken by the Company.  The effect of changes related to uncertain tax positions on the Company’s effective tax rate 
is included in the effective tax rate reconciliation above.

F-20

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax positions including 
interest and penalties:

Unrecognized tax benefits at January 1
Increases in tax positions for the current year
Increases in tax positions for prior years
Decrease in tax positions for prior years
Decreases due to settlements with taxing authorities
Lapse in statute of limitations
Unrecognized tax benefits at December 31

2015

2014

35.1
0.7
2.2
(0.5)
—
(5.1)
32.4

$

$

61.9
2.7
—
(1.8)
(27.7)
—
35.1

$

$

The uncertain tax benefits are recorded against the Company’s deferred tax assets to the extent the uncertainty directly related 
to that asset; otherwise, they are recorded as either current or non-current liabilities, depending on whether the Company will 
make payments in the next twelve months. 

The amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate were $26.7 million and $28.0 
million as of December 31, 2015 and 2014, respectively.  

The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense.  The amount of 
interest and penalties included in the unrecognized tax benefits at December 31, 2015 and 2014 is $5.8 million and $5.7 
million, respectively, and are included in the tabular rollforward above.

The Company is considered under examination by a number of tax authorities, including all of the major tax jurisdictions 
listed in the table below. The Company does not expect the unrecognized tax benefits as of December 31, 2015 to significantly 
change over the next twelve months. The Company believes that it has adequately provided for all open tax years by tax 
jurisdiction in compliance with the accounting guidance.

The following is a summary of major tax jurisdictions for which tax authorities may assert additional taxes against the Company 
based upon tax years currently under audit and subsequent years that may be audited:

Jurisdiction:
U.S.
U.K.
Japan
Denmark
Luxembourg
France
Italy
Germany

7.  Receivables, Net

Years
2012 to 2015
2014 to 2015
2009 to 2015
2010 to 2015
2010 to 2015
2009 to 2015
2010 to 2015
2012 to 2015

The components of receivables, net as of December 31, 2015 and 2014 were as follows: 

Trade receivables
Miscellaneous receivables

Less: allowances and chargebacks
Receivables, net

2015

2014

268.3
8.0
276.3
(44.4)
231.9

$

$

281.7
7.2
288.9
(47.0)
241.9

$

$

F-21

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

On December 23, 2014, the Company’s operations in Italy transferred certain accounts receivable to an unrelated third party 
through a non-recourse factoring agreement. The factoring agreement transfer was accounted for as a sale of receivables, as 
the Company did not retain any financial or legal interest in the factored receivables. Accordingly, such receivables have not 
been included in the Consolidated Balance Sheets. The amount of receivables factored was $6.4 million for the year ended 
December 31, 2014. Commission expenses incurred in connection with factoring activities amounted to $0.2 million and such 
amounts  were  included  within  Interest  expense,  net  in  the  Consolidated  Statements  of  Operations  for  the  year  ended 
December 31, 2014. 

Allowances  and  chargebacks  include  chargebacks,  sales  discounts,  and  allowance  for  uncollectible  accounts.  The  most 
significant portion of allowances and chargebacks relates to chargebacks, representing $30.4 million and $32.0 million of the 
amount as of December 31, 2015 and 2014, respectively. 

8.  Inventories

The components of inventories as of December 31, 2015 and 2014 were as follows:

Finished goods
Work in process
Raw and packaging materials
Inventories

 9.  Property, Plant and Equipment, Net

2015

2014

$

$

151.2
25.1
52.7
229.0

$

$

The major components of property, plant and equipment, net as of December 31, 2015 and 2014 were as follows:

Land
Buildings and building equipment
Machinery, equipment and fixtures(a)
Construction in progress

Less: accumulated depreciation
Property, plant and equipment, net

_______________________________

2015

2014

$

$

19.9
118.8
333.1
44.1
515.9
(260.8)
255.1

$

$

162.2
27.3
60.6
250.1

19.8
122.5
350.5
28.0
520.8
(257.1)
263.7

(a) 

In the year ended December 31, 2014, the Company recorded a write-off of $3.2 million on machinery, equipment and fixtures 
related to the manufacturing facility located in Rhymney, U.K.

Depreciation expense was $31.0 million and $35.5 million for the years ended December 31, 2015 and 2014, respectively, 
and is mainly included in Cost of goods sold in the Consolidated Statements of Operations.

F-22

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

10.  Goodwill

The changes in the carrying value of goodwill for the years ended December 31, 2015 and 2014 were as follows:

Balance as of January 1, 2014
   Acquisition(a)
   Changes in foreign exchange rates
   Impairment charge(b)
Balance as of December 31, 2014
   Changes in foreign exchange rates
Balance as of December 31, 2015

_______________________________

Total

1,183.3
21.3
(185.0)
(46.4)
973.2
(135.1)
838.1

$

$

(a) 

(b) 

Relates to the Symbius acquisition. Refer to note 3 titled "Business Combination" for further information.

Reflects an impairment charge recognized in the fourth quarter of 2014 in Impairment of goodwill and long lived assets in the 
Consolidated Statements of Operations related to the Asia-Pacific ("APAC") reporting unit. Impairment in the APAC reporting unit 
resulted in a complete impairment of goodwill assigned due to revised estimates of revenues and profitability, based on recent and 
anticipated future performance trends. For further information regarding this asset impairment charge, see note 16 titled "Fair Value 
Measurements".

During the fourth quarter of 2015, the Company performed its annual goodwill impairment test and determined that none of 
the goodwill associated with its reporting units was impaired. Accumulated impairment charges were $383.0 million as of 
December 31, 2015 and 2014. 

11.  Intangible Assets, Net

The major components of intangible assets, net as of December 31, 2015 and 2014 were as follows:

2015

2014

Weighted
Average
Useful Life

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Finite-lived intangible assets:

  Patents, trademarks, and licenses

  Technology

  Capitalized software
  Contracts and customer relationships(1)
  Non-compete agreements(1)
  Trade names

Indefinite-lived intangible assets:
  Trade names(2)

    Total intangible assets, net

18 years

17 years

7 years

15 years

5 years

10 years

NA

_______________________________

$

1,954.0

$

(803.7) $

1,150.3

$

2,001.6

$

(710.1) $

1,291.5

224.3

83.0

247.4

5.7

4.8

221.3

(95.0)

(58.0)

(81.5)

(3.5)

(1.6)

129.3

25.0

165.9

2.2

3.2

238.8

79.8

246.4

5.7

4.8

(86.9)

(52.6)

(65.9)

(2.5)

(1.1)

151.9

27.2

180.5

3.2

3.7

—

221.3

235.2

—

235.2

$

2,740.5

$

(1,043.3) $

1,697.2

$

2,812.3

$

(919.1) $

1,893.2

F-23

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

(1) 

(2) 

In the fourth quarter of 2014, the Company recognized impairment charges of $3.7 million, in the aggregate, related to contracts and customer 
relationships and non-compete agreements acquired in connection with the Symbius acquisition in January 2014. The impairment charges were 
driven by the loss of patients as a result of the alleged violation of non-compete clauses by certain former employees. For further information 
regarding these asset impairment charges, see note 16 titled "Fair Value Measurements".

In the fourth quarter of 2015, the Company recognized impairment charges of $12.2 million, in the aggregate, related to the Company's and Symbius 
trade name of $12.0 million and $0.2 million, respectively. In the fourth quarter of 2014, the Company recognized impairment charges of $17.2 
million, in the aggregate, related to the Company's and Symbius trade name of $16.6 million and $0.6 million, respectively. For further information 
regarding these asset impairment charges, see note 16 titled "Fair Value Measurements".

Foreign currency translation, primarily related to intangible assets denominated in British Pound Sterling, resulted in a decrease
of $63.0 million and $75.4 million in the gross carrying amount of intangible assets for the years ended December 31, 2015
and 2014, respectively. 

Amortization expense related to intangible assets for the years ended December 31, 2015 and 2014 was recorded as follows:

Cost of goods sold
General and administrative expenses
Total amortization expense

2015

2014

$

$

128.3
20.8
149.1

$

$

133.5
22.2
155.7

Expected aggregate amortization expense for each of the five succeeding years ending December 31 is as follows: 

Amortization expense

$

148.8

$

148.4

$

147.9

$

146.9

$

142.2

2016

2017

2018

2019

2020

12.  Long – Term Debt 

A summary of the Company’s consolidated long-term debt as of December 31, 2015 and 2014, respectively, is outlined in the 
table below:

Credit Facilities Agreement(1):
Revolving Credit Facility
U.S. Dollar Term Loans
Euro Term Loans

Credit Facilities

Secured Notes and Senior Notes:
7.375% Secured Notes(2)
10.5% U.S. Dollar Senior Notes
10.875% Euro Senior Notes

Capital Lease Obligations

Less: current portion
Total Long-Term Debt

_______________________________

Maturity Date

2015

2014

June 2020(3)
June 2020(3)
June 2020(3)

December 2018
December 2018

$

— $

790.0
811.6
1,601.6

—
736.4
268.3

0.2
2,606.5
21.5
2,585.0

$

$

—
762.2
546.0
1,308.2

357.6
733.7
297.9

0.2
2,697.6
43.7
2,653.9

F-24

 
ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

(1) 

(2) 

(3) 

As further described below, the Amended Credit Facilities Agreement (as defined below) consists of (i) U.S. Dollar and Euro term loans, (ii) a 
revolving credit facility, and (iii) incremental unfunded term facilities (collectively, the “Credit Facilities”). 

On June 15, 2015, the Company redeemed all of its outstanding €300.0  million ($338.5 million) aggregate principal amount of 7.375% senior secured 
notes due December 15, 2017 (the “Secured Notes”) for €322.1  million ($363.4 million), including a call premium of €1 1.1 million ($12.5 million), 
plus accrued and unpaid interest, and satisfied and discharged the Secured Notes indenture. In the year ended December 31, 2015, the Company 
recognized a loss on extinguishment of debt of $26.9 million, in the aggregate, of which $16.6 million was recognized in connection with the 
redemption of the Secured Notes.  

The Credit Facilities will mature on June 15, 2020, provided that such date will be accelerated to (i) September 15, 2018 if more than 10% of the 
principal amount of the Senior Notes (as defined below) remain outstanding on such date or (ii) October 15, 2018 if more than 10% of the Senior 
Payment-in-kind Notes (“PIK Notes”) remain outstanding on such date. Refer to “Management's Discussion and Analysis of Financial Condition 
Reconciliation to the Parent's Financial Statements” within this Annual Report for further information related to the PIK Notes.

The Company's Credit Facilities and indenture related to its Senior Notes (as defined below) contain customary covenants, 
including, among other things, covenants that restrict the Company's and its subsidiaries abilities to: (i) incur or guarantee 
additional indebtedness and issue certain preferred stock; (ii) create or incur liens; (iii) make certain payments, including 
dividends or other distributions, prepay or redeem subordinated debt or equity; (iv) make certain investments; (v) create 
encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to, and on the transfer of 
assets; (vi) sell, lease or transfer certain assets, including stock of restricted subsidiaries; (vii) engage in certain transactions 
with affiliates; and (viii) consolidate or merge with other entities.

The Company's Credit Facilities also contain a financial covenant, various customary affirmative covenants and specified 
events of default. The Company's indenture related to its Senior Notes (as defined below) also contains certain customary 
affirmative covenants and specified events of default. 

As  of  December 31,  2015,  the  Company  was  in  compliance  with  all  financial  covenants  associated  with  the  Company's 
outstanding debt.  

The aggregate maturities of debt obligations as of December 31, 2015 for each of the five succeeding years ending December 
31 and thereafter are as follows: 

2016
2017
2018
2019
2020
Thereafter
Total gross maturities
Unamortized discounts and deferred financing fees
Total long-term debt

Credit Facilities

$

$

21.5
0.1
1,016.6
—
1,590.6
—
2,628.8
(22.3)
2,606.5

On June 15, 2015, the Company entered into Amendment No.4 to the Credit Agreement (the "Amended Credit Facilities 
Agreement") to refinance the Company’s previous U.S. Dollar and Euro term loans and the revolving credit facility (the 
“Refinancing”). The Amended Credit Facilities Agreement provides for: (i) U.S. Dollar and Euro term loans of $800.0 million 
(issued at an offering price of 99.75%, after adjustment for a discount of $2.0 million) and €755.0  million, respectively, (the 
“Term Loan Facilities”), (ii) a $200.0 million revolving credit facility (the “Revolving Credit Facility”), and (iii) incremental 
unfunded term facilities (the “Incremental Term Facilities”). The Term Loan Facilities amortize quarterly at an annual rate of 
1%. The Revolving Credit Facility does not amortize.

The net proceeds from the Refinancing were used to: (i) repay amounts outstanding prior to the Refinancing under the U.S. 
Dollar term loans of $744.1 million and the Euro term loans of €436.4  million ($492.4 million), (ii) redeem all of the outstanding 
Secured Notes, as described above, and (iii) for general corporate purposes. In 2015, in connection with the Refinancing, the 
Company recognized a loss on extinguishment of debt of $26.9 million, in the aggregate, of which $10.3 million was recognized 
with respect to the Credit Facilities and comprised of $9.1 million of unamortized deferred financing fees and $1.2 million 

F-25

  
  
  
  
  
ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

of  unamortized  OID.  In  addition,  the  Company  incurred  fees  of  approximately  $14.9  million,  which  were  deferred  and 
capitalized over the term of the Credit Facilities.

The outstanding principal under the Term Loan Facilities denominated in U.S. Dollars and Euros was $796.0 million and 
€751.2  million ($816.0 million) at December 31, 2015 and $770.5 million and €455.2  million ($550.7 million) at December 31, 
2014. As of December 31, 2015 and 2014, unamortized deferred financing fees (treated as a reduction to Long-term debt) for 
the Term Loan Facilities were as follows: (i) U.S. Dollars term loans - $4.2 million and $7.4 million, respectively, and (ii) 
Euros term loans - $4.4 million and $4.1 million, respectively. In addition, as of December 31, 2015 and 2014, unamortized 
discounts for the U.S. Dollar term loans were $1.8 million and $0.9 million, respectively. The Euros term loans had unamortized 
discounts of $0.6 million as of December 31, 2014.  

The Revolving Credit Facility of $200.0 million is available through its termination date in certain currencies at the borrower’s 
option and is used to provide for ongoing working capital requirements, letters of credit, and general corporate purposes of 
the Company.  The Revolving Credit Facility allows for up to $40.0 million of letter of credit issuances as well as $25.0 million 
for  borrowings  on  same-day  notice,  referred  to  as  the  swingline  loans. There  were  no  borrowings  outstanding  under  the 
Revolving Credit Facility as of December 31, 2015 or December 31, 2014. Availability under the Revolving Credit Facility, 
after deducting the outstanding letters of credit of $2.6 million totaled $197.4 million as of December 31, 2015.  As of December 
31, 2015 and 2014, deferred financing fees for the Revolving Credit Facility were of $4.9 million and $0.4 million, respectively, 
and have been included in Other assets in the Consolidated Balance Sheets.       

The Incremental Term Facilities, as amended, may be available in one or more additional tranches of term loans or an increase 
to one or more tranches of existing term loans denominated in either  U.S. Dollars and/or Euros or an increase to the commitments 
under the Revolving Credit Facility provided that a certain leverage ratio is not exceeded and the Company satisfies certain 
requirements, including: no default or event of default, minimum borrowing amounts of $15.0 million and a maturity date 
and weighted average life-to-maturity of each individual loan within the Incremental Term Facilities that is greater than the 
weighted average maturity date of the Term Loan Facilities.  Additionally, should the yield on the Incremental Term Facilities 
exceed the yield on the Term Loan Facilities by more than 0.5%, then the yield on the Term Loan Facilities will automatically 
increase such that the yield on the Term Loan Facilities shall be 0.5% below the yield on the Incremental Term Facilities. 

Borrowings and commitments under the Credit Facilities, including the Term Loan Facilities, are subject to full or partial 
mandatory prepayments from the proceeds of asset sales above a specified threshold, the issuance or incurrence of debt and 
from excess cash flow retained in the business.  The amount and timing of the mandatory prepayments are subject to certain 
criteria.  Prior to the Refinancing, during the second quarters of 2015 and 2014, the Company made mandatory prepayments 
of $43.6 million and $73.5 million, respectively, for excess cash retained in the business. In addition, in May 2015, the Company 
also made principal payment of $4.1 million related to the Credit Facilities. During the six months ended December 31, 2015, 
the Company made the scheduled September and December 2015 amortization payments applicable to the Credit Facilities, 
resulting in an aggregate principal reduction of $8.2 million. At December 31, 2015, the Company determined that it will 
make a mandatory prepayment of approximately $17.4 million in the second quarter of 2016, which is included in the Short-
term portion of long-term debt on the Consolidated Balance Sheet. The 2016 mandatory prepayment will be applied against 
the remaining quarterly installments due under the Term Loan Facilities, in accordance with the terms outlined in the Amended 
Credit Facilities Agreement.

Borrowings under the Credit Facilities bear interest at either a Euro (EURIBOR) or U.S. Dollar (LIBOR) base rate, or an 
ABR.  EURIBOR  interest  is  associated  with Term  Loan  borrowings  denominated  in  Euros  while Term  Loan  borrowings 
denominated in Dollars may, at the Company's option, be subject to LIBOR interest or ABR.  Borrowings under the Revolving 
Credit Facility denominated in Euros may bear interest at either ABR or EURIBOR and borrowings denominated in any 
currencies other than Euros (including U.S. Dollars) may bear interest at either ABR or LIBOR. ABR, as defined in the 
Amended Credit Facilities Agreement, is the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% 
and (c) the Eurodollar Rate for a one-month interest period plus 1.0%.  The applicable margins for borrowing under the Term 
Loan Facilities are 3.25% with respect to both EURIBOR and LIBOR borrowings, and 2.25% with respect to ABR borrowings. 
The applicable margins for revolving borrowings are 3.75% with respect to EURIBOR and LIBOR borrowings and 2.75% 
with respect to ABR borrowings. LIBOR and EURIBOR are each subject to a 1.0% floor and ABR margin is subject to a floor 
of 2.0%. Each margin will step down by 25 basis points upon decreasing the Company's consolidated total net leverage ratio 
to 3.50 to 1.00 or less. 

F-26

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Borrowings under the Amended Credit Facilities Agreement are secured by substantially all of the Company’s assets.  Pursuant 
to the Amended Credit Facilities Agreement, the Company pledged certain properties as collateral with an aggregate carrying 
amount of $45.8 million as of December 31, 2015.  Any loan advances made under the Incremental Term Facilities will rank 
pari passu with the Term Loan Facilities and the Revolving Credit Facility. 

Senior Notes

The Senior Notes consist of $745.0 million senior notes (the “U.S. Dollar Senior Notes”) and €250.0  million ($271.6 million
at December 31, 2015 and $302.5 million at December 31, 2014) senior notes (the “Euro Senior Notes”) each due December 
15, 2018 (collectively the “Senior Notes”).  The U.S. Dollar Senior Notes and the Euro Senior Notes bear interest at the rate 
of 10.5% and 10.875% per annum, respectively, payable semi-annually on June 15 and December 15 of each year. As of 
December 31, 2015 and 2014, unamortized deferred financing fees (treated as a reduction to Long-term debt) for the Senior 
Notes were as follows: (i) the U.S. Dollar Senior Notes - $8.6 million and $11.3 million, respectively, and (ii) the Euro Senior 
Notes - $3.3 million and $4.6 million, respectively. 

The Senior Notes may be prepaid and are subject to a premium if payment is made prior to December 15, 2016.  Mandatory 
redemption of the Senior Notes is not required prior to their stated maturity dates.  The Senior Notes are unsecured obligations 
of the Company and are guaranteed on a senior basis by the Company.  They rank pari passu in right of payment with all of 
the Company’s existing and future obligations that are not subordinated in right of payment to the Senior Notes.

Interest Related Information

Accrued interest related to the Company’s outstanding debt obligations was $5.4 million and $6.3 million as of December 31, 
2015 and 2014, respectively, and is recorded in Accrued expenses and other current liabilities.  Interest expense in 2015 and 
2014,  associated  with  the  Credit  Facilities,  Secured  Notes  and  Senior  Notes,  was  $183.7  million  and  $204.3  million, 
respectively. The weighted average interest rate for borrowings under the Company’s outstanding debt obligations was 6.9% 
and 7.0% for the years ended December 31, 2015 and 2014, respectively. 

13.  Mandatorily Redeemable Preferred Equity Certificates

In connection with the Company’s initial capitalization, the Company issued Series 1, 2 and 3 PECs for an aggregate amount 
of  €1,289.7  million. The  PECs  are  mandatorily  redeemable  by  the  Company  in  2047  or  upon  liquidation  (which  entails 
voluntary or involuntary liquidation, insolvency, dissolution, or winding up of the affairs of the Company), or the Company 
has the option to voluntarily redeem any or all of the PECs, into cash, equity shares, new PECs or property that have an 
aggregate fair market value equal to the face value plus accrued unpaid dividends.  The Company shall also redeem part or 
all of the PECs, if prior to the maturity date, part or all of the amounts that the Company lent to a subsidiary from the proceeds 
of these PECs are paid back by the subsidiary.  If only part of the intercompany obligation is paid back by the subsidiary, then 
the PECs will be redeemed at an amount equal to lesser of (a) the pro rata portion of nominal principal and yield used to 
finance that portion of the subsidiary's obligation, or, (b) the maximum portion of these PECs that may be prepaid from the 
net proceeds from the subsidiary.  The PECs can only be redeemed to the extent the Company will not become insolvent after 
making such payment.  The PECs have been classified as debt as the PEC holders control a majority of the board of directors 
and, therefore, control the redemption rights. 

PECs have priority over the common and preferred stock in the distribution of dividends.  PECs are entitled to interest equivalent 
ranging from approximately 7% to 9% of the par value per annum on a cumulative basis.  PEC interest accrues monthly and 
compounds on an annual basis.  The PECs, which include current and non-current accrued interest, were $2,716.4 million
(€2,500.9  million) and $2,879.1 million (€2,379.9  million) at December 31, 2015 and 2014, respectively.  

The following table presents the current and non-current portion of accrued PECs interest recorded in both U.S. Dollar and 
Euro as of December 31, 2015 and 2014:

F-27

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Current(a)
Non-current(b)
Total accrued PEC interest

_______________________________

2015

34.2
1,281.4
1,315.6

€

$

$

31.5
1,179.7
1,211.2

$

$

2014

34.2
1,284.7
1,318.9

€

28.3
1,061.9
1,090.2

(a) 

(b) 

Included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Included in Accrued preferred equity certificates interest in the Consolidated Balance Sheets.

Total interest expense during the years ended December 31, 2015 and 2014 was $206.2 million (€185.7  million) and $234.6 
million (€176.5  million), respectively, which was classified as Interest expense in the Consolidated Statements of Operations. 
The PECs allow for distribution of interest to the extent permitted by the Company's restricted payment capacity, a specified 
leverage ratio and other provisions outlined in its debt agreements.  During the years ended December 31, 2015 and 2014, the 
Company made payments of $74.2 million and $68.6 million, in the aggregate, respectively, of accrued PEC interest to the 
Parent.  The Company anticipates that it will fund semi-annual cash interest payments to the Parent going forward. The cash 
interest payments are incremental to the interest due on the Company's long-term debt and will reduce its operating cash flows 
going forward. The timing of the Company’s cash interest payments to the Parent will be on January 15 and July 15, and 
commenced on January 15, 2014.  On January 12, 2016, the Company made an additional payment of $37.1 million of accrued 
PEC interest to the Parent.  The variance between the cumulative balances of accrued interest and cumulative interest expensed 
is due to fluctuations in the foreign currency exchange rates.  PECs are subordinate to borrowings under the Credit Facilities 
and Senior Notes, as well as present and future obligations of the Company whether secured or unsecured.  The holders of 
the PECs do not have voting rights in respect to the Company by reason of ownership of the PECs.  The Series 3 PECs cannot 
be transferred without prior consent of the Company or pursuant to the Company’s third party debt agreements.      

14.  Stockholder’s Deficit

The Company’s total share capital was € 112.2 million ($140.7 million) as of December 31, 2015 and 2014, respectively.  The 
Company had 112,157,883 issued and outstanding shares of common stock at December 31, 2015 and 2014.  The Company 
had five thousand issued and outstanding shares of class A preferred stock, five thousand issued and outstanding shares of 
class B preferred stock, five thousand issued and outstanding shares of class C preferred stock, and five thousand issued and 
outstanding shares of class D preferred stock at December 31, 2015 and 2014.  The par value of common and preferred stock 
was one Euro per share ($1.25) as of December 31, 2015 and 2014. Each share has an identical voting right and each shareholder 
has voting rights commensurate to its shareholding.  Each shareholder is entitled to equal rights to any distribution of dividends.   

15.  Employee Stock Benefit Plans

The Company’s Parent grants share-based compensation to employees under the AEP, the MEP, and the MIP. 

The accounting standard relating to share-based compensation requires that the cost of all share-based payment transactions 
be recognized in the financial statements, establishes fair value as the measurement objective, and requires entities to apply 
a fair value-based measurement method in accounting for share-based payment transactions.  The Company grants share-
based compensation awards which vest over a specified period or upon a liquidity event, such as a change of control or an 
initial public offering.  The fair value of share-based compensation awards issued to employees is measured on the date of 
grant and expense is recognized over the vesting period or upon a liquidity event, depending upon the specific terms of the 
individual award. Certain features of share-based awards require the awards to be accounted for as liabilities as opposed to 
equity. Liability awards are required to be updated to fair value at the end of each reporting period until settlement. The 
Company obtains a valuation report for the MEP, MIP and AEP awards on an annual basis. The valuation is utilized for 
calculating the current period share-based compensation expense associated with any MEP awards granted and remeasuring 
the liability for fully vested MEP awards. The Company believes that any difference in fair value of the awards at the interim 
and annual periods would not be material to the Consolidated Financial Statements. Generally, unvested awards are forfeited 
for  no  consideration  upon  termination  of  employment.  No  awards  may  be  transferred  other  than  under  specified  limited 
circumstances which generally are to family members for estate planning purposes.  

Fair value of the Company's equity was estimated using an income approach and further substantiated with a market approach. 
The income approach was deemed to be the most indicative of the Company’s estimated fair value in an orderly transaction 
F-28

€
€
ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

between market participants and is consistent with the methodology used for the equity valuation in prior years. Under the 
income approach, the Company determines fair value using the discounted cash flow method which is based on an analysis 
of the Company’s projected financial information, significant debt-free cash flow assumptions, discount rate, terminal value, 
and indication of value. Under the market approach, the Company utilizes publicly-traded comparable company information 
to determine trailing and forward multiples that are used to value its equity for which the Black-Scholes pricing model was 
used with the following assumptions as of December 31, 2015 and 2014:

Dividend yield
Expected volatility(1)
Risk-free interest rate(2)
Expected life of AEP awards granted during period(3)
Expected life of MEP awards granted during period(3)
Expected life of MIP awards granted during period(3)

_______________________________

2015
0.0%
51.0%
0.5%
1.5 years
1.5 years
1.5 years

2014
0.0%
48.5%
0.5%
1.7 years
1.7 years
1.7 years

(1) 

(2) 

(3) 

Determined based on historical volatilities of comparable companies.

Determined based on the weighted average of U.S. Treasury strip rates over the contractual term of the awards. 

Represents the period of time that awards are expected to be outstanding.

Determining the estimated fair value is judgmental in nature and requires the use of significant estimates and assumptions, 
including selection of market comparables, industry trends, estimated future cash flows, and discount rates. Fair value is 
estimated using significant unobservable inputs that are characterized as Level 3 under the fair value hierarchy, which is 
described in further detail in note 16 titled "Fair Value Measurements". 

Annual Equity Program

The AEP allows for the issuance of units (“AEP Units”) to employees for shares of common stock.  The Company’s Parent 
is authorized to grant up to 1.0 million AEP Units to purchase common stock under the AEP, representing 2.0% of the common 
stock in the Company’s Parent.  AEP Units are granted at the allocable fair market value of a share of stock on the date of 
grant and vest upon a liquidity event, as such no share-based compensation has been recognized for the AEP Units during the 
years ended December 31, 2015 and 2014, respectively.

AEP Units that are unallocated or forfeited can be redistributed to an existing AEP participant or other employee upon the 
recommendation of the Chief Executive Officer ("CEO") if, and to the extent, the recipient in such transfer is acceptable to 
the board of directors.  Any redistribution of AEP Units would be considered a new grant under the terms of the AEP.   

The following table summarizes activity related to the AEP during the years ended December 31, 2015 and 2014:

(Units in thousands)
Outstanding at January 1, 2014
Granted
Forfeited/cancelled
Outstanding at December 31, 2014
Granted
Forfeited/cancelled
Outstanding at December 31, 2015

AEP Units
708
214
(50)
872
119
(158)
833

The fair value of AEP Units outstanding at December 31, 2015 and 2014 was $10.82 and $3.81, respectively. As of December 31, 
2015 and 2014, total unrecognized compensation cost related to outstanding AEP Units was $9.0 million and $3.3 million 
based on the fair value of the AEP Units at those respective dates. The compensation cost recognized, if any, will be based on 

F-29

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

the fair value of the AEP Units at the time the liquidity event occurs. Certain AEP Units forfeitures are determined upon the 
occurrence of a liquidity event.  Given that the timing of a liquidity event cannot be predicted, the portion of vested and 
forfeited shares has yet to be determined.  In these instances the full amount of AEP Units was included in the outstanding 
amount as of December 31, 2015 and 2014. 

Management Executive Plan

The MEP allows for the issuance of units (“MEP Units”) by the Company’s Parent to employees for shares of common stock 
in the Parent.  The Company’s Parent is authorized to grant up to 1.0 million MEP Units to purchase common stock under the 
MEP, representing 8.0% of the common stock in the Company’s Parent.  MEP Units are granted at the allocable fair market 
value of a share of stock on the date of grant and vest over five years or upon a liquidity event, as described above.

MEP Units that are unallocated or forfeited can be redistributed to an existing MEP participant or other employee upon the 
recommendation of the CEO if, and to the extent, the recipient in such transfer is acceptable to the board of directors. Any 
redistribution of MEP Units would be considered a new distribution under the terms of the MEP.  

The following table summarizes activity related to the MEP during the years ended December 31, 2015 and 2014:

(Units in thousands)
Outstanding at January 1, 2014
Granted
Forfeited/cancelled
Outstanding at December 31, 2014(1)
Granted
Forfeited/cancelled
Repurchased
Outstanding at December 31, 2015(2)

_______________________________

MEP Units
755
88
(161)
682
350
(59)
(222)
751

(1) 

(2) 

As of December 31, 2014, the outstanding MEP Units included 408 vested and 274 non-vested units. 

As of December 31, 2015, the outstanding MEP Units included 240 vested and 511 non-vested units. 

The fair value of MEP Units outstanding at December 31, 2015 and 2014 was $43.27 and $15.25, respectively. The MEP 
Units are remeasured to fair value on an annual basis.

The Company accounts for MEP Units as liability awards. The Company recorded liabilities of $13.3 million and $12.6 million 
for  its  outstanding  MEP  Units  in  Other  liabilities  in  the  Consolidated  Balance  Sheets  at  December 31,  2015  and  2014, 
respectively.  In  2015,  the  Company  recognized  total  share-based  compensation  expense  of  $9.0  million  in  General  and 
administrative expenses in the Consolidated Statements of Operations. In 2014, the Company recognized a reduction to share-
based compensation of $0.2 million in General and administrative expenses in the Consolidated Statements of Operations. 
The increase in share-based compensation expense in 2015 was driven by an increase in the fair value of the MEP Units. 

As of December 31, 2015, the total unrecognized compensation cost related to the outstanding MEP Units was $19.2 million, 
which is expected to be recognized over a weighted average period of 3.8 years. There are 249 thousand MEP Units available 
for future grant at December 31, 2015. 

Management Incentive Plan  

The MIP allows for the issuance of units (“MIP Units”) to employees for common stock and PECs of the Company’s Parent.  
The Company’s Parent is authorized to grant up to 3.0 million MIP Units under the Plan, representing 0.3% of the common 
stock and 0.4% of the PECs in the Company’s Parent.  MIP Units are granted at the allocable fair market value of a share of 
stock or PECs on the date of grant and vest upon a liquidity event, as such no share-based compensation has been recognized 
for the MIP Units during year ended December 31, 2015 and 2014, respectively.

F-30

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

The following table summarizes activity related to the MIP during the years ended December 31, 2015 and 2014:

(Units in thousands)
Outstanding at January 1, 2014
Granted
Forfeited/cancelled
Outstanding at December 31, 2014
Granted
Forfeited/cancelled
Outstanding at December 31, 2015

MIP Units
2,132
—
(15)
2,117
—
(953)
1,164

The fair value of MIP Units outstanding at December 31, 2015 and 2014 was $3.13 and $2.87, respectively.

As of December 31, 2015 and 2014, the total unrecognized compensation cost related to MIP Units granted was $3.6 million
and $6.1 million, respectively, and is expected to be recognized when a liquidity event occurs. Certain MIP Units forfeitures 
are determined upon the occurrence of a liquidity event. Given that the timing of a liquidity event cannot be predicted, the 
portion of vested and forfeited shares has yet to be determined. In these instances the full amount of MIP Units was included 
in the outstanding amount as of December 31, 2015 and 2014. 

16.  Fair Value Measurements 

The Company’s financial instruments and the methods used to determine fair value consist of the following:

Cash  and  cash  equivalents,  receivables,  accounts  payable  and  certain  accrued  expenses  –  Carrying  amounts 
approximate fair value due to the short-term maturities of these assets and liabilities.

Preferred equity certificates – Carrying amounts approximate fair value due to the holders’ ability to redeem the 
instruments at face value at issuance.

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

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

Level 2 — Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices 
for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such 
as interest rate and yield curves, and market-corroborated inputs); and

Level 3 — Unobservable inputs in which there is a little or no market data 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 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 measured 
at fair value as of December 31, 2015 and 2014:

2015

2014

Carrying
Value

Level 1

Level 2

Level 3

Carrying
Value

Level 1

Level 2

Level 3

Assets:

Marketable securities

$

0.2 $

0.2 $

— $

— $

0.9 $

0.9 $

— $

—

There were no transfers between Level 1 and Level 2 during the year ended December 31, 2015. 

F-31

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

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

As of December 31, 2015 and 2014, the Company's assets measured at fair value on a non-recurring basis subsequent to initial 
recognition included indefinite-lived intangible assets related to the Company's and Symbius' trade names. The Company 
recognized impairment charges of $12.2 million and $17.2 million, in the aggregate, in the fourth quarter of 2015 and 2014, 
respectively, for these assets in Impairment of goodwill and long lived assets in the Consolidated Statements of Operations. 
These  impairment  charges  were  driven  by  analysis  of  expected  future  cash  flows  based  on  recent  and  anticipated  future 
performance trends. The Company utilized the relief-from-royalty method under the income approach to calculate the fair 
value. The adjusted carrying value of the Company's and Symbius' trade names of $206.0 million and $0.8 million as of 
December 31, 2015, respectively, and $218.0 million and $1.0 million as of December 31, 2014, respectively, was equal to 
its estimated fair value, which was determined using discounted cash flows and represents Level 3 inputs. 

In addition to the above, as of December 31, 2014, the Company's assets measured at fair value on a non-recurring basis 
subsequent to initial recognition included:

(i) goodwill related to the Company's six reporting units, namely, Americas, 180 Medical, Europe, Middle East and Africa, 
APAC, ID, and Industrial Sales.  The Company recognized an impairment charge of $46.4 million in Impairment of goodwill 
and long lived assets in the Consolidated Statements of Operations related to the APAC reporting unit. Impairment in the 
APAC  reporting  unit  resulted  in  a  complete  impairment  of  goodwill  assigned  due  to  revised  estimates  of  revenues  and 
profitability, based on recent and anticipated future performance trends.  The fair values of all reporting units were estimated 
using a weighted average of a market approach and an income approach as this combination was deemed to be the most 
indicative of the Company’s estimated fair value in an orderly transaction between market participants and was consistent 
with the methodology used for the goodwill impairment test in the prior years. In addition, the Company ensured that the fair 
values estimated under these two approaches were comparable with each other. Under the market approach, the Company 
utilized publicly-traded comparable company information to determined revenue and earnings multiples that were used to 
value its reporting units adjusted for an estimated control premium. Under the income approach, the Company determined 
fair value based on estimated future cash flows of each reporting unit discounted by an estimated weighted average cost of 
capital, reflecting the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect 
to earn. Determining the estimated fair value of a reporting unit is judgmental in nature and requires the use of significant 
estimates and assumptions, including selection of market comparables, estimated future cash flows, and discount rates. The 
fair value measurement was categorized as Level 3 fair value based on the inputs in the valuations techniques used.

(ii) certain finite-lived intangible assets acquired in connection with the Symbius acquisition in January 2014. In the fourth 
quarter  of  2014,  the  Company  recognized  impairment  charges  of  $3.7  million,  in  the  aggregate,  related  to  contracts  and 
customer relationships and non-compete agreements in Impairment of goodwill and long lived assets in the Consolidated 
Statements of Operations. These impairment charges were driven by analysis of expected future cash flows based on the loss 
of patients as a result of the alleged violation of non-compete clauses by certain former employees. The adjusted carrying 
value of the assets of $12.0 million, in the aggregate, as of December 31, 2014 was equal to their estimated fair value, which 
was determined using discounted cash flows and represents Level 3 inputs. 

For further information regarding assets impairment charges, see note 10 titled "Goodwill" and note 11 titled "Intangible 
Assets, Net".

Liabilities not Measured at Fair Value

The carrying value of long-term debt is recorded at amortized cost.  At December 31, 2015 and 2014, the estimated fair value 
of  the  Company's  long-term  debt,  excluding  capital  leases,  approximated  $2,624.0  million  and  $2,802.8  million,  in  the 
aggregate, respectively. The fair values were estimated using the quoted market prices and current interest rates offered for 
similar debt issuances. Long-term debt is categorized as Level 2 under the fair value hierarchy. See note 12 titled “Long - 
Term Debt” for the carrying values of the individual components of the Company’s long-term debt. 

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ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

17.  Commitments and Contingencies

Operating Leases

Minimum future rental commitments under non-cancelable operating leases for each of the five succeeding years ending 
December 31 and thereafter are as follows:

Lease obligations

$

64.3

$

18.3

$

14.9

$

11.4

$

7.1

$

3.9

Total

2016

2017

2018

2019

2020

Thereafter
8.7
$

Certain lease agreements, primarily for real estate, contain renewal options and rent escalation clauses.  Operating lease rental 
expense was $20.3 million and $25.0 million for the years ended December 31, 2015 and 2014, respectively.

Other commitments

The Company has commitments related to capital expenditures of approximately $27.8 million as of December 31, 2015, 
primarily related to new manufacturing lines to support the growth of the ostomy care business. In addition, in January 2016, 
the Company renewed its service agreement with HP Enterprise Services, LLC under which the Company will be required 
to make payments of approximately $73.0 million, in the aggregate, within the next five years.

Legal Proceedings 

In the ordinary course of business, the Company and certain of its subsidiaries are subject to various legal proceedings and 
claims, including, for example, product liability matters, environmental matters, employment disputes, disputes on agreements 
and other commercial disputes.  In addition, the Company operates in an industry susceptible to patent legal claims. At any 
given time, in the ordinary course of business, the Company has been in the past and may continue to be involved as either a 
plaintiff or defendant in patent infringement actions.  If a third party’s patent infringement claim were to be determined against 
the Company, the Company might be required to make significant royalty or other payments or might be subject to an injunction 
or other limitation on its ability to manufacture or distribute one or more products. If a patent owned by or licensed to the 
Company were to be determined to be invalid or unenforceable, the Company might be required to reduce the value of the 
patent on the Company’s Consolidated Balance Sheets and to record a corresponding charge, which could be significant in 
amount. There are various lawsuits, claims, proceedings and investigations which are currently pending involving the Company.

In accordance with the accounting guidance related to contingencies, the Company records accruals for loss contingencies 
when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. Legal costs related to 
litigation matters are expensed as incurred.

FDA Regulations

The Company is subject to regulation by the FDA under the Federal Food, Drug and Cosmetic Act (“FDCA”) and other laws. 
The FDCA requires that medical devices introduced to the U.S. market, unless otherwise exempted, be the subject of either 
a premarket notification, known as a 510(k) clearance, or approval of premarket approval, known as a PMA application. Some 
of the Company's products may require approval of a PMA to be marketed in the U.S., while others may require a 510(k) 
clearance. Other products may be exempt from regulatory clearance or approval, but will still subject to regulation by FDA.

As a medical device manufacturer, the Company is required to register its facilities and list its products with the FDA. In 
addition, the Company is required to comply with the FDA’s current good manufacturing practices for medical devices, known 
as the Quality System Regulation (“QSR”), which requires that its devices be manufactured and records be maintained in a 
prescribed manner with respect to design and development, manufacturing, testing and control activities. The Company's 
manufacturing facilities are subject to periodic and occasional inspections by the FDA for compliance with the QSR which 
sometimes are unannounced. Further, the Company is required to comply with FDA requirements for labeling and promotion. 
For example, the FDA prohibits cleared or approved devices from being promoted for uncleared or unapproved uses, otherwise 
known as “off-label” promotion. There also are restrictions on the concurrent marketing of components that can be used to 
develop an assay.

Under the FDA medical device reporting regulations, the Company is required to report to the FDA information that a device 
has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or 

F-33

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

contribute to death or serious injury if the malfunction of the device or one of a similar devices were to recur. If the Company 
fails to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against 
the Company. Any such adverse event involving the Company's products also could result in future voluntary corrective 
actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action.  Any corrective 
action, whether voluntary or involuntary, as well as defending itself in a lawsuit, will require the dedication of the Company's 
time and capital, distract management from operating the business, and may harm the Company's reputation and financial 
results. 

If the FDA believes the Company is not in compliance with applicable laws or regulations, the agency can institute a wide 
variety  of  enforcement  actions,  ranging  from  issuance  of  warning  letters  or  untitled  letters;  fines  and  civil  penalties; 
unanticipated expenditures to address or defend such actions; delays in clearing or approving, or refusal to clear or approve, 
products; withdrawal or suspension of approval of products or those of third-party suppliers by the FDA or other regulatory 
bodies; product recall or seizure; orders for physician notification or device repair, replacement or refund; interruption of 
production; operating restrictions; injunctions; and criminal prosecution.  The Company has been subject to FDA enforcement 
actions in the past, as discussed below.

FDA Inspections and Warning Letters

On October 30, 2014 the FDA issued a Form FDA-483 at the conclusion of an inspection of the Osted, Denmark facility of 
Unomedical A/S, a ConvaTec company. A Form 483 is a list of inspectional observations issued by the FDA. The Form 483 
identified three inspectional observations covering issues related to design validation and the facility’s corrective and preventive 
action processes. Unomedical carefully reviewed the Form FDA-483 observations and submitted a written response to the 
FDA which identified the actions being taken to address the FDA’s observations. In March 2015, the Company received a 
letter from the FDA indicating that the Agency was satisfied with the Company’s responses to the inspectional observations 
and that no further regulatory action was justified. The FDA also stated it would follow up at their next scheduled inspection 
to ensure these observations were corrected and verified.

On June 24, 2014, the FDA issued a Warning Letter to Unomedical, a ConvaTec company, resulting from an inspection of 
the Michalovce, Slovakia manufacturing plant in February 2014. The Warning Letter identified certain violations of FDA 
regulations  relating  to  manufacturing  processes  and  controls  at  the  facility.  Following  the  February  2014  inspection,  the 
Company took prompt action to correct the violations the FDA had identified, and provided updates, including documented 
evidence of corrective actions, to the FDA in April and June 2014. The Company held a follow-up meeting with the Foreign 
Inspections office of the FDA in September 2014 during which the Foreign Inspections office confirmed that it had no further 
questions. The Company hosted a follow-up inspection from the FDA in January 2015, which resulted in a two-observation 
Form 483, to which the Company responded and which observations the Company subsequently corrected. In July 2015, the 
Company received a letter from the FDA indicating the FDA was satisfied with the Company’s responses to the inspectional 
observations and that no further regulatory action was justified. The FDA also stated that it would follow up at the next 
scheduled inspection to ensure that the observations had been corrected and verified.  The letter also formally closed out the 
Warning Letter from June 24, 2014.

The Company previously received a Warning Letter from the FDA dated May 24, 2013 resulting from a routine inspection at 
its Skillman, New Jersey facility. The Warning Letter identified certain violations of FDA regulations relating to complaint 
handling and other quality management system elements at this facility. While the Skillman facility has since been closed as 
part of office space consolidation, the Company has added resources and updated its quality system to address the FDA’s 
concerns.    For  example,  the  Company  has  employed  resources  at  its  new  global  quality,  regulatory,  and  clinical  affairs 
headquarters in Greensboro for complaint handling and at the Deeside Design Center in the U.K. for its R&D activities. The 
Company continues to review and improve its quality system to increase efficiency and ensure regulatory compliance. The 
Company agreed with the FDA to conduct a certification audit by the end of 2014, and such consultant-led certification audits 
were completed in December 2014 and submitted to the FDA. The Company believes these audits demonstrated significant 
progress in its remediation efforts.  In June 2015, in a routine update to the FDA, the Company confirmed that it has completed 
remediation  of  the  affected  processes  from  the  May  24,  2013  Warning  Letter  and  considered  the  associated  Form  483 
observations closed.  In September 2015, the FDA visited the Company’s Greensboro facility to conduct a follow-up inspection 
as a result of the May 24, 2013 Warning Letter. The inspection resulted in zero 483 observations. On January 5, 2016, the 
Company received an informal communication from the FDA that the Agency intends to close out the May 24, 2013 Warning 
Letter, and the formal close-out letter dated February 10, 2016 has been published on the FDA’s website.

F-34

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

While the Company has worked with the FDA to address its concerns and remedy the violations identified in both Warning 
Letters and the Osted Form 483, it cannot guarantee that the FDA will agree that the corrective actions adequately address 
the FDA’s concerns or that the FDA or other governmental authorities will not take further action in the future.

Corrections and Removals

The design, development, manufacture and sale of the Company's products involve an inherent risk of product liability or 
other claims by consumers and other third parties. The FDA and similar foreign governmental authorities have the authority 
to require the recall of commercialized products in certain instances. In the case of the FDA, the authority to require a recall 
must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. 
In addition, manufacturers may, under their own initiative, recall a product, including in situations in which a material deficiency 
in a device is found. A government-mandated or voluntary recall by the Company could occur as a result of component failures, 
manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of the Company's products 
would divert managerial and financial resources and have an adverse effect on the Company's financial condition and results 
of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after 
the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA.

The Company has been in the past, and continues to be, subject to various product liability lawsuits, product recalls and 
requirements to issue field corrections related to its products due to manufacturing deficiencies, labeling errors or other safety 
or regulatory reasons. In April 2014, the Company initiated of a voluntary global recall of its Flexi-Seal® CONTROL Fecal 
Management System as a result of the potential risk of harm associated with inconsistent performance of the product and 
certain related regulatory issues. The FDA classified this recall as a Class I recall, reflecting a determination that exposure to 
the device carries a reasonable probability of serious adverse health consequences, including death. In September 2015, the 
Company received notification from the FDA formally closing out the recall. In October 2014, the Company became aware 
of an issue with its NicoFix Securement device and decided to carry out a voluntary recall of affected lots which is currently 
underway. The Company does not expect the costs associated with this recall to be significant.

In May 2015, the Company initiated a voluntary recall of certain batches of its Steel cannula infusion set devices, including 
the Sure-T, Sure-T Paradigm, contact detach, contact, Sub Q, neria, neria detach, neria multi and thalaset models, due to an 
increase in reported needle breakage. The recall is currently limited to affected devices in Germany and certain other European 
countries, and in some other countries, such as the U.S., a Field Safety notification has been issued. Unomedical A/S has 
initiated the recall based on a determination that, in rare cases, the steel needle can break during use, thereby potentially 
interrupting the delivery of insulin or medication. While the reported failure rate was low, Unomedical A/S commenced the 
recall following discussions with regulatory authorities in Germany and in other affected countries. The Company views this 
recall as a precautionary measure and has not received any reports of death or serious injury resulting from a breakage of the 
needle and/or interruption of therapy.

Unomedical also initiated a voluntary recall of its Suction Catheter devices in June 2015 after an increase in reported complaints 
of splitting of the connector portion.  The recall has been initiated in Australia and the Czech Republic and is a precaution to 
ensure that distributed products are of the highest quality. The Company is in the process of completing destruction of the 
affected devices that have been returned and anticipates closing out this recall shortly.

In January 2016, Unomedical initiated a recall of a range of nebulizer products in Europe, the U.S., Canada, and China due 
to  an  increase  in  complaints  related  to  the  products’  failure  to  generate  an  atomized  spray  as  intended.    Following  an 
investigation, Unomedical determined that the issue was due to variability in a molding process in manufacture. 

The circumstances that lead to recalls and other field actions, as well as similar occurrences in the future, may be the subject 
of product liability claims due to allegations that use of the Company's products resulted in adverse health consequences. For 
example, in June 2013, Medtronic MiniMed, Inc. (“Medtronic”), issued a recall of certain infusion sets, including the Quick-
Set® and Silhouette® infusion sets, which include P-Cap connectors designed by Medtronic and manufactured for Medtronic 
by Unomedical A/S for use with Medtronic insulin infusion pumps in diabetes care. Medtronic issued this recall due to a 
potential safety issue that can occur if insulin or other fluids come in contact with the inside of the tubing/P-Cap connector. 
This recall has resulted in new pending or threatened litigation against various Unomedical and ConvaTec entities (the latter 
of which had no involvement in the manufacture or sale of infusion sets). These lawsuits allege that the infusion sets are 
defective and have caused injuries or death to various plaintiffs. All of these cases also include claims against Medtronic, and 
allegations that their insulin pumps (which Unomedical does not make or sell) are defective. To the best of the Company's 

F-35

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

knowledge, as of this report date, approximately 17 product liability lawsuits had been filed.  The Unomedical and ConvaTec 
entities  have  been  voluntarily  dismissed  without  prejudice  from  four  of  these  lawsuits.    ConvaTec  has  sent  a  demand  to 
Medtronic seeking indemnification for these lawsuits consistent with the terms of the agreements between them. To date, 
Medtronic has rejected this demand. The Company also carries product liability insurance, subject to a self-insured retention, 
and has notified the insurance carrier about these lawsuits. The lawsuits are all in their early stages, and at this point the 
Company is unable to predict the likelihood of an unfavorable outcome or estimate any potential loss. 

U.S. Department of Justice ("DOJ") Subpoena

The Company and one of its subsidiaries (180 Medical, Inc.) each received a subpoena from the United States Attorney’s 
Office in Massachusetts (“USAO”) in March 2014.  The Company understands that the subpoenas were part of a broad industry 
investigation into the marketing and business practices of manufacturers and suppliers in the ostomy care, wound care, and 
continence/urology care markets.  Both companies cooperated fully with the government.

180 Medical, along with multiple manufacturers and suppliers in the ostomy care, wound care, and continence/urology care 
markets, also informally received a copy of an unsealed, first amended qui tam False Claims Act Complaint filed in U.S. 
District Court for the District of Massachusetts on November 20, 2014. A second amended complaint was filed on May 28, 
2015.  ConvaTec was not a named party in either Complaint.

The second amended Complaint originates with a qui tam action filed by current and former Coloplast employees.  The second 
amended Complaint generally alleges improper marketing and business practices of manufacturers and suppliers in the ostomy 
care, wound care, and continence/urology care markets, and seeks to recover treble damages sustained by, and civil penalties 
and restitution owed to, the U.S. as a result of allegedly illegal kickback schemes, illegal telephone solicitation campaigns, 
and deceptive sales campaigns designed to defraud Medicare to pay for medically unnecessary products and fraudulent billing 
schemes.  

On July 29, 2015, the government officially declined to intervene against 180 Medical in the matter, and the relators voluntarily 
dismissed 180 Medical.   On February 5, 2016, the United States Attorney’s Office confirmed that its investigation is closed 
and the subpoenas are withdrawn.  On February 8, 2016, the Court entered an Order dismissing all claims against 180 Medical, 
without prejudice. 

Theft of Patient Data Litigation / HIPAA Matters 

On or about September 24, 2014, a ConvaTec subsidiary, Symbius, received a request for information and documentation 
from the Department of Health and Human Services Office of Civil Rights (“OCR”) in connection with a breach notice filed 
by the Company under the Health Insurance Portability and Accountability Act (“HIPAA”) in July 2014. The letter noted 
potential violations of various HIPAA Privacy and Security Rule and Breach Notification Rule provisions. The breach involved 
the alleged February 2014 theft of protected health information of approximately 13,000 patients by five former Symbius 
employees, who left to work for a competitor (the “Competitor”).  The Company became aware of the alleged theft in May 
2014. Separately, Symbius sued the employees (“Employee Defendants”), and their employer in Arizona Superior Court for 
Maricopa County, Case No. CV-2014-006931. The case was subsequently removed to the United States District Court for the 
District of Arizona, Case No. 2:14-cv-01047-GMS. A preliminary injunction was entered prohibiting further use or disclosure 
of the patient data.  This matter has been resolved with a Confidential Settlement Agreement. The Company posted notice on 
its website and sent individual notices to the affected individuals listed on the documents known to be in the possession of 
the Employee Defendants after the date of their separation from Symbius in July 2014. Information and documents responsive 
to the OCR letter were timely produced by the Company on November 10, 2014.

In March 2015, the Employee Defendants turned over information and documents during the course of discovery in the lawsuit, 
which for the first time disclosed a related breach circumstance of which the Company was previously unaware. The documents 
evidence that in May 2014, a then-current Symbius employee violated law and Company policies by emailing a spreadsheet 
containing 14,121 rows of patient data to the Employee Defendants, after they were hired by the Competitor. Upon becoming 
aware of this new related breach circumstance, the Company investigated and identified 800 uniquely affected individuals 
(who were not affected by the original February 2014 theft), and sent notifications to these individuals as required by law.  
The Company formally notified OCR about this related breach on April 21, 2015.  In a letter dated July 7, 2015, OCR notified 
the Company that it has closed the case without further action. 

F-36

ConvaTec Healthcare B S.à r.l. and Subsidiaries 
Notes to the Consolidated Financial Statements
(All tabular dollar amounts expressed in millions of U.S. dollars, except per share data)

Smith & Nephew / Patent Litigations and Settlement

The Company and its competitor Smith & Nephew (“S&N”) have engaged in a series of multi-year litigations related to patents 
concerning various wound care products. In one of these matters, the defendants (including S&N) agreed to not market the 
product (Durafiber) during the pendency of the litigation provided that in the event the Company lost at trial it would pay for 
the defendants’ lost profits. The Company lost at trial and on appeal and had until recently been engaged in litigation with the 
defendants as to the amount of their lost profits. The parties have entered into a confidential settlement agreement in respect 
of this litigation.

Environmental Proceedings

The Company is a party to proceedings and other matters under various national, state, and local environmental laws, and 
from time to time incurs the costs of investigating and/or remediating contamination resulting from past industrial activity at 
current or former company sites, or at waste disposal or reprocessing facilities operated by third parties.

With respect to environmental matters for which the Company is responsible under various national, state, and local laws, the 
Company typically estimates potential costs based on information obtained from the U.S. Environmental Protection Agency, 
or  counterpart  state  agencies,  other  national  environmental  agencies  and/or  studies  prepared  by  independent  consultants, 
including total estimated costs for the site and the expected cost-sharing, if any, with other “potentially responsible parties”, 
and the Company accrues liabilities when they are probable and reasonably estimable.  As of December 31, 2015, the Company 
does not expect to incur, and there have been no material costs for investigation and remediation for any sites for which it 
may be responsible, including liabilities under the U.S. Comprehensive Environmental Response, Compensation and Liability 
Act and for other remedial obligations. 

The Company has been involved in certain lawsuits, claims, proceedings and investigations that are currently pending or have 
been concluded in the last three years. In accordance with the accounting guidance related to contingencies, the Company 
records accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be 
reasonably estimated. These matters involve intellectual property, commercial, or environmental, health and safety matters.

There can be no assurance that there will not be an increase in the scope of the pending matter or that any future lawsuits, 
claims, proceedings, or investigations will not be material. The Company continues to believe that during the next few years, 
the aggregate impact, beyond current reserves, of these other legal matters affecting it is not expected to be material to its 
results of operations and cash flows, or its financial condition and liquidity. 

18.  Subsequent Events

The Company has evaluated subsequent events through March 15, 2016, the date the financial statements were approved by 
the board of directors. 

In January 2016, the Company announced the closure of its manufacturing operations in Greensboro (U.S.) by early 2017 
and HC operations in Sungai-Petani (Malaysia) by the end of 2016 with plans to consolidate manufacturing in the remaining 
facilities  or  outsource  production.  The  Company  estimates  that  it  will  incur  total  restructuring  and  other  exit  costs  of 
approximately $25.7 million, in the aggregate, in connection with these initiatives. Refer to "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Recent developments" within this Annual Report for further 
information.

F-37