LivaNova Annual Report 2015

FY2015 Annual Report · LivaNova

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Annual Report
201(cid:22)

From left to right on front cover -

AspireSR:
Neuromodulation

INSPIRE:
Cardiac Surgery

The only VNS Therapy
system that provides
responsive stimulation to
heart-rate increases that
are often associated with
seizures in people with
epilepsy. Aspire SR® was
approved in the United
States in June, 2015.

A completely new family of
adult oxygenators designed
from years of research and
laboratory experience, input
from clinical experts from
around the world and the
application of advanced
manufacturing technologies
that adhere to the highest
quality standards. Combined
with an electronic perfusion
charting system (Connect™)
and a world-leading
heart-lung machine design,
Inspire™ was ﬁrst introduced
into the market in 2011.

Platinium:
Cardiac Rhythm
Management

A new range of implantable
cardiac deﬁbrillators (ICDs)
and cardiac resynchroniza-
tion therapy devices (CRT-Ds)
with the world’s longest
projected longevity.
PlatiniumTM’s longevity will
protect patients from
avoidable replacement
surgeries and inherent risk of
complications. Platinium was
approved in Europe and
Japan in November, 2015.

Perceval:
Cardiac Surgery

A 100 percent sutureless
valve for aortic valve
replacement. PercevalTM
is designed to be highly
versatile and suitable for
a wide range of surgical
approaches, including
traditional and minimally
invasive. Launched in the
United States in January,
2016, Perceval is commer-
cially available in more than
80 countries and has the
broadest follow-up
published in sutureless
solutions.

UK Annual Report and IFRS Financial Statements
Period Ended 31 December 2015

This UK Annual Report of LivaNova PLC comprises the Strategic Report, Directors’ Report, Corporate Governance
Report and Directors’ Remuneration Report and the LivaNova PLC consolidated and company IFRS Financial
Statements contained herein.

This UK Annual Report has been prepared to satisfy the reporting requirements of the Companies Act 2006 and
the Financial Conduct Authority’s Disclosure Rules and Transparency Rules, has been submitted to the National
Storage Mechanism and is available for inspection at http://www.morningstar.co.uk/uk/nsm and will be included
in the 2016 Annual General Meeting materials made available to shareholders.

Cautionary statement

Certain statements made in this UK Annual Report are forward looking. Such statements are based on current expectations and are subject to a
number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in the
forward looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation
to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise. Nothing in this UK
Annual Report should be regarded as a profit forecast.

TABLE OF CONTENTS

STRATEGIC REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Chief Executive Officer’s Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–
–

–

Overview and Background to the Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I.
II. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– A. LivaNova’s Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
B. Business Units and the New Ventures – Business Model . . . . . . . . . . . . . . . . . . . . . . . .
– C. Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– D. Acquisitions and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Patents and Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
Markets and Distribution Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F.
– G. Competition and Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– H. Financial Information about the Company, the Business Units and Geographic Areas . .
Production and Availability of Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
I.
Government Regulation and Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
J.
K. Working Capital Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L.
– M. Environment and Other Social Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– N. Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– O. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Business Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– A.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Key Performance Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
– C. Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– D. Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . .
–
IV. Principal Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DIRECTORS’ REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Corporate Governance in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Audit & Compliance Committee Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REMUNERATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter from the Chairman of the Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . .
–
Introduction and Compliance Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
Remuneration Policy Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Annual Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Consolidated Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Notes to the Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Company Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Company Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Company Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Company Statement of Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Notes to the Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GLOSSARY AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Introduction

STRATEGIC REPORT

This Strategic Report presents the required strategy and business review for the Company in order to satisfy the reporting
requirements of the Companies Act and the DTRs.

Chief Executive Officer’s Letter to Shareholders

29 April 2016

Dear Shareholder,

Our merger was completed on 19 October 2015 and heralded an exciting era for our new company, LivaNova. While the
last twelve months have been full of anticipation and promise, 2016 will be the first full year of LivaNova’s operations as a
combined entity, and I want to outline our near-term execution objectives and longer-term strategic plans.

LivaNova starts out with a number of key strengths:

• Diversified product portfolio and revenue base – Cardiac Surgery accounts for approximately 50 per cent.
of revenue, Neuromodulation for over 25 per cent., and the balance of revenues comes from Cardiac Rhythm
Management, or CRM

• Market leadership in key product areas – global leader in cardiopulmonary devices and Neuromodulation,
and solid platforms in CRM and heart valves. Over 60 per cent. of LivaNova’s revenue comes from products
where we lead the market

• Broad geographic reach – sales in approximately 100 countries and over 20 per cent. of revenue from outside

the US and Europe

• Opportunities for margin expansion – with specific plans established across the whole income statement

• Strong balance sheet – minimal leverage allowing for flexibility in capital allocation

• Experienced management team – many years of industry involvement across the product platforms

• Opportunities for growth in new markets – such as mitral valves, heart failure and sleep apnea

2016 Objectives

Our objective for the current year is to ensure that the substantial platform created by our merger is firmly in place and
focused on a number of key areas.

Firstly, we will continue to evolve the organisation, which is headquartered in our new location in London. I have been
extremely pleased with the response at all levels within LivaNova as we seek to incorporate the best practices of both legacy
companies around building the new culture of LivaNova, which is exemplified by the theme of “Health Innovation that
Matters. Day to day. Life by life.”

Secondly, we will focus on the key financial objectives outlined on our call with investors earlier this year, in particular:

• Revenue growth in each of the three business units: Cardiac Surgery, CRM and Neuromodulation

•

Execution with respect to synergy targets

Expansion of operating margins, adjusted for one-time costs

• Growth in earnings per share

Further, we plan to articulate a more comprehensive capital allocation strategy in 2016 with the aim of building
shareholder value.

Thirdly, we will conduct a rigorous review of our existing product platforms and investment portfolio to determine which
present the greatest opportunity for revenue and profitability growth in the future. An important component of this review
will be an evaluation of the existing manufacturing footprint to ensure that appropriate efficiencies can be achieved.

Longer-term Strategic Plans

From the date of the original announcement of the merger over twelve months ago, the vision has been to create a growth
company built around the core strengths from both legacy companies. Today, we develop, manufacture and sell products of
the highest quality standards that are vital to the well-being of patients around the world.

Our R&D teams are focused on the need for quality products that deliver improved outcomes to patients, provide useful data
to physicians and value for payers. We expect that focus will continue to be at the forefront of our Company.

Over the past few years, the legacy companies have invested in three potential new growth platforms in the areas of mitral
valve, sleep apnea and heart failure. Developing new products is a challenging, long-term effort and the path forward
can require patience and commitment. LivaNova believes that each of these platforms provides an opportunity for our
shareholders to participate in important new product development efforts to benefit for patients.

Today, approximately 20 per cent. of our sales are outside the US and European markets and our plans are to grow that
share. China continues to be a focus area with our CRM joint venture and local manufacture of Cardiac Surgery products
both well advanced. Completion of regulatory activity in 2017 should see both projects drive growth for many years. Our
distributor relationships are developed across many geographies and we plan to continue to utilise this network in various
countries. In addition, we have expanded our direct sales footprint in Brazil, Columbia and Australia over the last year, and
can take advantage of this infrastructure in these and other markets such as Canada and Japan to drive further sales of
Neuromodulation products.

The delivery of healthcare is changing at an increasing rate, ranging from the development of different payment
models to continued expansion in developing markets to product evolution. LivaNova plans to be at the forefront of
this change in our chosen product fields and we will continue to assess and evolve our business model in light of the
changing environment

Conclusion/Thanks

The Board of Directors has come together under the leadership of Dan Moore, and our governance processes are already
established and operating at high standards. The Board of Directors shares management’s plans for 2016 and their vision for
the future, and has put in place appropriate compensation arrangements to support those plans.

LivaNova employs approximately 4,500 people across the world in a variety of capacities. We recognise that it is their
contribution which will ultimately provide the energy to propel LivaNova forward and allow it to achieve its potential. I would
personally like to thank them for their efforts in a year of significant change.

Finally, let me thank you, our shareholders, for your trust and support as we at LivaNova continue to build a world class
medical device company. We look forward to 2016 with confidence built on the talents of our people, the strengths of the
organisation and its products.

ANDRÉ-MICHEL BALLESTER
CHIEF EXECUTIVE OFFICER

Overview and Background to the Mergers

The Company is a public limited company incorporated under the laws of England and Wales. Headquartered in London,
United Kingdom, LivaNova is a global medical device company focused on the development and delivery of important
therapeutic solutions for the benefit of patients, healthcare professionals and healthcare systems throughout the world.
Working closely with medical professionals in the fields of cardiac surgery, neuromodulation and cardiac rhythm management,
LivaNova designs, develops, manufactures and sells innovative therapeutic solutions that are consistent with its mission to
improve LivaNova’s patients’ quality of life, increase the skills and capabilities of healthcare professionals and minimise
healthcare costs.

The Company was formed, along with its wholly owned subsidiary, Merger Sub, on 20 February 2015 for the purpose of
facilitating the business combination of Cyberonics and Sorin. On 19 October 2015, pursuant to the terms of the Merger
Agreement, Sorin merged with and into the Company, with the Company continuing as the surviving company, immediately
followed by the merger of Merger Sub with and into Cyberonics, with Cyberonics continuing as the surviving company and
as a wholly owned subsidiary of the Company.

As a result of the Mergers, the Company became the holding company of the combined businesses of Cyberonics and Sorin.
On 19 October 2015, the Company’s Ordinary Shares were listed for trading on NASDAQ and admitted to listing on the
standard segment of the FCA’s Official List and to trading on the Main Market of the LSE under the trading symbol “LIVN.”
As a result of the Mergers, on 19 October 2015 the Company issued 48,822,316 Ordinary Shares.

Prior to the Mergers, shares of Cyberonics common stock were registered pursuant to Section 12(b) of the Exchange Act
and listed on NASDAQ, and Sorin ordinary shares were listed on the Italian Stock Exchange. Shares of Cyberonics common
stock and the Sorin ordinary shares were suspended from trading on NASDAQ and the Italian Stock Exchange, respectively,
prior to the opening of trading on 19 October 2015.

On 19 October 2015, each ordinary share of Sorin was converted into the right to receive 0.0472 Ordinary Shares, and each
share of common stock of Cyberonics was converted into the right to receive one Ordinary Share. Based on the number
of outstanding shares of Sorin and Cyberonics as of 19 October 2015, former Sorin and Cyberonics shareholders held
approximately 46 per cent. and 54 per cent., respectively, of the Company’s Ordinary Shares immediately after giving effect
to the Mergers.

The Mergers are expected to provide revenue enhancements, cost savings, opportunities for synergies and to increase
the size and scale of the Company’s revenue, provide greater geographic and product diversity and to enhance growth
opportunities in three emerging markets in the areas of heart failure, sleep apnea and percutaneous mitral valves. The
Mergers are also expected to allow the Company to utilise and integrate certain Sorin technologies into its existing and
future product lines for epilepsy treatments.

II.

Business

LivaNova’s Strategy

The Mergers enabled LivaNova to combine Cyberonics’ global leadership in devices used for the treatment of epilepsy and
neuromodulation, with Sorin’s global leadership in cardiac surgery and cardiac rhythm management, to create a premier
global medical technology company.

In addition to the strategy of delivering identified synergies, there are three additional growth opportunities that have been
identified as being central to the strategy of LivaNova:

•

Leadership in large and growing markets

The Mergers brought together global leaders in cardiac surgery and neuromodulation, as well as the opportunity
to leverage the innovation in cardiac rhythm management.

Sorin was a global leader in cardiac surgery and a market leader in the development, production and sale of
cardiovascular surgery products, including heart-lung machines and oxygenators. Sorin had a strong history rooted
in continued development and innovation of its product offering and the technology it used. Sorin had historically
made acquisitions to expand and enhance its product lines, such as the acquisition of Bioengineering Laboratories
in 2014 to expand its cannulae manufacturing activities, and the development of US FDA approved MitroflowTM,
an aortic pericardial heart valve with PRT, and CE Mark certified CROWN PRTTM stented aortic bioprosthetics.
Recent US FDA approvals for PercevalTM and CROWN PRTTM have enhanced LivaNova’s market position.

Cyberonics had a long-standing reputation in the market as a leader in neuromodulation. Cyberonics engaged
in the design, development, sale and marketing of the US FDA approved VNS Therapy System, which is used to
treat refractory epilepsy and depression in hospitals and surgeries in the US and elsewhere. Cyberonics further
developed its neuromodulation technology by pioneering the use of the VNS Therapy System for the treatment
of chronic heart failure.

LivaNova will utilise the commercial network established by the legacy Sorin business in developing markets to
further enhance the sales of VNS therapy for patients with refractory epilepsy in those markets.

LivaNova will leverage the innovation behind Sorin’s cardiac rhythm management global market and reputation,
which is particularly strong in Europe and Japan. LivaNova is able to utilise the depth and breadth of Sorin’s
cardiac rhythm management expertise, given Sorin’s experience and innovation in the technologies and devices
offered to the market, including the CE Mark certified REPLY 200TM and KORA 100TM pacemakers, as well as the
broad geographical markets where its products are offered, including in the rapidly growing market in China.
The recent regulatory approval to sell KORA 250 in Japan is expected to enhance LivaNova’s market position in
that country.

• Highly complementary technologies and selling capabilities

LivaNova can utilise and leverage the shared technologies that Sorin and Cyberonics had independently
developed over the years in relation to their respective product offerings using implantable electronics for
the treatment of chronic heart failure and sleep apnea, and in connection with neuromodulation and cardiac
rhythm management such as remote monitoring algorithms and wireless technologies.

LivaNova can also benefit from opportunities to commercialise the complementary product portfolios of Sorin
and Cyberonics. With their combined knowledge of the medical devices industry, LivaNova has a wealth of
experience in marketing new products and technologies, through existing sales channels in all of the global
markets in which LivaNova operates, including through clinicians ranging from epileptologists, neurologists,
neurosurgeons and perfusionists with whom Sorin and Cyberonics worked as independent companies.

• Opportunities in three potential new markets

LivaNova is focused on developing new opportunities and commercialising new product offerings in three
potential new markets: heart failure, sleep apnea and percutaneous mitral valve. In heart failure, LivaNova has
completed initial clinical studies on both the VITARIATM and Equalia systems and has received CE Mark approval
on both products. The Company will seek to build further clinical evidence in randomised trials and is currently
evaluating the most appropriate studies moving forward. LivaNova also expects to benefit from the developing
market for active implantable treatments for sleep apnea, with investments aimed at the under-addressed
central sleep apnea, or CSA, and the obstructive sleep apnea, or OSA, markets. LivaNova also has investments
aimed at addressing the market for percutaneous mitral valve replacement/repair products.

Business Units and the New Ventures – Business Model

Upon completion of the Mergers, LivaNova reorganised its reporting structure and aligned its segments and the underlying
divisions and businesses. LivaNova is now comprised of three principal Business Units: Neuromodulation, Cardiac Surgery
and CRM, corresponding to three main therapeutic areas. These Business Units represent a strategic combination of the
historic business operations of legacy Cyberonics and Sorin, aligned to best serve LivaNova’s customers and capitalise upon
the benefits of the Mergers. The historic Cyberonics operations are included under the Neuromodulation Business Unit,
and the historical Sorin businesses are included in LivaNova’s Cardiac Surgery and CRM Business Units. The Company’s
New Ventures group, which is managed in Corporate Business Development and New Ventures, is focused on new growth
platforms and identification of other opportunities for expansion.

LivaNova currently functions in three reportable segments that primarily manufacture and sell device-based medical therapies.
LivaNova’s operating segments with each of their reported net sales for financial year 2015, along with their related divisions
and businesses, are as follows:

• Cardiac Surgery (for the Transitional Period net sales of $147.6 million)

• Cardiopulmonary

• Heart Valves

• CRM (Transitional Period net sales of $52.5 million)

• Neuromodulation (Transitional Period net sales of $214.8 million)

Please refer to the “Introduction” section of the “Business Review” at Part III of this Strategic Report below for more
information on the Transitional Period.

Neuromodulation Business Unit

LivaNova’s Neuromodulation Business Unit designs, develops and markets neuromodulation-based medical devices for the
treatment of epilepsy and depression. Through this Business Unit, LivaNova markets its proprietary implantable VNS Therapy
Systems that deliver vagus nerve stimulation therapy for the treatment of epilepsy and depression.

VNS Therapy System

LivaNova’s seminal neuromodulation product, the VNS Therapy® System, is an implantable device authorised for the treatment
of drug-resistant epilepsy and TRD. The VNS Therapy System consists of: an implantable pulse generator and connective lead
that work to stimulate the vagus nerve; surgical equipment to assist with the implant procedure; equipment and instruction
manuals enabling a treating physician to set parameters for a patient’s pulse generator; and magnets to manually suspend
or induce nerve stimulation. The VNS therapy pulse generator and lead are surgically implanted in a subcutaneous pocket
in the upper left chest area, generally during an out-patient procedure. The lead (which does not need to be removed to
replace a generator battery) is connected to the pulse generator and tunnelled under the skin to the vagus nerve in the
lower left side of the patient’s neck.

VNS for the treatment of epilepsy

Globally, there are several broad types of treatment available to persons with epilepsy, including multiple seizure medications,
various forms of the ketogenic diet, vagus nerve stimulation, resective brain surgery, trigeminal nerve stimulation, responsive
intracranial neurostimulation and deep brain stimulation. Seizure medications typically serve as a first-line treatment and are
prescribed for virtually all patients diagnosed with epilepsy. After two seizure medications fail to deliver seizure control, the
epilepsy is defined as drug-resistant, at which point, adjunctive non-drug options are considered, including VNS therapy,
brain surgery and a ketogenic diet.

In the US, the VNS Therapy System was the first medical device treatment approved by the US FDA for refractory drug
resistant epilepsy in adults and adolescents over 12 years of age and is indicated for use as an adjunctive therapy in reducing
the frequency of seizures. Other worldwide regulatory bodies have also approved the VNS Therapy System for the treatment
of epilepsy, many without age restrictions or seizure-type limitations. Patients with epilepsy can also use a small, handheld
magnet provided with the VNS Therapy System to activate or inhibit stimulation manually. LivaNova sells a number of VNS
product models for the treatment of epilepsy, including its Model 102 (Pulse™), Model 102R (Pulse Duo™), Model 103
(Demipulse®), Model 104 (Demipulse Duo®) and Model 105 (AspireHC®) pulse generators. To date, an estimated 100,000
patients have been treated with VNS Therapy System for epilepsy.

In addition to these models, LivaNova also offers the Model 106 (AspireSR®) generator in Europe and other international
markets. The Aspire SR generator provides the benefits of VNS therapy, with an additional feature – automatic stimulation
in response to detection of changes in heart rate indicative of a seizure. The AspireSR generator is capable of delivering
additional stimulation automatically by responding to a patient’s relative heart-rate changes that exceed certain variable
thresholds. Heart-rate changes accompany seizure activity in certain patients. The thresholds are programmed by the patient’s
physician and can be adjusted to suit the patient’s level of physical activity or for other reasons. On 2 June 2015, the Company
announced US FDA approval of the AspireSR generator for sale in the US, and sales in the region have commenced. By 31
December 2015, sales of AspireSR accounted for approximately 70 per cent. of LivaNova’s VNS Therapy generator sales.

VNS for the treatment of TRD

Major depressive disorder is one of the most prevalent and serious illnesses in the US. It affects nearly 19 million Americans
18 years of age or older every year. In July 2005, the US FDA approved the VNS Therapy System for the adjunctive long-term
treatment of chronic or recurrent depression for patients of 18 years of age or older who have not had an adequate response
to multiple anti-depressant treatments. Regulatory bodies in the EEA, Canada, Brazil, Mexico, Australia, Israel and certain
other international markets have approved the VNS Therapy products for the treatment of chronic or recurrent depression
in patients who are in a treatment-resistant or treatment-intolerant depressive episode. Reimbursement for the use of VNS
Therapy to treat TRD is significantly limited in most countries in which it is available. To date, an estimated 4,100 patients
worldwide have been treated with the VNS Therapy System for depression.

Customers and Competitors – Neuromodulation Products

The primary medical professionals who treat patients with Neuromodulation products are neurologists and neurosurgeons,
although customers are hospitals and healthcare systems, and in some cases, government health departments. Primary
medical device competitors in the Neuromodulation product group are NeuroPace, Inc. and Medtronic Global.

Neuromodulation Recent Developments

LivaNova’s epilepsy product development efforts are directed toward improving the VNS Therapy System, improving its
efficacy, and developing new products that provide additional features and functionality. LivaNova is conducting ongoing
product development activities to enhance the VNS Therapy System pulse generator, lead and programming software and
to introduce new products. LivaNova participates in studies for its product development efforts and to build clinical evidence
for the VNS Therapy System. LivaNova will be required to obtain appropriate US and international regulatory approvals,
and clinical studies may be a prerequisite to regulatory approvals for some products. LivaNova’s R&D efforts will require
significant funding to complete and may not be successful. Even if successful, additional clinical studies may be needed to
achieve regulatory approval and to commercialise any or all new or improved products.

In June 2015, the US FDA approved AspireSRTM for commercialisation in the US. Growth of VNS therapy products has
been strong during the period following this approval. Acceptance of the new product, as evidenced by the proportion of
generators sold, has been high, and pricing obtained for the product has been at a premium due to the unique nature of
the device.

Several development projects have been either terminated or halted during the last year, including the planned development
of a wirelessly enabled generator, and an external device planned to be used to warn or notify patients of impending or
actual seizures. The temporary or permanent change in development priorities has been due to both technological issues
as well as the possible advantages arising from the Mergers, which could allow for adoption of technologies previously
developed by Sorin.

Cyberonics invested approximately $5.1 million in Cerbomed, a privately held, European development-stage company
developing a transcutaneous vagus nerve stimulation device for several indications, including the treatment of drug-resistant
epilepsy. Cerbomed received CE Mark approval for its device for the treatment of epilepsy and depression in March 2010,
and has completed a clinical study in Germany to study outcomes in the treatment of refractory epilepsy. During the quarter
ended 23 January 2015, Cyberonics invested an additional €1.0 million, or $1.2 million, in convertible preferred stock.
During the Transitional Period, the Company determined that its investment in Cerbomed was fully impaired and recorded
a loss of $5.1 million.

In May 2007, the CMS issued a national determination of non-coverage within the US with respect to reimbursement of the
VNS Therapy System for patients with TRD, significantly limiting access to this therapeutic option for most patients. As the
result of lack of access following this determination, the legacy Cyberonics business has not engaged in active commercial
efforts with respect to TRD in any of its markets. However, in the future LivaNova intends to re-engage in limited commercial
efforts in certain international markets if, or as, reimbursement pathways become available. As a result of new clinical
evidence, including the completion of a post-approval dosing study and other studies that have resulted in more than
five recent publications in peer-reviewed journals, the legacy Cyberonics business submitted a formal request to CMS for
reconsideration of VNS therapy for TRD. CMS declined the request for reconsideration in May 2013. In October 2013, two
Medicare beneficiaries appealed the lack of coverage by Medicare through the DAB. In January 2015, the DAB concluded
that the record relating to the non-coverage conclusion by CMS is complete and adequately supports the non-coverage
determination. As a result, market access to the vast majority of the patients in the US remains closed.

Cardiac Surgery Business Unit

LivaNova’s Cardiac Surgery Business Unit is engaged in the development, production and sale of cardiovascular surgery
products, including oxygenators, heart-lung machines, perfusion tubing systems, cannulae and accessories, and systems
for autotransfusion and autologous blood washing, as well as implantable prostheses for the replacement or repair of
heart valves.

Cardiopulmonary Products

During conventional coronary artery bypass graft procedures and heart valve surgery, the patient’s heart is temporarily
stopped, or arrested. The patient is placed on an extracorporeal circulatory support system that temporarily functions as the
patient’s heart and lungs and provides blood flow to the body. LivaNova’s products include systems to enable cardiopulmonary
bypass, including heart-lung machines, oxygenators, perfusion tubing sets, cannulae and accessories, as well as related
equipment and disposables for autotransfusion and autologous blood washing, for neonatal, pediatric and adult patients.
LivaNova’s primary cardiopulmonary products include:

Heart-lung machines

The heart-lung machine product group includes heart-lung machines, heater-coolers, related cardiac surgery equipment and
maintenance services.

Oxygenators and perfusion tubing systems

The oxygenators product group, which includes oxygenators and other disposable devices for extracorporeal circulation,
also achieved significant growth, especially in the US, Europe and Japan, largely driven by the successful rollout of the
new InspireTM, HeartlinkTM and ConnectTM system. The Inspire range of products, comprised of 12 models, will enable
perfusionists to replace the existing oxygenator lines with more advanced systems capable of delivering better performance
and greater flexibility. The total modularity of this new range of products will also help reduce production time and costs,
providing perfusionists with a more customised approach to further benefit patients.

ConnectTM

ConnectTM is LivaNova’s innovative and intuitive perfusion charting system. Focused on real time and retrospective calculations
and trending tools, ConnectTM assists perfusionists with data management during and after cardiopulmonary bypass.
InspireTM, HeartlinkTM and ConnectTM products can all be integrated with LivaNova’s heart-lung machines to deliver a unique
perfusion solution combining hardware components, disposable devices and data management systems.

Autotransfusion systems

One of the key elements for a complete blood management strategy is autotransfusion, which involves the collection,
processing and reinfusion of the patient’s own blood that is lost at the surgical site during the peri-operative period.

Cannulae

LivaNova’s cannulae product family, which is part of the oxygenator product group, are perfusion tubing sets used to
connect the extracorporeal circulation to the heart of the patient during cardiac surgery.

Customers and Competitors – Cardiopulmonary Products

The primary medical professionals who use LivaNova’s cardiopulmonary products are perfusionists and cardiac surgeons.
Primary competitors in the cardiopulmonary product group are Terumo Medical Corporation, Maquet Medical Systems,
Medtronic Global and Haemonetics Corporation.

Cardiopulmonary Recent Developments

In December 2015, LivaNova received a warning letter from the US FDA alleging certain violations of regulations at LivaNova’s
Munich, Germany and Arvada, Colorado manufacturing facilities. The warning letter included restrictions on the importation
of 3T Heater Cooler devices to the US. While LivaNova cannot sell additional 3T Heater Cooler devices to new customers,
LivaNova can service existing customers through a medically necessary protocol. LivaNova takes these matters seriously and

is working diligently to resolve the concerns raised by the US FDA and to reduce any adverse impact this import restriction
will have on existing US customers of 3T Heater Cooler devices. The Company believes that the US FDA’s concerns can be
resolved without a material impact on LivaNova’s financial results.

On 12 February 2016, the Company was notified that a class action complaint had been filed in the US District Court for
the Middle District of Pennsylvania with respect to the 3T Heater Cooler devices, naming as evidence, in part, the warning
letter issued by the US FDA. The named plaintiffs to the complaint are two individuals who underwent open heart surgeries
at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center in 2015. On 21 March 2016, an amended
class action complaint was filed adding Sorin Group USA, Inc. and Sorin Group Deutschland GmbH as defendants to the
action, alongside the Company. The complaint alleges that: (i) patients were exposed to a harmful form of bacteria, known
as nontuberculous mycobacterium, or NTM, from the 3T Heater Cooler devices; and (ii) the Company knew or should have
known that design or manufacturing defects in 3T Heater Cooler devices can lead to NTM colonisation, regardless of the
cleaning and disinfection procedures used (and recommended by LivaNova). The named plaintiffs have sought to certify
a class of plaintiffs consisting of all Pennsylvania residents who underwent open heart surgery at WellSpan York Hospital
and Penn State Milton S. Hershey Medical Center between 2011 and 2015 and who are currently asymptomatic for NTM
infection (approximately 3,600 patients). The putative class action, which has not been certified, seeks: (i) declaratory
relief finding the 3T Heater Cooler devices are defective and unsafe for intended uses; (ii) medical monitoring; (iii) general
damages; and (iv) attorneys’ fees. Patient safety is of the utmost importance to LivaNova, and significant resources are
dedicated to the delivery of safe, high-quality products. Should the lawsuit proceed, LivaNova intends to vigorously defend
against these claims. Given the early stage of this matter, LivaNova cannot, however, give any assurances that additional
legal proceedings making the same or similar allegations will not be filed against the Company or one of its subsidiaries, nor
that the resolution of the complaint and any related litigation in connection therewith will not have a material adverse effect
on LivaNova’s business, results of operations, financial condition and/or liquidity.

Heart Valves and Repair Products

LivaNova offers a comprehensive line of products to treat a variety of heart valve disorders, including a complete line of
surgical tissue and mechanical valve replacements and repair products for damaged or diseased heart valves. The heart
valves and repair product offerings include:

Tissue heart valves

LivaNova’s tissue valves include the MitroflowTM aortic pericardial tissue valve with phospholipid reduction treatment, or
PRT, which is designed to mitigate valve calcification, and the CROWN PRTTM and Solo SmartTM aortic pericardial tissue
valves. CROWN PRTTM is the latest advancement in stented aortic bioprosthesis technology, featuring surgeon-friendly
design, PRT technology, and state-of-the-art hemodynamic and durability performance. CROWN PRTTM enables intuitive
intraoperative handling through a short rinse time, enhanced ease of implant through visible markers and improved
radiographic visualisation through dedicated X-ray markers. LivaNova’s Solo SmartTM aortic pericardial tissue valve is an
innovative, completely biological aortic heart valve with no synthetic material and a removable stent. Solo SmartTM provides
the ease of implantation of a stented valve with the hemodynamic performance of a stentless valve.

Self-anchoring tissue heart valves

PercevalTM is LivaNova’s sutureless bioprosthetic device designed to replace a diseased native valve or a malfunctioning
prosthetic aortic valve using either traditional or minimally invasive heart surgery techniques. PercevalTM incorporates a
unique technology that allows 100 per cent. sutureless positioning and anchoring at the implantation site. This, in turn,
offers the potential benefit of reducing the time the patient spends in cardiopulmonary bypass. To date, over 12,000
patients worldwide benefit from the PercevalTM valve.

Mechanical heart valves

LivaNova’s wide range of mechanical valve offerings includes the Carbomedics StandardTM, Top HatTM and Reduced Series
Aortic ValvesTM, as well as the Carbomedics Carbo-SealTM and Carbo-Seal ValsalvaTM aortic prostheses. LivaNova also offers
the Carbomedics StandardTM, OrbisTM and OptiformTM mechanical mitral valves.

Heart valve repair products

Mitral valve repair is a well-established solution for patients suffering from a leaky mitral valve, or mitral regurgitation.
LivaNova offers a wide range of mitral valve repair products, including the Memo 3DTM and Memo 3D ReChordTM,
AnnuloFloTM and AnnuloFlexTM.

Customers and Competitors – Heart Valves

The primary medical professionals who use LivaNova’s heart valve products are cardiac surgeons. Primary competitors in the
heart valve business are Edwards Lifesciences, St. Jude Medical and Medtronic Global.

Heart Valve Recent Developments

In January 2016 the Company announced it had received US FDA approval for its PercevalTM sutureless valve. PercevalTM is
a surgical aortic valve with a unique self-anchoring frame that enables the surgeon to replace the diseased valve without
suturing it into place. LivaNova has begun commercial distribution of the device in the US.

In addition, in early February 2016, the Company announced that it had received US FDA approval of the CROWN PRTTM
valve for the treatment of aortic valve disease. The CROWN PRTTM is a stented aortic bioprosthesis technology and features
a surgeon-friendly design, with optimised hemodynamics with patented PRT, designed to enhance valve durability. LivaNova
anticipates launching CROWN PRTTM in the US later this year.

Cardiac Rhythm Management Business Unit

The CRM Business Unit develops, manufactures and markets products for the diagnosis, treatment, and management
of heart rhythm disorders and heart failure. These products include implantable devices, leads and delivery systems and
information systems for the management of patients with CRM devices.

CRM Products

The following are the principal products offered by the CRM Business Unit:

Implantable Cardiac Pacemakers

A pacemaker is a battery-powered device implanted in the chest that delivers electrical impulses to treat bradycardia, a
condition of abnormally slow heart rhythms or unsteady heart rhythms that cause symptoms such as dizziness, fainting,
fatigue and shortness of breath. LivaNova’s pacemakers include the REPLYTM and ESPRITTM models, which have received both
US FDA clearance and CE Mark certification, and the KORA 100TM model which has received CE Mark certification. In 2015,
LivaNova launched its latest generator of pacemaker systems in Europe, the Kora 250TM, which is compatible with certain
MRI machines.

ICDs

ICDs continually monitor the heart and deliver therapy when an abnormal heart rhythm, such as tachyarrhythmia, or rapid
heart rhythm, occurs and leads to sudden cardiac arrest. LivaNova’s latest generation ICD is the PLATINIUMTM, which has CE
Mark certification and features industry leading battery longevity, advanced shock reduction technology and a contoured
shape with thin, smooth, edges that better fits inside the body. Other ICDs include the PARADYMTM family. PLATINIUMTM
was approved in Europe in the second quarter of 2015 and in Japan in the fourth quarter of 2015.

Implantable CRT-Ds

Implantable CRT-Ds treat heart failure patients by altering the abnormal electrical sequence of cardiac contractions by
sending tiny electrical impulses to the lower chambers of the heart to help them beat in a more synchronised fashion.
LivaNova’s latest generations of CRT-Ds use the SonRTM technology that provides heart failure patients with automatic and
frequent hemodynamic CRT optimisation both at rest and exercise using a unique hemodynamic sensor embedded in the
SonRtipTM atrial sensing/pacing lead. SonRTM technology is found in INTENSIATM, PARADYM RFTM, PARADYM 2TM and the
most recent PLATINIUMTM families of CRT-Ds. LivaNova has US FDA approval for the PARADYM RFTM CRT-D.

Patient Management Tools

LivaNova’s Smartview system enables remote monitoring of patients with certain Sorin pacemakers, ICDs and CRT-Ds, by
enabling transmission of data from the patient’s ICD or CRT-D to their healthcare provider using a portable monitor that is
connected to the patient’s telephone line.

Customers and Competitors – CRM

The primary medical specialists who use LivaNova’s CRM products include electrophysiologists, implanting cardiologists,
heart failure specialists and cardiac surgeons. Primary competitors in the CRM business are Medtronic, St. Jude Medical,
Boston Scientific and Biotronik.

CRM Recent Developments

In November 2015, LivaNova launched the PLATINIUMTM ICD in Europe. During 2015, LivaNova continued the development
of IS4 PLATINIUM CRT-D with SonRTM technology dedicated to the use of quadripolar left ventricular catheters with IS-4
compatibilities. The development of new ranges of leads for defibrillation and left ventricular stimulation also enjoyed
significant progress with the completion of the pre-qualification phase.

Following the Company’s launch of a full body MRI conditional pacemaker, the KORA 250, in June 2015, it has now been
approved for sale in Japan and has been launched in Japan in the first quarter of 2016. The KORA 250 is equipped with
the Company’s proprietary Automatic MRI mode. In addition, the device is designed to proactively manage comorbidities,
including a pacing mode, referred to as “SafeR” that manages all types of atrioventricular block and the ability to monitor
patients for severe sleep apnea using sleep apnea monitoring.

In March 2016, the Company announced a reorganisation plan for CRM, which is intended to strengthen its operational
effectiveness and efficiency in response to changes in the global marketplace. The Company estimates that, net of new
positions created, the reorganisation plan will result in a reduction of approximately 140 positions at LivaNova facilities in
both Clamart, France and Saluggia, Italy. The plan also involves the closure of CRM’s R&D facility in Meylan, France, and
its consolidation into the Clamart facility. In addition, the R&D team of the New Ventures unit will be combined with those
of CRM. These actions are part of the Company’s ongoing optimisation efforts and result from an analysis of LivaNova’s
manufacturing and R&D operations worldwide. LivaNova has commenced consultations with employee representatives
regarding the reorganisation plan. Although the terms are not likely to be finalised until the second quarter of 2016,
the Company believes that the reduction in workforce should be accomplished primarily through voluntary separation
packages. LivaNova is also engaged in efforts to help those affected secure alternative employment. The Company
estimates that these actions will result in total pre-tax charges of approximately $20.3 million in 2016, relating to non-
recurring cash employee-related costs, including costs for severance and other employee-related assistance and other exit
costs associated with the plan.

In October 2014, Sorin announced that it had completed enrolment in the Respond CRTTM clinical trial, enrolling 1,039
patients in the study. The results of this clinical trial are expected to be published in 2016.

New Ventures – Heart Failure, Sleep Apnea and Mitral Regurgitation

Overview

The New Ventures group was created to invest in significant, new growth opportunities for LivaNova. The three
significant unmet clinical needs the New Ventures group is seeking to address are: heart failure, sleep apnea and mitral
valve regurgitation.

In March 2016, LivaNova announced a reorganisation plan for the CRM business, which is intended to strengthen CRM’s
operational effectiveness and efficiency in responding to changes in the global marketplace. As part of this plan, the
R&D team within New Ventures will be integrated into, and combined with, the CRM business. These actions are part
of the ongoing efforts to rationalise the research and R&D development portfolio of the Company and optimising the
manufacturing process.

New Ventures develops or invests in companies with innovative, proprietary technologies to treat heart failures, sleep apnea
and mitral valve regurgitation. For each of these conditions, there are opportunities to expand clinical indications or offer
minimally invasive therapies to effectively treat the underlying condition. New Ventures partners with academic institutions
and medical start-ups to develop therapeutic solutions in these areas, focusing, in particular, on neurostimulation to treat
heart failure and sleep apnea and percutaneous mitral valve repair or replacement to treat mitral regurgitation.

Heart failure occurs when the heart is no longer able to pump enough blood to meet the needs of the body. This usually
results from an injury to the heart such as myocardial infarction which leaves the heart too weak to fill and pump efficiently.
It is a chronic, progressive disease and treatment depends on the heart failure stage and severity. ICDs or CRT-Ds may be
indicated at a certain stage. There is also ample clinical proof that heart failure creates an imbalance in the autonomic
nervous system. These patients show increased sympathetic nerve activation and withdrawal of parasympathetic tone, which
overstresses and fatigues the heart. Vagus nerve stimulation could bring the autonomic nervous system back into balance.

Mitral regurgitation occurs when the heart’s mitral valve leaflets do not close tightly, which allows blood to flow backwards
in the chambers of the heart. This reduces the amount of blood that flows to the rest of the body, making the patient feel
tired or out of breath. Treatment depends on the nature and the severity of mitral regurgitation. In certain cases, heart
surgery may be needed to repair or replace the valve. Left untreated, severe mitral valve regurgitation can cause heart failure
or heart rhythm problems (arrhythmias).

Sleep apnea is a serious sleep disorder that occurs when a person’s breathing is interrupted during sleep. People with
untreated sleep apnea stop breathing repeatedly during sleep, sometimes hundreds of times per night. This disrupts
oxygen supply to the brain and other parts of the body and, if left untreated, can exacerbate cardiovascular diseases
such as heart failure. There are two main kinds of sleep apnea: CSA and OSA. These have different etiologies, as well as
different treatments.

Therapies and Projects

Heart failure

In the heart failure area, New Ventures is currently managing three internal neurostimulation projects, being Equilia,
VITARIA and Intense, each aimed at treating heart failure through vagus nerve stimulation. Equilia is a first-generation
device that benefited from the legacy Sorin business’ acquisition of the Belgian company Neurotech SA in 2012, which
enhanced Sorin’s technical expertise and intellectual property in the field of neurostimulation. The successful implantation
of the first Equilia™ neurostimulation system device occurred in February 2015 as part of the Vanguard (Vagal Nerve
Stimulation Safeguarding Heart Failure) clinical trial. The aim of the system is to treat heart failure through stimulation of
the vagus nerve.

In February 2015, the legacy Cyberonics business received CE Mark approval for the VITARIA System for patients who have
moderate to severe heart failure (New York Heart Association Class II/III) with left ventricular dysfunction (ejection fraction <
40 per cent.) and who remain symptomatic despite stable, optimal heart failure drug therapy. The VITARIA System provides
a specific method of VNS called ART and it includes the same elements as the VNS Therapy System – pulse generator, lead,
programming wand and software, programming computer, tunnelling tool and accessory pack, but without the patient
kit with magnets. Cyberonics conducted a pilot study, ANTHEM-HF, outside the US, which concluded during the quarter
ended 24 October 2014. The study results support the safety of ART delivered by the VITARIA System. Cyberonics submitted
the results to its European Notified Body, DEKRA, and on 20 February 2015, it received CE Mark approval. Cyberonics
also initiated a second pilot study, ANTHEM-HFpEF, to study ART in patients experiencing symptomatic heart failure with
preserved ejection fraction. This pilot study is currently underway outside the US.

The other principal New Ventures heart failure initiative, Intense, is a broader project that is partially subsidised by the French
government through Banque Publique d’Investissement.

With the completion of the Mergers, the New Ventures group is continuing to evaluate the appropriate course of action
for each product, which could include future development efforts such as additional clinical trials or re-evaluation of
certain projects.

Sleep apnea

In 2014, Sorin completed a $20 million minority investment in Respicardia, a US-based developer of implantable therapies
designed to improve respiratory and cardiovascular health. Respicardia has developed the first fully implantable device for
the treatment of CSA. CSA is a type of sleep-disordered breathing that disturbs the normal breathing pattern during sleep
and adversely affects patients’ overall cardiovascular health. CSA affects over five million patients worldwide and over
one-third of heart failure patients suffer from CSA. There is currently a significant unmet clinical need for more effective
therapeutic solutions to better manage patients with CSA.

Respicardia’s remedé® System is an implantable pacemaker-like device that delivers electrical pulses to the phrenic nerve
via a transvenous lead, which restores a more natural, less disrupted breathing pattern. The remedé® System received CE
Mark certification in 2010 and is currently being evaluated in a US randomised, controlled IDE pivotal trial. Sorin’s initial
investment in Respicardia has financed ongoing clinical testing of the technology and represents a potential complement to
LivaNova’s innovative therapeutic solutions for patients with heart failure. Under the terms of Sorin’s original investment in
Respicardia, Sorin also acquired the exclusive right to distribute the remedé® System in selected European countries and an
exclusive option to acquire Respicardia in the future. Respicardia expects to complete a US clinical trial in 2016, and if the
trial is successful, apply for US FDA approval in the second half of 2016 or in early 2017.

Cyberonics also invested $12.0 million in ImThera, a privately held company developing an implantable neurostimulation
device system for the treatment of OSA. The aura6000 System stimulates the hypoglossal nerve to treat OSA. In November
2014, ImThera announced that the US FDA approved an IDE for their pivotal clinical study and patient enrolment
has commenced.

Mitral valve regurgitation

Sorin also invested in three mitral valve startups. Cardiosolutions Inc., a startup headquartered in the US in which it has held
an interest since 2012, is developing an innovative “Spacer” technology for treating mitral regurgitation. In addition, Highlife,
headquartered in France, and Caisson, headquartered in the US, are two external companies focused on developing devices
for treating mitral regurgitation through percutaneous replacement of the native mitral valve. Although both ventures
are focused on mitral valve replacement, their devices differ significantly in both the delivery system (transapical versus
transfemoral) and the anchoring system. In February 2015, Sorin made further investments of €2.8 million ($3.1 million)
and $7.5 million, respectively, in HighLife and Caisson, to achieve certain development milestones. As at 31 December 2015,
the Company had total outstanding bridge loans to Caisson ($2.0 million) and Highlife ($1.7 million), which amounted to
$3.7 million on a combined basis.

Research and Development

The markets in which LivaNova participates are subject to rapid technological advances. Product improvement and
innovation are necessary to maintain market leadership. LivaNova’s R&D efforts are directed toward maintaining or achieving
technological leadership in each of the markets it serves to help ensure that patients using its devices and therapies receive the
most advanced and effective treatment possible. LivaNova remains committed to developing technological enhancements
and new uses for existing products and less invasive and new technologies for new and emerging markets to address unmet
patient needs. That commitment leads LivaNova to initiate and participate in many clinical trials each fiscal year as the
demand for clinical and economic evidence remains high. LivaNova also expects its development activities to help reduce
patient care costs and the length of hospital stays.

Approximately 16 per cent. of LivaNova’s employees work in R&D. LivaNova’s R&D activities include improving existing
products and therapies, expanding their uses and applications and developing new products. LivaNova continues to focus
on optimising innovation and will continue to assess the R&D programmes based on their ability to deliver economic value
to the customer.

During the Transitional Period, LivaNova spent $51 million on R&D.

R&D updates

Neuromodulation Business Unit: Following an internal review of LivaNova’s R&D activities, the Company decided to terminate
certain R&D projects in Neuromodulation, including the ProGuardian™ System project and the recharge technology project.
A loss of $2.1 million has been recorded as a charge to R&D in the Company’s consolidated income statement.

Cardiac Surgery Business Unit: On 5 October 2015, the Company also announced the initiation of PERSIST-AVR, the first
international, prospective post-market randomised multi-centre trial to evaluate the PercevalTM sutureless aortic valve
compared to standard sutured bioprostheses in patients with aortic valve disease. The study is expected to enrol 1,234
patients within a two-year enrolment period and patients will be followed until five years post procedure.

CRM Business Unit: During 2015, LivaNova has continued the development of implantable defibrillators dedicated to the
use of quadripolar left ventricular leads with IS-4 compatibilities. This follows from the clinical trial under an IDE protocol
for Respond CRTTM. The purpose of the Respond CRTTM clinical trial assesses the safety and effectiveness of the SonR CRTTM
system (described above) in patients affected by advanced heart failure.

New Ventures: The ANTHEM clinical study tested the VITARIA System in 60 reduced ejection fraction patients followed for
24 months. The study confirmed the safety of the VITARIA System. The Company is now evaluating the next steps in its
clinical plan to prove the long-term efficacy of the therapy. In addition, LivaNova is testing the VITARIA System in a single
arm trial of preserved ejection fraction patients (HFpEF).

Acquisitions and Investments

LivaNova’s strategy of providing a broad range of therapies requires a wide variety of technologies, products and capabilities.
The rapid pace of technological development in the medical industry and the specialised expertise required in different areas
of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions. In addition
to internally-generated growth through R&D efforts, LivaNova has historically relied, and expects to continue to rely, upon
acquisitions, investments and alliances to provide access to new technologies in both new and existing markets.

LivaNova expects to further its strategic objectives and strengthen its existing businesses by making future acquisitions or
investments in companies that it believes can stimulate the development of new technologies and products. Mergers and
acquisitions of medical technology companies are inherently risky and no assurance can be given that any of its previous
or future acquisitions will be successful or will not materially adversely affect LivaNova’s consolidated operations, financial
condition, and/or cash flows.

Patents and Licenses

LivaNova relies on a combination of patents, trademarks, copyrights, trade secrets, and non-disclosure and non-competition
agreements to establish and protect LivaNova’s proprietary technology. It has a portfolio of over 2,000 patents and patent
applications, and has filed and obtained numerous patents in the US and abroad in a continuing effort to establish and
protect its proprietary technology rights. US patents typically have a 20-year term from the application date; patent
protection outside the US varies by country. In addition, LivaNova has entered into exclusive and non-exclusive licences for a
wide array of third-party technologies. It has also obtained certain trademarks and trade names for products, and maintains
certain details about company processes, products and strategies as trade secrets. In the aggregate, these intellectual
property assets and licences are considered to be of material importance to LivaNova’s business segments and operations.
LivaNova regularly reviews third-party patents and patent applications in an effort to protect its intellectual property and
avoid disputes over proprietary rights.

Markets and Distribution Methods

The three largest markets for LivaNova’s medical devices are Europe, the US and Japan. Emerging markets are an area of
increasing focus and opportunity. LivaNova sells most of its medical devices through direct sales representatives in the US
and a combination of direct sales representatives and independent distributors in markets outside the US.

LivaNova’s marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products to a diverse
group of customers worldwide – including physicians, perfusionists, hospitals and other medical institutions and
healthcare providers. To achieve this objective, LivaNova maintains a highly knowledgeable and dedicated sales staff that
is able to foster strong customer relationships. LivaNova maintains excellent working relationships with professionals in
the medical industry, who provide LivaNova with a detailed understanding of therapeutic and diagnostic developments,
trends, and emerging opportunities, which enables it to respond quickly to the changing needs of providers and patients.
LivaNova actively participates in medical meetings and conducts comprehensive training and educational activities in an
effort to enhance its presence in the medical community, and believes that these activities also contribute to healthcare
professional expertise.

Due to the emphasis on cost-effectiveness in healthcare delivery, the current trend among hospitals and other medical device
customers is to consolidate into larger purchasing groups in order to enhance purchasing power. As a result, customer
transactions have become increasingly complex. Enhanced purchasing power may also lead to pressure on pricing and an
increase in the use of preferred vendors. LivaNova’s customer base continues to evolve to reflect such economic changes
across the geographic markets it serves.

Competition and Industry

LivaNova competes in the medical device market in over 5,000 hospitals in more than 100 countries. This market is
characterised by rapid change resulting from technological advances and scientific discoveries. Its competitors, across
LivaNova’s product portfolio, range from large manufacturers with multiple business lines to small manufacturers offering
a limited selection of specialised products. In addition, LivaNova faces competition from providers of alternative medical
therapies. Competitors for each of LivaNova’s business segments are discussed below:

• Cardiac Surgery:

• Cardiopulmonary Products: all Cardiopulmonary products face competition from at least two other large
companies, and some regional competitors, although not all competitors are present in all product lines.
All products are sold in a competitive market where pricing can be a relevant factor.

• Heart Valves: LivaNova competes with three large competitors, and pricing is a significant factor.

• CRM: LivaNova competes with four large competitors, and features offered and pricing are significant

competitive factors.

• Neuromodulation: LivaNova faces competition from a large competitor in Europe and a smaller competitor in

the US.

Product problems, physician advisories, safety alerts and publications about LivaNova’s products can cause major shifts in
industry market share, reflecting the importance of product quality, product efficacy and quality systems in the medical
device industry. In addition, because of developments in managed care, economically-motivated customers, consolidation
among healthcare providers, increased competition, and declining reimbursement rates, LivaNova may be increasingly
required to compete on the basis of price. In order to continue to compete effectively, LivaNova must continue to create or
acquire advanced technology, incorporate this technology into proprietary products, obtain regulatory approvals in a timely
manner, maintain high-quality manufacturing processes and successfully market these products.

Financial Information about the Company, the Business Units and Geographic Areas

Following the Mergers, LivaNova operates its business as three segments, which it calls Business Units. The historical
Cyberonics operations are included in the Neuromodulation Business Unit and the historical Sorin business activities are
included in the Cardiac Surgery and CRM Business Units.

LivaNova’s worldwide operations are accompanied by certain financial and other risks. Relationships with customers and
effective terms of sale vary by country; often with longer-term receivables than are typical in the US. Currency exchange rate
fluctuations can affect revenues, net of expenses, and cash flows from operations worldwide.

Production and Availability of Raw Materials

LivaNova manufactures a majority of its products at ten manufacturing facilities located in Italy, France, Germany, the US,
Canada, Brazil, Costa Rica and the Dominican Republic. LivaNova purchases many of the components and raw materials used
in manufacturing these products from numerous suppliers in various countries. For quality assurance, sole source availability
or cost effectiveness purposes, LivaNova may procure certain components and raw materials from a sole supplier. LivaNova
works closely with its suppliers to ensure continuity of supply while maintaining high quality and reliability. Due to the
regulatory requirements regarding manufacturing of its products, LivaNova may not be able to quickly establish additional or
replacement sources for certain components or materials. Generally, LivaNova has been able to obtain adequate supplies of
such raw materials and components. However, a sudden or unexpected reduction or interruption in supply, and an inability
to develop alternative sources for such supply, could adversely affect operations.

The quality systems utilised by LivaNova in the design, production, warehousing and distribution of LivaNova’s products
are designed to ensure that the products are safe and effective. Some of the governmental agencies and quality system
regulations with which LivaNova is required to comply are as follows:

•

The QSR under section 520 of the US FDCA and its implementing regulations at 21 C.F.R. Part 820.

The International Standards Organisation – EN ISO 13485:2012, Medical devices – Quality management systems.

The independent certification bodies – DEKRA, LNE/G-MED and TUV SUD act as LivaNova’s notified bodies to
ensure that the manufacturing quality systems comply with ISO 13485:2003.

The European Council Directives 93/42/EEC and 90/385/EEC, ISO 13485, which relate to medical devices and
active implantable medical devices.

In addition, LivaNova utilises environmental management systems and safety programmes to protect the environment and
LivaNova’s employees. Some of the regulations and governmental agencies with which LivaNova complies are as follows:

•

The US Environmental Protection Agency for the regulation of environmental and employee health and the US
Occupational Health and Safety Assessment System.

The European Union Registration, Evaluation, Authorisation and Restriction of Chemicals.

Italian regulations under the Integrated Environmental Authorisation acts.

ISO 14001 certification

Government Regulation and Other Considerations

LivaNova’s medical devices are subject to regulation by numerous government agencies, including the US FDA and similar
agencies outside the US. To varying degrees, each of these agencies requires LivaNova to comply with laws and regulations
governing the research, development, testing, manufacturing, labelling, pre-market clearance or approval, marketing,
distribution, advertising, promotion, recordkeeping, reporting, tracking, and importing and exporting of its medical devices.
The business is also affected by patient privacy and security laws, cost containment initiatives, and environmental health
and safety laws and regulations worldwide. The primary laws and regulations that affect the business are described below.

The laws applicable to LivaNova are subject to change and subject to evolving interpretations. If a governmental authority
were to conclude that LivaNova is not in compliance with applicable laws and regulations, LivaNova and its officers and
employees could be subject to severe criminal and civil penalties, including substantial fines and damages, and exclusion
from participation as a supplier of product to beneficiaries covered by government programmes, among other potential
enforcement actions.

Each medical device LivaNova seeks to commercially distribute in the US must first receive 510(k) clearance or pre-market
approval from the US FDA, unless specifically exempted by that agency. Under the US 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 control needed to ensure safety and effectiveness. Devices deemed to pose a lower risk are categorised
as either Class I or II, which requires the manufacturer to submit to the US FDA a 510(k) pre-market notification requesting
clearance of the device for commercial distribution in the US. Some low-risk devices are exempted from this requirement.
Devices deemed by the US FDA to pose the greatest risk, such as life sustaining, life-supporting or implantable devices,
or devices deemed not substantially equivalent to a previously 510(k)-cleared device, are categorised as Class III, requiring
approval of a PMA application.

510(k) Clearance Process

To obtain 510(k) clearance, LivaNova must submit a pre-market notification to the US FDA demonstrating that the proposed
device is substantially equivalent to a previously-cleared 510(k) device, a device that was in commercial distribution before
28 May 1976 for which the US FDA has not yet called for the submission of approval PMA application, or a device that has
been reclassified from Class III to either Class II or I. In rare cases, Class III devices may be cleared through the 510(k) process.
The US FDA’s 510(k) clearance process usually takes three to twelve months from the date the application is submitted

and filed with the US FDA, but may take significantly longer and clearance is never assured. Although many 510(k) pre-
market notifications are cleared without clinical data, in some cases, the US FDA requires significant clinical data to support
substantial equivalence. In reviewing a pre-market notification submission, the US FDA may request additional information,
including clinical data, which may significantly prolong the review process.

After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affect its safety
or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could
require a PMA. The US FDA requires each manufacturer to make this determination initially, but the US FDA may review
any such decision and may disagree with a manufacturer’s determination. If the US FDA disagrees with a manufacturer’s
determination, the US FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k)
clearance or approval of a PMA is obtained. Under these circumstances, the US FDA may also subject a manufacturer to
significant regulatory fines or other penalties. In addition, the US FDA is currently evaluating the 510(k) process and may
make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance, the ability to
rescind previously granted 510(k)s and additional requirements that may significantly impact the process.

Pre-market Approval Process

A PMA application must be submitted if the medical device is in Class III (although the US FDA has the discretion to
continue to allow certain pre-amendment Class III devices to use the 510(k) process) or cannot be cleared through the 510(k)
process. A PMA application must be supported by, among other things, extensive technical, preclinical and clinical trials,
and manufacturing and labelling data to demonstrate to the US FDA’s satisfaction the safety and effectiveness of the device.

After a PMA application is submitted and filed, the US FDA begins an in-depth review of the submitted information, which
typically takes between one and three years, but may take significantly longer. During this review period, the US FDA may
request additional information or clarification of information already provided. Also during the review period, an advisory
panel of experts from outside the US FDA will usually be convened to review and evaluate the application and provide
recommendations to the US FDA as to the approvability of the device. In addition, the US FDA will conduct a pre-approval
inspection of the manufacturing facility to ensure compliance with the QSR, which imposes elaborate design development,
testing, control, documentation and other quality assurance procedures in the design and manufacturing process. The US
FDA may approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the
device including, among other things, restrictions on labelling, promotion, sale, and distribution and collection of long-term
follow-up data from patients in the clinical study that supported approval. Failure to comply with the conditions of approval
can result in materially adverse enforcement action, including, among other things, the loss or withdrawal of the approval.
New PMA applications or supplements are required for significant modifications to the manufacturing process, labelling of
the product and design of a device that is approved through the PMA process. PMA supplements often require submission
of the same type of information as an original PMA application, except that the supplement is limited to information needed
to support any changes from the device covered by the original PMA application, and may not require as extensive clinical
data or the convening of an advisory panel.

Clinical Studies

One or more clinical trials may be required to support a 510(k) application and are almost always required to support a
PMA application. Clinical trials of unapproved or uncleared medical devices or devices being studied for uses for which
they are not approved or cleared (investigational devices) must be conducted in compliance with US FDA requirements. If
human clinical trials of a device are required and the device presents a significant risk, the sponsor of the trial must file an
investigational device exemption, or IDE, application prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and/or laboratory testing. If the IDE application is approved by
the US FDA and one or more IRBs, human clinical trials may begin at a specific number of institutional investigational sites
with the specific number of patients approved by the US FDA. If the device presents a non-significant risk to the patient,
a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval
from the US FDA. During the trial, the sponsor must comply with the US FDA’s IDE requirements including, for example,
investigator selection, trial monitoring, adverse event reporting and recordkeeping. The investigators must obtain patient
informed consent, rigorously follow the investigational plan and trial protocol, control the disposition of investigational
devices and comply with reporting and recordkeeping requirements. LivaNova, the US FDA and the IRB at each institution
at which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons, including a belief that
the subjects are being exposed to an unacceptable risk.

Continuing Regulation

After a device is cleared or approved for marketing in the US, numerous and pervasive regulatory requirements continue
to apply and LivaNova will continue to be subject to inspection by the US FDA to determine its compliance with these
requirements, as will its suppliers, contract manufacturers and contract testing laboratories. These requirements include,
among others:

•

the QSR, which governs, among other things, how manufacturers design, test, manufacture, modify, label,
exercise quality control over and document manufacturing and quality issues regarding their products;

Establishment Registration, which requires establishments involved in the production and distribution of medical
devices, intended for commercial distribution in the US, to register with the US FDA;

• Medical Device Listing, which requires manufacturers to list the devices they have in commercial distribution

with the US FDA;

•

labelling and claims regulations, which require that all advertising and promotion of devices be truthful, not
misleading and fairly balanced and provide adequate directions for use, and that all claims be substantiated;

• prohibition of marketing devices for off-label uses, including requirements relating to dissemination of articles

and information and responding to unsolicited requests for off-label information;

• medical device reporting regulations, which require reporting to the US FDA if a device may have caused
or contributed to a death or serious injury, or if a device has malfunctioned and would be likely to cause or
contribute to a death or serious injury if the malfunction were to recur;

•

reporting and record keeping for certain corrections or removals initiated by a manufacturer to reduce a risk
to health posed by a device or to remedy a violation of the US FDCA caused by the device that may present a
risk to health;

• new statutory and regulatory requirements for Unique Device Identifiers on devices and submission of certain

information about each device to the US FDA’s Global Unique Device Identification Database; and

•

in some cases, ongoing monitoring and tracking of a device’s performance and periodic reporting to the US
FDA of such performance results.

The US FDA enforces these requirements by inspection and market surveillance. The US FDA periodically inspects LivaNova’s
manufacturing facilities, which potentially includes LivaNova’s suppliers. If the US FDA observes conditions that may
constitute violations, LivaNova must correct the conditions or satisfactorily demonstrate the absence of the violations. The
US FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed
by LivaNova. Recently, the US FDA has placed an increased emphasis on enforcement of the QSR and other post-market
regulatory requirements. LivaNova continues to expend resources to maintain compliance with LivaNova’s obligations under
the US FDA’s regulations. Failure to comply with applicable regulatory requirements may result in enforcement action by the
US FDA, which may include one or more of the following sanctions:

• untitled letters or warning letters;

• fines, injunctions and civil penalties;

• mandatory recall or seizure of LivaNova’s products;

•

administrative detention or banning of LivaNova’s products;

• operating restrictions, partial suspension or total shutdown of production;

•

refusing LivaNova’s request for 510(k) clearance or pre-market approval of new product versions;

revocation of 510(k) clearance or pre-market approvals previously granted; and

criminal prosecution and penalties.

In December 2015, LivaNova received an US FDA Warning Letter alleging certain violations of US FDA regulations applicable
to LivaNova’s 3T Heater Cooler devices and LivaNova’s Munich, Germany and Arvada, Colorado manufacturing facilities.

International

Outside the US, LivaNova is subject to government regulation in the countries in which it operates. Although many of the
regulations applicable to LivaNova’s products in these countries are similar to those of the US FDA, these regulations vary
significantly from country to country and with respect to the nature of the particular medical device. The time required
to obtain foreign approvals to market LivaNova’s products may be longer or shorter than the time required in the US, and
requirements for such approvals may differ from US FDA requirements. In the EEA, a single regulatory approval process
exists, and conformity with the legal requirements is represented by the CE Mark. To obtain CE Mark certification, defined
products must meet minimum standards of performance, safety and quality (i.e., the essential requirements) set out in
the EU Medical Devices Directives (Council Directive 93/42/EEC on Medical Devices and Council Directive 90/385/EEC on
Active Implantable Medical Devices). To demonstrate compliance with the essential requirements LivaNova must undergo
a conformity assessment procedure, which varies according to the type of medical device and its classification. Except
for low-risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can
issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the essential
requirements of the EU Medical Devices Directives, a conformity assessment procedure requires the intervention of an
organisation accredited by a Member State of the EU or an EEA competent authority to conduct conformity assessments,
or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit
and examine the technical file and the quality system for the manufacture, design and final inspection of LivaNova’s
devices. Following successful completion of a conformity assessment procedure the Notified Body issues a certification
that entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed a related EC
Declaration of Conformity. Manufacturers with CE Marked devices are subject to regular inspections by Notified Bodies to
monitor continued compliance with the essential requirements.

As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements
must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the
products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its
intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events,
are minimised and acceptable when weighed against the benefits of its intended performance, and that any claims
made about the performance and safety of the device (e.g., product labelling and instructions for use) are supported
by suitable evidence.

In the EEA, clinical trials for medical devices usually require the approval of an ethics review board and approval by or
notification to the national regulatory authorities. Both regulators and ethics committees also typically require the submission
of adverse event reports during a study and may request a copy of the final study report.

In September 2012, the European Commission published proposals for the revision of the EU regulatory framework for
medical devices. The proposal would replace the Medical Devices Directive and the Active Implantable Medical Devices
Directive with a new regulation, known as 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 countries 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, such as active implantable 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 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 the re-assessment of LivaNova’s existing medical devices, or a longer or more burdensome
assessment of LivaNova’s new products.

If finally adopted, the Medical Devices Regulation is expected to enter into force during 2016 and become effective
three years thereafter. 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.

The competent authorities of the EEA countries oversee the clinical research for medical devices and are responsible for
market surveillance of products once they are placed on the market. LivaNova is required to report device failures and injuries
potentially related to product use to these authorities in a timely manner. Various penalties exist for non-compliance with
the laws setting forth the medical device directives.

The US FDA enforces these requirements by inspection and market surveillance. The US FDA periodically inspects LivaNova’s
manufacturing facilities, which potentially includes LivaNova’s suppliers. If the US FDA observes conditions that may constitute
violations, LivaNova must correct the conditions or satisfactorily demonstrate the absence of the violations; if LivaNova is
unable to do so, it may face regulatory action. Non-compliance with applicable US FDA requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure
of the US FDA to grant marketing approvals, withdrawal of marketing approvals, a recommendation by the US FDA to
prevent LivaNova from entering into government contracts, and criminal prosecutions. The US FDA also has the authority to
request repair, replacement or refund of the cost of any device manufactured or distributed by LivaNova. Recently, the US
FDA has placed an increased emphasis on enforcement of the QSR and other post-market regulatory requirements. LivaNova
continues to expend resources to maintain compliance with LivaNova’s obligations under the US FDA’s regulations.

To be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy
before they are granted approval, or “shonin”. The Japanese government, through the MHLW, regulates medical devices
under the PAL. Oversight for medical devices is conducted with participation by the PMDA, a quasi-government organisation
performing many of the review functions for MHLW. Penalties for a company’s noncompliance with PAL could be severe,
including revocation or suspension of a company’s business licence and criminal sanctions. MHLW and PMDA also assess the
quality management systems of the manufacturer and the product conformity to the requirements of the PAL. LivaNova is
subject to inspection for compliance by these agencies.

Many countries in which LivaNova operates (outside of the EU, US, or Japan) have their own regulatory requirements for
medical devices. Most countries outside of the EU, US or Japan require that product approvals be recertified on a regular
basis, generally every five years. The recertification process requires that LivaNova evaluates any device changes and any new
regulations or standards relevant to the device and, where needed, conduct appropriate testing to document continued
compliance. Where recertification applications are required, they must be approved in order to continue selling LivaNova’s
products in those countries. Since export control and economic sanctions laws and regulations are complex and constantly
changing, LivaNova cannot ensure that laws and regulations may not be enacted, amended, enforced or interpreted in a
manner materially impacting LivaNova’s ability to sell or distribute its products.

LivaNova’s global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the
time, cost and complexity of obtaining regulatory approvals for LivaNova’s products. Several countries that did not have
regulatory requirements for medical devices have established such requirements in recent years and other countries have
expanded, or plan to expand, existing regulations. Certain regulators are requiring local clinical data in addition to global
clinical data. While harmonisation of global regulations has been pursued, requirements continue to differ significantly
among countries. LivaNova expects that this global regulatory environment will continue to evolve, which could impact its
ability to obtain future approvals for its products, or could increase the cost and time to obtain such approvals in the future.
LivaNova cannot ensure that any new medical devices it develops will be approved in a timely or cost-effective manner, or
approved at all.

Promotional Restrictions

Both before and after a product is commercially released, LivaNova has ongoing responsibilities under various laws and
regulations governing medical devices. In addition to US FDA regulatory requirements, the US FDA and other US regulatory
bodies (including the US Federal Trade Commission, the US Office of the Inspector General of the Department of Health
and Human Services, the US Department of Justice and various US state Attorneys General) monitor the manner in which
LivaNova promotes and advertises its products. Although physicians are permitted to use their medical judgment to employ
medical devices for indications other than those cleared or approved by the US FDA, LivaNova is prohibited from promoting
products for such “off-label” uses and can only market its products for cleared or approved uses.

Governmental Trade Regulations

The sale and shipment of LivaNova’s products and services across international borders, as well as the purchase of components
and products from international sources, subjects LivaNova to extensive governmental trade regulations. A variety of laws
and regulations apply to the sale, shipment and provision of goods, services and technology across international borders.

Many countries control the export and re-export of goods, technology and services for reasons including public health,
national security, regional stability, anti-terrorism policies and other reasons. Some governments may also impose economic
sanctions against certain countries, persons or entities. In certain circumstances, approval from governmental authorities
may be required before goods, technology or services are exported or re-exported to certain destinations, to certain end-
users and for certain end-uses. Since LivaNova is subject to extensive regulations in the countries in which it operates,
LivaNova is subject to the risk that laws and regulations could change in a way that would expose it to additional costs,
penalties or liabilities. These laws and regulations govern, among other things, LivaNova’s import and export activities.

In addition to LivaNova’s need to comply with such regulations in connection with its direct export activities, LivaNova
also sells and provides goods, technology and services to agents, representatives and distributors who may export such
items to customers and end-users. If these third parties violate applicable export control and economic sanctions laws and
regulations when engaging in transactions involving LivaNova’s products, LivaNova may be subject to varying degrees of
liability dependent upon LivaNova’s participation in the transaction. The activities of LivaNova’s third parties may cause
disruption or delays in the distribution and sales of LivaNova’s products, or result in restrictions being placed upon LivaNova’s
international distribution and sales of products, which may materially impact its business activities.

Patient Privacy and Security Laws

Various laws worldwide protect the confidentiality of certain patient health information, including patient medical records,
and restrict the use and disclosure of patient health information by healthcare providers. Privacy standards in Europe and
Asia are becoming increasingly strict, enforcement action and financial penalties related to privacy in the EU are growing,
and new laws and restrictions are being passed. The management of cross-border transfers of information among and
outside of EU member countries is becoming more complex, which may complicate LivaNova’s clinical research activities, as
well as product offerings that involve transmission or use of clinical data. LivaNova will continue its efforts to comply with
those requirements and to adapt its business processes to those standards.

With respect to the US, the HIPAA, as amended by the HITECH and their respective implementing regulations, including
the final omnibus rule published on 25 January 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 new general 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. LivaNova
potentially operates as a business associate to covered entities in a limited number of instances. In those cases, the patient
data that LivaNova receives may include protected health information, as defined under HIPAA. Enforcement actions can
be costly and interrupt regular operations of LivaNova’s business. Nonetheless, these requirements affect a limited subset
of LivaNova’s business. While LivaNova has not been named in any such suits, if a substantial breach or loss of data from
LivaNova’s records were to occur, it could become a target of such litigation.

Cost Containment Initiatives

Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive
pricing, bidding and tender mechanics, coverage and payment policies, comparative effectiveness of therapies, technology
assessments, and managed-care arrangements, are continuing in many countries where LivaNova does business. These
changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective medical devices and
therapies. Government programmes, private healthcare insurance and managed-care plans have attempted to control costs
by limiting the extent of coverage or amount of reimbursement available for particular procedures or treatments, tying
reimbursement to outcomes, shifting to population health management, and other mechanisms designed to constrain
utilisation and contain costs. Hospitals, which purchase implants, are also seeking to reduce costs through a variety of
mechanisms, including, for example, creating centralised purchasing functions that set pricing and in some cases limit the
number of vendors that can participate in the purchasing program. Hospitals are also aligning their interests with physicians’
through employment and other arrangements, such as gainsharing, whereby a hospital agrees with physicians to share

certain realised cost savings resulting from the physicians’ collective change in practice patterns, such as standardisation
of devices where medically appropriate, and participation in affordable care organisations. Such alignment has created
increasing levels of price sensitivity among customers for LivaNova’s products.

Some third-party payers must also approve coverage and set reimbursement levels for new or innovative devices or therapies
before they will reimburse healthcare providers who use the medical devices or therapies. Even though a new medical device
may be cleared for commercial distribution, LivaNova may find limited demand for the device until coverage and sufficient
reimbursement levels have been obtained from governmental and private third-party payers. In addition, some private third-
party payers require that certain procedures or the use of certain products be authorised in advance as a condition of coverage.

In the US, the implementation of the Affordable Care Act, for example, has the potential to substantially change healthcare
financing and delivery by both governmental and private insurers, and significantly impact the pharmaceutical and medical
device industries. The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain
medical devices, which due to subsequent legislative amendments, has been suspended from 1 January 2016 to 31
December 2017, and, absent further legislative action, will be reinstated starting 1 January 2018. In addition, the Affordable
Care Act provided incentives to programmes that increase the federal government’s comparative effectiveness research.
The Affordable Care Act also implemented payment system reforms including a national pilot programme on payment
bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of
certain healthcare services through bundled payment models.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On 2
August 2011, President Obama signed into law the US Budget Control Act of 2011, which, among other things, created the
Joint Select Committee on Deficit Reduction to recommend to Congress proposals on spending reductions. The Joint Select
Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering
the legislation’s automatic reduction of several government programmes. These included reductions to Medicare payments
to providers of 2 per cent. per fiscal year, which went into effect on 1 April 2013, and, due to subsequent legislative
amendments, will stay in effect through 2025 unless additional Congressional action is taken. On 2 January 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.

International examples of cost containment initiatives and healthcare reforms in markets significant to LivaNova’s business
include Japan, where the government reviews reimbursement rate benchmarks every two years, such reviews may
significantly reduce reimbursement for procedures using LivaNova’s medical devices or result in the denial of coverage for
those procedures.

In addition, the Italian Parliament has introduced new rules for entities that supply goods and services to the Italian National
Healthcare System. The new healthcare law is expected to impact the business and financial reporting of companies operating
in the medical technology sector that sell medical devices in Italy. A key provision of the law is a ‘payback’ measure, requiring
companies selling medical devices in Italy to make payments to the Italian state if medical device expenditures exceed regional
maximum ceilings. Companies are required to make payments equal to a percentage of expenditures exceeding maximum
regional caps. There is considerable uncertainty about how the law will operate and the exact timeline for finalisation.

As a result of LivaNova’s manufacturing efficiencies, cost controls and other cost-savings initiatives, LivaNova believes it is
well-positioned to respond to changes resulting from this worldwide trend toward cost-containment; however, uncertainty
remains as to the nature of any future legislation or other reforms, making it difficult for LivaNova to predict the potential
impact of cost-containment trends on future operating results.

Applicability of Anti-Corruption Laws and Regulations

LivaNova worldwide business is subject to the US FCPA, the UK Bribery Act and other anti-corruption laws and regulations
applicable in the jurisdictions where it operates.

Health Care Fraud and Abuse Laws

LivaNova is also subject to healthcare regulation and enforcement by the states, the federal government, and foreign states
in which it conducts its business. These laws include, without limitation, state and federal anti-kickback, fraud and abuse,
false claims and physician sunshine laws and regulations.

The US federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and wilfully 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
programmes such as Medicare and Medicaid. The US Anti-Kickback Statute is subject to evolving interpretations. In the
past, the government has enforced the US 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 US Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the US 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 payer, including commercial insurers.

Additionally, the civil US False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious,
or fraudulent claim for payment to the US government. Actions under the US False Claims Act may be brought by the US
Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the US False
Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the US
False Claims Act, and the accompanying threat of significant financial 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 US 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.

HIPAA also created new federal criminal statutes that prohibit, among other actions, knowingly and wilfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers; knowingly
and wilfully embezzling or stealing from a healthcare benefit program; wilfully obstructing a criminal investigation of a
healthcare offence; and knowingly and wilfully 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 US 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 Affordable Care Act, among other things, imposes new reporting requirements on certain 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 must submit reports to the government by the 90th
day of each calendar year. Certain states also mandate implementation of compliance programmes, impose restrictions
on device manufacturer marketing practices, and/or require the tracking and reporting of gifts, compensation, and other
remuneration to physicians.

The shifting commercial compliance environment and the need to build and maintain robust systems to comply with different
compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may
violate one or more of the requirements. If LivaNova’s operations are found to be in violation of any of such laws or any other
governmental regulations that apply to it, it may be subject to penalties, including, without limitation, civil and criminal
penalties, damages, fines, the curtailment or restructuring of its operations, exclusion from participation in federal and state
healthcare programmes and imprisonment, any of which could adversely affect its ability to operate its business and its
financial results.

In addition, the FCPA can be used to prosecute companies in the US for arrangements with physicians, or other parties
outside the US, if the physician or party is a government official of another country and the arrangement violates the law
of that country. There are similar laws and regulations applicable to LivaNova outside the US, all of which are subject to
evolving interpretations.

Environmental Health and Safety Laws

LivaNova is also subject to various environmental health and safety laws and regulations worldwide. Like other medical device
companies, LivaNova’s manufacturing and other operations involve the use and transportation of substances regulated
under environmental health and safety laws including those related to the transportation of hazardous materials. To the best
of the Company’s knowledge at this time, it does not expect that compliance with environmental protection laws will have
a material impact on its consolidated results of operations, financial position, or cash flows.

Patent Litigation Risks

LivaNova operates in an industry characterised by extensive patent litigation. Patent litigation can result in significant damage
awards and injunctions that could prevent the manufacture and sale of affected products broadly, or in specified markets,
or result in significant royalty payments in order to continue selling the products. Although LivaNova is not currently a party
to any patent litigation, LivaNova has in the past been involved as both a plaintiff and a defendant in patent infringement
actions. At any given time, LivaNova may be involved again as either a plaintiff or a defendant in a patent infringement action;
the outcome of which may not be known for prolonged periods of time. While it is not possible to predict participation in,
or the outcome of, patent litigation incidental to LivaNova’s business, it believes the costs associated with future litigation
of this type could have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

Product Liability and Insurance

The development, manufacture, and sale of LivaNova’s products subject LivaNova to the risk of product liability claims.
LivaNova is currently named as a defendant in one or more product liability lawsuits. As the manufacturer of medical devices,
LivaNova likely will be named in the future as a defendant in other product liability lawsuits. The Company does not believe
that LivaNova’s products involved in the current lawsuits are defective; however, the outcome of litigation is inherently
unpredictable and could result in an adverse judgment and an award of substantial and material damages against LivaNova.
Although LivaNova maintains product liability insurance in amounts that the Company believes to be reasonable, coverage
limits may prove to be inadequate in some circumstances. Product liability insurance is expensive and in the future may
only be available at significantly higher premiums or not available on acceptable terms, if at all. A successful claim brought
against LivaNova in excess of LivaNova’s insurance coverage could severely harm LivaNova’s business and consolidated results
of operations and financial position. LivaNova has undertaken field corrections to address product defects, and there can be
no assurance that LivaNova will not be required to perform field corrections and product recalls or removals in the future.

LivaNova has sent safety alert letters and recommendations and published field notifications for its products. All of LivaNova’s
US FDA related field notifications and safety alerts affecting a significant patient population are available on its website,
www.livanova.com. Any such current or future product defects may result in legal claims with material adverse consequences
to LivaNova’s business.

LivaNova endeavours to maintain executive and organisation liability insurance in a form and with aggregate coverage
limits that the Company believes are adequate for LivaNova’s business purposes, but the coverage limits may prove not to
be adequate in some circumstances. In addition, executive and organisation liability insurance is expensive and in the future
may be available only at significantly higher premiums or not be available on acceptable terms, if at all. Further, insurance
companies may be unable to meet their obligations under the policies they have issued or will issue in the future.

Working Capital Practices

LivaNova’s goal is to carry sufficient levels of inventory to ensure adequate supply of raw materials from suppliers and meet
the product delivery needs of LivaNova’s customers. To meet the operational demands of LivaNova’s customers, LivaNova
also provides payment terms to customers in the normal course of business and rights to return product under warranty.

Employees

As of 31 December 2015, LivaNova employed approximately 4,700 employees worldwide. LivaNova’s employees are vital to
LivaNova’s success, and LivaNova is engaged in an ongoing effort to identify, hire, manage, and maintain the talent necessary
to meet LivaNova’s business objectives. The Company believes that LivaNova has thus far been successful in attracting and
retaining qualified personnel in a highly competitive labour market due, in large part, to LivaNova’s competitive compensation
and benefits, and LivaNova’s rewarding work environment, fostering employee professional training and development and
providing employees with opportunities to contribute to LivaNova’s continued growth and success.

As at 31 December 2015:

•

LivaNova had 8 directors, of whom 7 were male and 1 was female;

LivaNova had 10 persons discharging managerial responsibilities, all of whom were male; and

LivaNova had 4,653 employees, of whom 2,004 were male and 2,649 were female.

In March 2016, LivaNova announced a reorganisation plan for CRM, further details of which are set out in part B of this
section II in the paragraph headed “CRM Recent Developments”.

Environment and Other Social Matters

LivaNova is committed to conducting its business in compliance with all applicable environmental laws and regulations in
a manner that has the highest regard for the environment and the health and safety, and well-being of employees and the
general public.

Seasonality

For all product segments, the number of medical procedures incorporating LivaNova’s product sales is generally lower during
summer months due to summer vacation schedules. This is particularly relevant to European countries.

Properties

LivaNova’s principal executive office is located in the United Kingdom and is leased. LivaNova’s business unit headquarters
are located in France, Italy and the US, with the location in France being leased and the locations in Italy and the US
being owned. Manufacturing and research facilities are located in Belgium, Brazil, British Columbia, Costa Rica, Dominican
Republic, France, Germany, Italy, The People’s Republic of China, Australia and the US. LivaNova’s total manufacturing and
research facilities are approximately 1,662,178 square feet, of which approximately 32 per cent. are located within the US.
Approximately 60 per cent. of LivaNova’s manufacturing or research facilities are owned and the balance are leased.

LivaNova also maintains 21 primary administrative offices in 15 countries. Most of these locations are leased. LivaNova is
using substantially all of its currently available productive space to develop, manufacture and market its products. LivaNova’s
facilities are in good operating condition, suitable for their respective uses and adequate for current needs. LivaNova is
currently evaluating its properties for additional cost savings and efficiencies, due to the Mergers.

III.

Business Review

Introduction

The Mergers became effective on 19 October 2015 and LivaNova became the holding company of the combined businesses
of Cyberonics and Sorin. Based on the structure of the Mergers, management determined that Cyberonics is considered to
be the acquirer and predecessor for accounting purposes.

LivaNova is reporting in its consolidated financial statements in this UK Annual Report the results from operations for
Cyberonics for the period 25 April 2015 to 31 December 2015 and the results of operations for Sorin for the period 19
October 2015 to 31 December 2015, being the Transitional Period.

Historically, Sorin and Cyberonics prepared their financial statements in accordance with IFRS and US GAAP, respectively.
Following completion of the Mergers, LivaNova is preparing its consolidated financial statements in accordance with both (i)
US GAAP in accordance with US securities law and reporting requirements, and (ii) IFRS in accordance with the requirements
of the Companies Act and the DTRs. The US GAAP financial statements for the Transitional Period were contained in the
Annual Report on Form 10-K filed with the SEC on 4 March 2016 and the IFRS financial statements are contained in this
UK Annual Report.

The basis of presentation, critical accounting estimates and significant accounting policies are set out in note 2 to the
consolidated IFRS financial statements contained in this UK Annual Report.

LivaNova reported a loss from operations of $23.7 million on net sales of $415.7 million for the Transitional Period. This
period included a $24.5 million impact from amortisation of the step-up in inventory and fixed assets. Also included in this
period is $72 million in exceptional items, including merger, integration and restructuring expenses, and an impairment
of an equity investment, along with $23 million in accelerated equity compensation expenses. The directors believe that,
due to the timing of completion of the Mergers, and the time period covered by the transitional results, the results are not
comparable to prior periods.

Key Performance Indicators

The directors of LivaNova consider that the most important KPIs for 2016 are those set out below. As LivaNova only
began operating as a combined entity on 19 October 2015 on completion of the Mergers, it is not possible to provide KPI
information for 2015.

• Net sales growth (on a constant currency basis, or adjusted net sales)

Due to the number of currencies in which LivaNova’s sales are invoiced to customers, the directors believe that constant
currency sales growth is a more appropriate way to measure operational performance. Constant currency growth measures
the change in sales between any particular year and the immediate prior year using average foreign exchange rates during
the immediate prior year.

• Adjusted income from operations

Income from operations, as adjusted for various costs arising from the Mergers (including those costs incurred as a result
of purchase price accounting), measures LivaNova’s management of sales, gross profit and normalized operating expenses.

• Adjusted net profit

Net profit, as adjusted for the items referred to above, and also adjusted for unusual costs from finance related matters,
minority investments and accounting for taxation, measures the totality of LivaNova’s income statement.

• Adjusted earnings per share

Earnings per share, as adjusted for the items referred to above, is a measure often used by investors to arrive at a value for
each share issued by a company, including the dilutive effect of incentive shares issued to management.

An important KPI to be evaluated over a period longer than one year is the share price, which reflects not only the
management of LivaNova’s earnings on a consistent basis, but also management’s ability to articulate medium and longer
term strategy and communicate both of these to investors.

Results of Operations

On 19 October 2015, pursuant to the terms of the Merger Agreement Sorin merged with and into the Company,
with the Company continuing as the surviving company, immediately followed by the merger of Merger Sub with
and into Cyberonics, with Cyberonics continuing as the surviving company and as a wholly owned subsidiary of the
Company. Upon the consummation of the Mergers, the historical financial statements of Cyberonics became the
Company’s historical financial statements. Accordingly, the historical financial statements of Cyberonics are included in
the comparative prior period.

Prior to the Mergers, Cyberonics had a 52/53-week financial year that ended on the last Friday in April. The financial year
ended 24 April 2015 on the accompanying consolidated statement of income is a 52-week year. As a result of the Mergers,
Cyberonics changed to a calendar year ending 31 December of each year. The change in financial year, effective as of 19
October 2015, resulted in a transitional period which began on 25 April 2015 and ended on 31 December 2015. Therefore,
the comparative amounts for the financial year ended 24 April 2015 are not comparable.

Upon completion of the Mergers, LivaNova reorganised its reporting structure and aligned its segments and the underlying
divisions and businesses. The Cyberonics operations and historical data are included in the Neuromodulation segment, and
the Sorin businesses activities are included in the Cardiac Surgery and the CRM segments.

Net Sales

The table below illustrates net sales by operating segment for the Transitional Period as compared to the financial year ended
24 April 2015 (which uses historical Cyberonics data), or Cyberonics FY 2015 (in thousands):

Transitional Period
25 April 2015 to
31 December 2015

Financial year
ended 24
April 2015

% Change

Net revenues

Neuromodulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cardiac Surgery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cardiac Rhythm Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

214,761 $ 291,558
—
147,635
—
52,470
—
841
415,707 $ 291,558

(26.3)

The Cardiac Surgery and CRM segment sales occurred from 19 October 2015 to 31 December 2015 following the accounting
acquisition of Sorin as a result of the Mergers.

Neuromodulation net sales for the Transitional Period decreased $76.8 million, or 26.3 per cent., compared to Cyberonics
FY 2015. The decrease in Neuromodulation net sales is primarily due to the Transitional Period including approximately
36 weeks compared to 52 weeks in Cyberonics FY 2015. The successful US launch of AspireSR in June 2015 provided an
important impetus for net sales.

The table below illustrates net sales by market geography for the Transitional Period as compared to Cyberonics FY 2015
(in thousands):

Transitional Period 25 April 2015 to 31 December 2015

Financial year
ended 24 April 2015

Neuromodulation

Cardiac
Surgery

Cardiac Rhythm
Management

United States . . . . . . . . . . . . . . . $
Europe(1) . . . . . . . . . . . . . . . . . .
Rest of World. . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . $

180,764 $ 48,960 $

21,081
12,916

40,272
58,403

214,761 $ 147,635 $

— $

New Ventures
and Corporate Neuromodulation
235,712
41,484
14,362
291,558

242
599
841 $

2,537 $

43,188
6,745
52,470 $

(1)

Includes those countries in Europe where LivaNova has a direct sales presence. Countries where sales are made through distributors are included in
Rest of World.

Cost of Sales and Expenses

The table below illustrates LivaNova’s cost of sales and major expenses as a percentage of sales for the Transitional Period,
as compared to Cyberonics FY 2015:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost of Sales

Transitional Period
25 April 2015 to
31 December 2015
35.8%
40.3%
12.2%
10.1%
3.3%
2.7%

Financial year
ended 24
April 2015

% Change

9.4%
42.3%
14.9%
3.0%
—%
—%

26.4%
(2.0)%
(2.7)%
7.1%
3.3%
2.7%

Cost of sales consisted primarily of direct labour, allocated manufacturing overhead, the acquisition cost of raw materials
and components and the MDET. MDET began on 1 January 2013 and has been suspended for the period 1 January 2016
to 31 December 2017.

LivaNova’s cost of sales as a percentage of net sales increased to 35.8 per cent. for the Transitional Period, as compared
to 9.4 per cent. for Cyberonics FY 2015. Cost of sales, as a percentage of net sales, increased as a result of including
lower margin sales in Cardiac Surgery and CRM from the date of the Mergers, as well as the product transitions in CRM
and Neuromodulation.

Looking ahead

The Company expects the cost of sales as a percentage of net sales in the year ending 31 December 2016 will be approximately
the same as the Transitional Period.

SG&A Expenses

SG&A expenses are comprised of sales, marketing, general and administrative activities. SG&A expenses exclude expenses
incurred in connection with the merger between Cyberonics and Sorin, integration costs after the Mergers and restructuring
costs under the Restructuring Plan.

SG&A expenses as a percentage of net sales for the Transitional Period decreased by 2.0 per cent. to 40.3 per cent. as
compared to Cyberonics FY 2015. SG&A expenses, as a percentage of net sales, declined due to the higher sales base arising
from the Mergers, and the initial impact of certain cost savings due to the elimination of duplicate overhead costs.

Looking ahead

LivaNova’s SG&A expenses in future years could be favourably impacted by synergies from the Restructuring Plan.

R&D Expenses

R&D expenses consist of product design and development efforts, clinical trial programmes and regulatory activities. R&D
expenses as a percentage of net sales were 12.2 per cent. for the Transitional Period, as compared to 14.9 per cent. for
Cyberonics FY 2015. R&D expenses, as a percentage of net sales, decreased due to changes in the R&D programmes within
Neuromodulation, the initial impact of cost savings as well as lower R&D costs for Cardiac Surgery and CRM from the date
of the Mergers.

Looking ahead

LivaNova’s R&D expenditures could be affected by future impairment of intangible assets utilised in R&D projects that may
be cancelled or by the delay or cancellation of a project based on LivaNova’s review and product priorities. Ongoing projects
include opportunities in the area of heart failure. LivaNova’s R&D expenses in future years could, however, be favourably
impacted by synergies from the Restructuring Plan.

Exceptional Items

Merger Related Expenses

In the Transitional Period, LivaNova incurred $42.1 million in expenses related to the Mergers. These expenses consisted of
professional fees for legal services, accounting services, due diligence, a fairness opinion and the preparation of registration
and regulatory filings in the US and Europe, as well as investment banking fees.

The Company reported these expenses as a part of exceptional item separately in the Company’s consolidated income
statement. Share-based compensation triggered by the Mergers is included under merger related expenses.

Looking ahead

The Company expect merger related expenses to be significantly reduced in the year ending 31 December 2016.

Integration Expenses

LivaNova incurred $13.7 million in the Transitional Period in integration expenses related to the Mergers. These expenses
consisted primarily of consultation with regard to: LivaNova’s systems integration, organisation structure integration, finance,
synergy and tax planning, the transition to US GAAP for Sorin activity, the Company’s LSE listing and certain re-branding
efforts. The Company reported these expenses as a part of exceptional item separately in the Company’s consolidated
income statement.

Looking ahead

The Company expects integration expenses to continue to be material in the year ending 31 December 2016.

Restructuring Expenses

LivaNova incurred $11.3 million in the Transitional Period in restructuring expenses. The Company reported these expenses
as a part of exceptional item separately in the Company’s consolidated income statement. Termination payments triggered
by the Mergers are included in restructuring expenses. Certain termination payments occurred following efforts to eliminate
duplicate corporate expenses. LivaNova also initiated its Restructuring Plan which is intended to leverage economies of scale
and streamline distributions, logistics and office functions in order to reduce overall costs.

Looking ahead

The Company expects Restructuring Plan expenses to increase in the year ending 31 December 2016, particularly with
respect to the Reorganisation Plan for the CRM Business Unit announced on 10 March 2016 (see note 33 to the consolidated
Financial Statements).

Impairment of Investments

LivaNova fully impaired a cost-method equity investment in Cerbomed, a European company developing a t-VNS device for
epilepsy treatment, for a loss of $5.1 million. The Company reported these expenses as a part of exceptional item separately
in the Company’s consolidated income statement.

Interest Expense

LivaNova incurred interest expense of $1.5 million for the Transitional Period, primarily from LivaNova’s outstanding
borrowings, amortisation of debt issuance costs and debt discounts and interest accrued on unrealised tax benefits.

Looking ahead

The Company expects LivaNova’s interest expense to increase in the year ending 31 December 2016.

Foreign Exchange and Other Income (Expense), Net

Foreign exchange and other expenses of $7.5 million recognised during the Transitional Period included loss of $5.6 million
from both realised and unrealised foreign currency hedges. These derivative contracts were established to hedge against
exchange rate movements on the loan from the EIB and other loans, which are denominated in Euros. The loss on the
hedge was recorded in the Company’s consolidated income statement, whereas the hedged instrument’s gain was recorded
in comprehensive income in the Company’s consolidated financial statements. Other losses included net foreign currency
transaction losses of $1.9 million.

Income Taxes

LivaNova’s effective tax rate for the Transitional Period was 15.9 per cent., primarily due to the foreign tax rate differential
between the UK tax rate and the non-UK tax rates of $11.2 million in the jurisdictions in which LivaNova operates; unfavourable
effect of change in tax rate of $3.3 million; the tax benefit of notional interest deduction of $3.1 million; non-deductible
transaction costs of $5.4 million; a US R&D tax credit of $1.6 million; unfavourable change in unrecognised deferred tax assets
of $2.2 million; equity compensation adjustment of $5.8 million; and other permanent differences, including US IRC subpart
F income, US domestic manufacturing deduction and other non-deductible expenses.

LivaNova files federal and local tax returns in many jurisdictions throughout the world and is subject to income tax
examinations for financial year 1992 for the legacy Cyberonics business and subsequent years, with certain exceptions.
Tax authorities may disagree with certain positions LivaNova has taken and assess additional taxes, and as a result LivaNova
establishes reserves for uncertain tax positions, which requires a significant degree of management judgment. LivaNova
regularly assesses the likely outcomes of LivaNova’s tax positions in order to determine the appropriateness of LivaNova’s
reserves for uncertain tax positions. The total amount of unrecognised tax benefit as of 31 December 2015, if recognised,
would reduce LivaNova’s income tax expense by approximately $20.2 million. The Company is unable to estimate the
amount of change of the majority of LivaNova’s unrecognised tax benefits over the next 12 months; however, approximately
$0.9 million will be resolved over the next 12 months due to the expected completion of an audit.

As of closing of the Mergers, there were several investments in subsidiaries where the book basis was greater than the tax
basis, whereby the deferred tax liability was recognised through the acquisition method of accounting. The deferred tax
liability recognised through purchase accounting related to these subsidiaries was approximately $17.9 million. No further
provision has been made for income taxes on undistributed earnings of foreign subsidiaries as of 31 December 2015,
because it is the Company’s intention to indefinitely reinvest undistributed earnings of LivaNova’s foreign subsidiaries. In the
event of the distribution of those earnings in the form of dividends, a sale of the subsidiaries or certain other transactions,
LivaNova may be liable for income taxes. There should be no material tax liability on future distributions as most jurisdictions
with undistributed earnings have various participation exemptions or no withholding tax. As of 31 December 2015, it was
not practicable to determine the amount of the income tax liability related to those investments.

Losses from Equity Method Investments

LivaNova recognised a loss of $3.3 million from LivaNova’s share of the losses at LivaNova’s equity method investments
during the Transitional Period, primarily due to losses at Highlife, Caisson, Respicardia and MicroPort Sorin CRM.

Looking ahead

LivaNova’s share of its investees’ losses during the Transitional Period was incurred during the period 19 October 2015 to
31 December 2015. In the year ending 31 December 2016, LivaNova’s share of its investees’ losses will be incurred for the
period 1 January 2016 to 31 December 2016, and the Company expect the losses to be significantly greater.

Liquidity and Capital Resources

Based on LivaNova’s current business plan, the Company believes that LivaNova’s existing cash, investments and future
cash generated from operations will be sufficient to fund its expected operating needs, working capital requirements, R&D
opportunities, capital expenditures and debt service requirements over the next 12 months. LivaNova regularly reviews its
capital needs and considers various investing and financing alternatives to support its requirements.

Cash Flows

Net cash and cash equivalents provided by (used in) operating, investing and financing activities and the net increase
(decrease) in the balance of cash and cash equivalents were as follows (in thousands):

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents. . . . . . . . . . . . . . . . . . . .
Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Operating Activities

Transitional Period
25 April 2015 to
31 December 2015

Financial Year
Ended 24
April 2015
79,676
(9,765)
(48,256)
(767)
20,888

(9,288) $
16,182
(18,127)
(341)
(11,574) $

Cash utilised in LivaNova’s consolidated operating activities during the Transitional Period was $9.3 million. In Cyberonics FY
2015, Cyberonics’ cash flow provided by operations was $79.6 million.

During the Transitional Period, cash flow from operating activities benefited from a cash inflow of $36.3 million primarily
due to the reduction of Sorin’s inventory that was acquired in the Mergers. The Company acquired $233.8 million of
Sorin inventory as of 19 October 2015. In addition, during the Transitional Period, accounts payable and accrued liabilities
decreased by $32.8 million, primarily due to payment of accrued merger costs.

Investing Activities

Cash provided by investing activities of $16.2 million during the Transitional Period was due to the transfer of $20.0 million
to cash and cash equivalents from short-term investments and an increase in cash of $12.5 million obtained in the business
acquisition, offset by net investment activity of $16.4 million.

Financing Activities

LivaNova utilised cash of $18.1 million for financing activities during the Transitional Period, which included the repayment
of long-term debt of $32.0 million, and the purchase of treasury shares for $7.3 million, partially offset by cash proceeds
from net short-term debt borrowing of $11.1 million and stock based compensation activities of $8.8 million. In Cyberonics
FY 2015, LivaNova utilised cash for treasury stock repurchases of $55.0 million, while stock-based compensation activity
provided $4.7 million for a net utilisation of $48.3 million.

Debt and Capital

LivaNova’s capital structure consists of debt and equity. As of 31 December 2015, LivaNova’s total debt of $174.3 million
was 9.6 per cent. of total equity of $1,809.9 million.

Debt Acquired in the Mergers

At the consummation of the Mergers on 19 October 2015, LivaNova acquired all of the outstanding debt of Sorin in
the aggregate principal amount of $203.0 million payable to various financial and non-financial institutions. Prior to the
Mergers, Cyberonics had no debt.

Debt – Post Mergers

During the period between 19 October 2015 and 31 December 2015, LivaNova repaid $32.0 million of long-term debt and
borrowed $11.1 million against short-term credit facilities.

Factoring

As of 31 December 2015, LivaNova includes an obligation of $1.2 million related to advances on customer receivables
in Accrued Liabilities in the consolidated balance sheet, with the balance of $23.3 million as an offset against customer
receivables. The Company expects to reduce or eliminate this form of financing in fiscal year 2016.

Contractual Obligations

A summary of contractual and contingent obligations as of 31 December 2015 is as follows (in thousands):

Less Than
One Year

One to
Three Years

Three to
Five Years

Over Five
Years

Total Contractual
Obligations

Contingent obligations

Guarantees on governmental bids(1). . . . . . $ 25,879 $
Guarantees – commercial(2) . . . . . . . . . . . .
Guarantees to tax authorities(3) . . . . . . . . .

5,010
11,163
$ 42,052 $

— $
—
—
— $

25,879
5,010
11,163
42,052

Contractual obligations related to off-balance

sheet arrangements:
Operating leases obligations(4) . . . . . . . . . . $ 17,798 $ 33,429 $ 20,139 $ 29,300 $
Interest payments(5) . . . . . . . . . . . . . . . . . .
Minimum royalty obligations(6) . . . . . . . . . .
Inventory purchase commitments . . . . . . .

1,364
50
30,147

1,751
100
3,828

768
100
51

61
50
214

$ 49,359 $ 39,108 $ 21,058 $ 29,625 $
Long-term debt, including current portion $ 82,513 $ 42,124 $ 39,649 $ 10,018 $
Capital leases . . . . . . . . . . . . . . . . . . . . . .
Derivatives and other. . . . . . . . . . . . . . . . .

4
1,815

—
1,414

—
368

—
11

$ 84,332 $ 43,538 $ 40,017 $ 10,029 $
Total(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175,743 $ 82,646 $ 61,075 $ 39,654 $

(1) Government bid guarantees include such items as unconditional bank guarantees, irrevocable letters of credit and bid bonds.

(2) Commercial guarantees include LivaNova’s Canadian production site lease guarantee of $4.1 million.

(3) Tax guarantees include the Milan VAT Authority security of €10.2 million.

(4) Operating lease commitments include facilities, office equipment and automobiles.

100,666
3,944
300
34,240
139,150
174,304
4
3,608
177,916
359,118

(5)

Interest payments reflect the contractual interest due on LivaNova’s outstanding debt and exclude the impact of interest rates swap agreements.

(6) Minimum royalty fees are payable to Flint Hills L.L.C. for cardiac-based seizure detection intellectual property. Other royalty payments are not disclosed

as they cannot be determined at this time.

(7) Unrecognised tax benefits of $20.2 million are not reflected in the above schedule due to LivaNova’s inability to make a reasonably reliable estimate

of the timing of any income tax payments.

Quantitative and Qualitative Disclosures about Market Risk

LivaNova is exposed to certain market risks as part of its ongoing business operations, including risks from foreign currency
exchange rates, interest rate risks and concentration of procurement suppliers that could adversely affect LivaNova’s
consolidated balance sheet, income statement and cash flow. LivaNova manages these risks through regular operating and
financing activities and, at certain times, derivative financial instruments.

Foreign Currency Exchange Rate Risk

Due to the global nature of LivaNova’s operations, it is exposed to foreign currency exchange rate fluctuations. LivaNova
generally utilises foreign exchange forward contracts that are designed to hedge the variability of material cash flows
associated with forecast revenue and costs denominated in a currency different from the functional currency of the
consolidated income statement that will take place in the future.

LivaNova does not enter into currency exchange rate derivative instruments for speculative purposes.

Based on its exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the US dollar had
uniformly weakened or strengthened by 10 per cent. against the pound sterling and the yen the effect on LivaNova’s
unrealised income or expense for its derivatives outstanding as at 31 December 2015 would have been approximately
$2.3 million.

Any gains or losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying
transactions. These offsetting gains and losses are not reflected in the above analysis.

Interest Rate Risk

LivaNova is subject to interest rate risk on its investments and debt. LivaNova manages a portion of its interest rate risk with
contracts that swap floating-rate interest payments for fixed rate interest payments. If interest rates were to increase or
decrease by 0.5 per cent., the effects on LivaNova’s consolidated income statement would have been immaterial.

Concentration of Credit Risk

LivaNova’s trade accounts receivable represents potential concentrations of credit risk. This risk is limited due to the large
number of customers and their dispersion across a number of geographic areas, as well as LivaNova’s efforts to control its
exposure to credit risk by monitoring its receivables and the use of credit approvals and credit limits. In addition, LivaNova
has historically had strong collections and minimal write-offs. Whilst the Company believes that LivaNova’s reserves for credit
losses are adequate, essentially all of LivaNova’s trade receivables are concentrated in the hospital and healthcare sectors
worldwide and, accordingly, LivaNova is exposed to their respective businesses, economic and country-specific variables.
Although the Company does not currently foresee a concentrated credit risk associated with these receivables, repayment
is dependent on the financial stability of these industry sectors and their respective countries’ national economies and
healthcare systems.

IV.

Principal Risks and Uncertainties

You should carefully consider the specific risks and uncertainties set forth below and the other information contained
within this Strategic Report, as these are important factors that could cause LivaNova’s actual results, performance or
achievements to differ materially from its expected or historical results. Some of the statements within this Strategic Report
and in LivaNova’s IFRS financial statements are “forward-looking” statements. For a discussion of those statements and of
other factors to consider see the “Cautionary Statement about Forward-Looking Statements” section below.

Global healthcare policy changes, including US healthcare reform legislation, may have a material adverse effect
on LivaNova.

In response to perceived increases in healthcare costs, there have been and continue to be proposals by governments,
regulators, and third-party payers to control these costs. The adoption of some or all of these proposals could have a
material adverse effect on LivaNova’s financial position and results of operations. These proposals have resulted in efforts to
reform the US healthcare system which may lead to pricing restrictions, limits on the amounts of reimbursement available
for LivaNova’s products and could limit the acceptance and availability of LivaNova’s products.

In the US, the federal government enacted legislation, including the Affordable Care Act to overhaul the nation’s healthcare
system. While one goal of healthcare reform is to expand coverage to more individuals, it also involves increased government
price controls, additional regulatory mandates and other measures designed to constrain medical costs. Among other
things, the Affordable Care Act:

•

imposes an annual excise tax of 2.3 per cent. on any entity that manufactures or imports medical devices
offered for sale in the US. Due to subsequent legislative amendments, the excise tax has been suspended
from 1 January 2016 to 31 December 2017, and, absent further legislative action, will be reinstated starting 1
January 2018;

establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative
clinical effectiveness research in an effort to coordinate and develop such research; and

implements payment system reforms including a national pilot programme on payment bundling to encourage
hospitals, physicians and other providers to improve the coordination, quality, and efficiency of certain healthcare
services through bundled payment models.

In addition, other legislative changes have been proposed and adopted in the US since the Affordable Care Act was enacted.
On 2 August 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 programmes. This includes aggregate reductions of Medicare payments to
providers of 2 per cent. per fiscal year, which went into effect in April 2013, and, due to subsequent legislative amendments
to the statute, will remain in effect through 2025 unless additional Congressional action is taken. On 2 January 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. The Company cannot predict what healthcare programmes and
regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation.
However, any changes that lower reimbursement for LivaNova’s products or reduce medical procedure volumes could
adversely affect LivaNova’s business and results of operations.

The Affordable Care Act also focuses on a number of Medicare provisions aimed at decreasing costs. It is uncertain at this
point what unintended consequences these provisions will have on patient access to new technologies. The Medicare
provisions include value-based payment programmes, increased funding of comparative effectiveness research, reduced
hospital payments for avoidable readmissions and hospital-acquired conditions, and pilot programmes to evaluate alternative
payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally,
the law includes a reduction in the annual rate of inflation for hospitals that began in 2011 and the establishment of an
independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning
in 2014. The Company cannot predict what healthcare programmes and regulations will be implemented at the global
level or the US federal or state level, or the effect of any future legislation or regulation. However, any changes that lower
reimbursement for LivaNova’s products or reduce medical procedure volumes could adversely affect LivaNova’s business and
results of operations.

The Italian Parliament introduced new rules for entities that supply goods and services to the Italian National Healthcare
System. The new healthcare law is expected to impact the business and financial reporting of companies operating in the
medical technology sector that sell medical devices in Italy. A key provision of the law is a ‘payback’ measure, requiring
companies selling medical devices in Italy to make payments to the Italian state if medical device expenditures exceed
regional maximum ceilings. Companies are required to make payments equal to a percentage of expenditures exceeding
maximum regional caps. There is considerable uncertainty about how the law will operate and what the exact timeline is
for finalisation. The Company’s current assessment of the Italian medical device payback law involves significant judgment
regarding the expected scope and actual implementation terms of the measure as the latter have not been clarified to date
by Italian authorities. LivaNova accounts for the estimated cost of the medical device payback as a deduction from revenue.

Outside of the US, reimbursement systems vary significantly by country. Many foreign markets have government-
managed healthcare systems that govern reimbursement for medical devices and procedures. Additionally, some foreign
reimbursement systems provide for limited payments in a given period and therefore result in extended payment periods.
If adequate levels of reimbursement from third-party payers outside of the US are not obtained, international sales of
LivaNova’s products may decline.

In addition, in the US, certain state governments and the federal government have enacted legislation aimed at increasing
transparency of LivaNova’s interactions with healthcare providers, for example, federal “sunshine” requirements imposed by
the Affordable Care Act on certain manufacturers of devices for which payment is available under Medicare, Medicaid, or
the Children’s Health Insurance Program regarding any “transfer of value” made or distributed to physicians and teaching
hospitals. 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. Manufacturers must
submit reports by the 90th day of each calendar year.

Similar laws exist outside the US, such as in France, which adopted the “Physician Payments Sunshine Act” in 2011.
The French act requires companies to publicly disclose agreements with, and certain benefits provided to, certain French
healthcare professionals. Other countries are considering or may enact laws or regulations comparable to those implemented
in the US and France. Any failure to comply with these legal and regulatory requirements could impact LivaNova’s business.
In addition, LivaNova may continue to devote substantial additional time and financial resources to further develop and
implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which may also
impact LivaNova’s business. The Company anticipates that governmental authorities will continue to scrutinise LivaNova’s
industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other
adverse effects to LivaNova’s operations.

LivaNova may be unable to obtain and maintain adequate third-party reimbursement on its products, which
could have a significant negative impact on its future operating results.

LivaNova’s ability to commercialise its products is dependent, in large part, on whether third-party payers, including private
healthcare insurers, managed care plans, governmental programmes and others agree to cover the costs and services
associated with LivaNova’s products and related procedures in the US and internationally.

LivaNova’s products are purchased principally by healthcare providers that typically bill various third-party payers, such as
governmental programmes (e.g., Medicare and Medicaid in the US), private insurance plans and managed care plans, for the
healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for their services
and the products they provide from government and third-party payers is critical to the success of medical technology
companies. The availability of adequate reimbursement affects which procedures customers perform, the products customers
purchase and the prices customers are willing to pay. Reimbursement varies from country to country and can significantly
impact the acceptance of new technology. After LivaNova develops a promising new product, it may find limited demand
for the product unless reimbursement approval is obtained from private and governmental third-party payers. In addition,
periodic changes to reimbursement methodologies could have an adverse impact on LivaNova’s business.

LivaNova may also experience decreasing prices for its goods and services due to pricing pressure experienced by customers
from governmental payers, managed care organisations and other third-party payers, increased market power of LivaNova’s
customers as the medical device industry consolidates and increased competition among medical engineering and
manufacturing services providers. If the prices for goods and services decrease and LivaNova is unable to reduce expenses,
LivaNova’s results of operations will be adversely affected.

Cost-containment pressures and legislative or administrative reforms resulting in restrictive reimbursement
practices of third-party payers or preferences for alternate therapies could decrease the demand for products
purchased by LivaNova’s customers, the prices they are willing to pay for those products and the number of
procedures using LivaNova’s devices.

Major third-party payers for healthcare provider services continue to work to contain healthcare costs. The introduction
of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers
and employers, could result in increased discounts and contractual adjustments to healthcare provider charges for services
performed and in the shifting of services between inpatient and outpatient settings. Initiatives to limit the growth of
healthcare costs, including price regulation, are also underway in several countries in which LivaNova does business.
Implementation of healthcare reforms in the US and in significant overseas markets such as Germany, Italy, France, Japan and
other countries may limit the price of, or the level at which, reimbursement is provided for LivaNova’s products and adversely
affect both LivaNova’s pricing flexibility and the demand for LivaNova’s products. Healthcare providers may respond to such
cost-containment pressures by substituting lower cost products or other therapies for LivaNova’s products.

The continuing efforts of governmental authorities, insurance companies, and other payers of healthcare costs to contain
or reduce these costs could lead to patients being unable to obtain approval for payment from these payers. If payment
approval cannot be obtained by patients, sales of finished medical devices or those that use LivaNova’s components may
decline significantly, and LivaNova’s customers may reduce or eliminate purchases of its products and/or components. This
could have a material or adverse impact on LivaNova’s results of earnings and cash flows.

Patient confidentiality and federal and state privacy and security laws and regulations in the US may adversely
impact LivaNova’s selling model.

HIPAA establishes federal rules protecting the privacy and security of personal health information. The privacy and security
rules address the use and disclosure of individual healthcare information and the rights of patients to understand and control
how such information is used and disclosed. HIPAA provides both criminal and civil fines and penalties for covered entities
or business associates that fail to comply. If LivaNova fails to comply with the applicable regulations, it could suffer civil
penalties up to or exceeding $50,000 per violation, with a maximum of $1.5 million for multiple violations of an identical
requirement during a calendar year and criminal penalties with fines up to $250,000 and potential imprisonment.

In addition to HIPAA, virtually every state has enacted one or more laws to safeguard privacy, and these laws vary significantly
from state to state and change frequently. Even if LivaNova’s business model is compliant with the HIPAA Privacy and Security
Rule and the privacy laws of the states it operates in, it may not be compliant with the privacy laws of all states. As the
operation of LivaNova’s business involves the collection and use of substantial amounts of “protected health information,”
it endeavours to conduct its business as a “covered entity” under the HIPAA Privacy and Security Rule and consistent
with the state privacy laws, obtaining HIPAA-compliant patient authorisations where required to support LivaNova’s use
and disclosure of patient information. LivaNova also sometimes act as a “business associate” for a covered entity. The US
Office for Civil Rights of the Department of Health and Human Services or another government enforcement agency may
determine that LivaNova’s business model or operations are not in compliance with the HIPAA Privacy and Security Rules,
which could subject it to penalties, could severely limit its ability to market and sell its products under its existing business
model and could harm its business growth and consolidated financial position.

Britain is holding a referendum on its continued membership in the EU, and if the referendum favours an
exit from the EU, there could be a material adverse effect on LivaNova’s financial position, business and
results of operations.

Following the renegotiation of the terms of the UK’s membership of the EU, as agreed by all 28 EU Member States on
19 February 2016, a referendum will be held on 23 June 2016 for eligible members of the electorate in the UK to decide
whether to remain a member of the EU or to leave the EU. In the event voters elect to leave the EU (the so-called “Brexit”),
LivaNova will face risks associated with the potential uncertainty and consequences that may flow from the Brexit vote. Since
a significant proportion of the regulatory framework in the UK is derived from EU directives and regulations, the referendum
could materially change the regulatory regime applicable to LivaNova’s operations in the future. A Brexit vote would also
result in the UK no longer being an EU Member State and a member of the EU single market, which may result in increased
trade barriers, which could impact LivaNova’s results of operations and share price. Any increased costs may result in higher
costs being passed to customers. As a company domiciled in the UK, and with operations across Europe, Brexit could result
in restrictions on the movement of capital, distribution and sale of goods, and the mobility of LivaNova’s personnel, which
could have adverse material effect on LivaNova’s operations. Conversely, a vote to remain in the EU may also create similar
uncertainties and adverse policy consequences in the event the UK Government and the EU enter into negotiations to
further reform the UK’s membership of the EU.

LivaNova’s information technology systems may be vulnerable to hacker intrusion, malicious viruses and other
cybercrime attacks, which may harm its business and expose it to liability.

LivaNova’s operations depend to a great extent on the reliability and security of its information technology system,
software and network, which are subject to damage and interruption caused by human error, problems relating to the
telecommunications network, software failure, natural disasters, sabotage, viruses and similar events. Any interruption in
LivaNova’s systems could have a negative effect on the quality of products and services offered and, as a result, on customer
demand and therefore volume of sales.

LivaNova’s product sales are subject to regulatory clearance or approval and its business is subject to extensive
regulatory requirements. If LivaNova fails to maintain regulatory clearances and approvals, or is unable to
obtain, or experiences significant delays in obtaining, such clearances or approvals for future products or product
enhancements, its ability to commercially distribute and market these products could suffer.

LivaNova’s medical device products and operations are subject to extensive regulation by the US FDA and various other
federal, state and foreign government authorities. Government regulation of medical devices is meant to assure their safety
and effectiveness and includes regulation of, among other things:

• design, development and manufacturing;

•

testing, labelling, packaging, content and language of instructions for use, and storage;

clinical trials;

• product safety;

• pre-market clearance and approval;

• marketing, sales and distribution (including making product claims);

•

advertising and promotion;

• product modifications;

•

recordkeeping procedures;

reports of corrections, removals, enhancements, recalls and field corrective actions;

• post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to

recur, could lead to death or serious injury;

•

complying with the new federal law and regulations requiring Unique Device Identifiers on devices and also
requiring the submission of certain information about each device to the US FDA’s Global Unique Device
Identification Database; and

• product import and export laws.

If LivaNova’s marketed medical devices are defective or otherwise pose safety risks, the US FDA and similar foreign
governmental authorities could require their recall, or LivaNova may initiate a recall of its products voluntarily.

The US FDA and similar foreign governmental authorities may require the recall of commercialised products in the event of
material deficiencies or defects in design or manufacture or in the event that a product poses an unacceptable risk to health.
Manufacturers, on their own initiative, may recall a product if any material deficiency in a device is found. LivaNova has
initiated voluntary product recalls in the past.

A government-mandated or voluntary recall by LivaNova or one of its sales agencies could occur as a result of an unacceptable
risk to health, component failures, manufacturing errors, design or labelling defects or other deficiencies and issues. Recalls of
any of LivaNova’s products would divert managerial and financial resources and have an adverse effect on its financial condition
and operating results. Any recall could impair LivaNova’s ability to produce its products in a cost-effective and timely manner in
order to meet its customers’ demands. LivaNova also may be required to bear other costs or take other actions that may have
a negative impact on its future revenue and the ability to generate profits. LivaNova may initiate voluntary actions to withdraw
or remove or repair its products in the future that it determines do not require notification of the US FDA as a recall. If the US
FDA disagrees with LivaNova’s determinations, it could require LivaNova to report those actions as recalls. In addition, the US
FDA could take enforcement action for failing to report the recalls when they were conducted.

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

In the EEA, LivaNova’s European operations must comply with the EU Medical Device Vigilance System, the purpose of which
is to improve the protection of health and safety of patients, users and others by reducing the likelihood of reoccurrence of
incidents related to the use of a medical device. Under this system, incidents must be reported to the competent authorities
of the Member States of the EU or the EEA countries. An incident is defined as any malfunction or deterioration in the
characteristics and/or performance of a device, as well as any inadequacy in labelling or instructions that may, directly or
indirectly, lead or have led to death or serious health deterioration of a patient. Incidents are evaluated by the relevant
competent authorities to whom they have been reported, and where appropriate, information is disseminated between them
in the form of National Competent Authority Reports. The Medical Device Vigilance System is further intended to facilitate
a direct, early and harmonised implementation of FSCAs, across the Member States where the device is in use. An FSCA is
an action taken by a manufacturer to reduce a risk of death or serious deterioration in the state of health associated with
the use of a medical device that is already placed on the market. An FSCA may include the recall, modification, exchange,
destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its
customers and/or to the end users of the device through Field Safety Notices.

A future recall announcement in the US, EEA or elsewhere could harm LivaNova’s reputation with customers and negatively
affect LivaNova’s revenue.

LivaNova’s manufacturing operations require LivaNova to comply with the US FDA’s and other governmental
authorities’ laws and regulations regarding the manufacture and production of medical devices, which is costly
and could subject LivaNova to enforcement action.

LivaNova and certain of its third-party manufacturers are required to comply with the US FDA’s current Good Manufacturing
Practice requirements, as embodied in the QSR which covers the design, testing, production, control, quality assurance,
labelling, packaging, sterilisation, storage and shipping of medical device products in the US. LivaNova and certain of
its suppliers also are subject to the regulations of foreign jurisdictions regarding the manufacturing process for products
marketed outside of the US. The US FDA enforces the QSR through periodic announced (routine) and unannounced (for
cause or directed) inspections of manufacturing facilities, during which the US FDA may issue Forms US FDA-483 listing
inspectional observations which, if not addressed to the US FDA’s satisfaction, can result in further enforcement action.
Similar inspections are carried out in the EEA by Notified Bodies and competent authorities within the EEA. The failure by
LivaNova or one of the its suppliers to comply with applicable statutes and regulations administered by the US FDA and
other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product
safety issues could result in:

• untitled letters, warning letters, fines, injunctions or consent decrees;

•

customer notifications or repair, replacement, refund, recall, detention or seizure of products;

• operating restrictions or partial suspension or total shutdown of production;

•

refusal to grant or delay in granting 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 LivaNova’s products; or

civil penalties or criminal prosecution.

Any of these actions could impair LivaNova’s ability to produce its products in a cost-effective and timely manner in order
to meet customers’ demands. LivaNova also may be required to bear other costs or take other actions that may have a
negative impact on its future revenue and ability to generate profits. Furthermore, LivaNova’s key component suppliers may
not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in
failure to produce products on a timely basis and in the required quantities, if at all.

Product liability claims could adversely impact LivaNova’s consolidated financial condition and LivaNova’s
earnings and impair its reputation.

LivaNova’s business exposes it to potential product liability risks that are inherent in the design, manufacture and marketing
of medical devices. In addition, many of the medical devices LivaNova manufactures and sells are designed to be implanted in
the human body for long periods of time. Component failures, manufacturing defects, design flaws or inadequate disclosure

of product-related risks or product-related information with respect to these or other products LivaNova manufactures or
sells could result in an unsafe condition or injury to, or death of, a patient. The occurrence of such an event could result in
product liability claims or a recall of, or safety alert relating to, one or more of LivaNova’s products. LivaNova has elected to
self-insure with respect to a portion of its product liability risks and hold global insurance policies in amounts the Company
believes are adequate to cover future losses. Product liability claims or product recalls in the future, regardless of their
ultimate outcome, could have a material adverse effect on LivaNova’s business and reputation and on its ability to attract
and retain customers for its products.

LivaNova’s failure to comply with rules relating to healthcare fraud and abuse, false claims and privacy and
security laws may subject LivaNova to penalties and adversely impact its reputation and business operations.

LivaNova’s devices and therapies are subject to regulation regarding quality and cost by various governmental agencies
worldwide responsible for coverage, reimbursement and regulation of healthcare goods and services. In the US, for example,
federal government healthcare laws apply when a customer submits a claim for an item or service that is reimbursable
under a US federal government-funded healthcare program, such as Medicare or Medicaid. The principal US federal laws
implicated include:

•

the US Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and wilfully
soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either
the referral of an individual for, or the purchase, order or recommendation of, any good or service for which
payment may be made under federal healthcare programmes, such as the Medicare and Medicaid programmes.
A person or entity does not need to have actual knowledge of the US Anti-Kickback Statute or specific intent
to violate it to have committed a violation; in addition, the government may assert that a claim including items
or services resulting from a violation of the US Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the US False Claims Act;

federal civil and criminal 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 federal
third-party payers that are false or fraudulent. Private individuals can file suits on behalf of the government
under the US False Claims Act, known as “qui tam” actions and such individuals, commonly known as
“whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. When
an entity is determined to have violated the US False Claims Act, it may be required to pay up to three times the
actual damages sustained by the government, plus civil penalties for each separate false claim;

the federal US 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;

federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit programme
or making false statements relating to healthcare matters. Similar to the federal US 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;

• HIPAA, as amended by the HITECH, which governs the conduct of certain electronic healthcare transactions

and protects the security and privacy of protected health information;

•

the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program (with certain exceptions) to report annually to the CMS information related to payments or other
“transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors) and teaching hospitals, and requires applicable manufacturers and group purchasing organisations
to report annually to the government ownership and investment interests held by the physicians described
above and their immediate family members and payments or other “transfers of value” to such physician
owners. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year;

•

the FCPA, which prohibits corporations and individuals from paying, offering to pay or authorising the payment
of anything of value to any foreign government official, government staff member, political party or political
candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official
capacity; the UK Bribery Act, which prohibits both domestic and international bribery, as well as bribery across
both public and private sectors; and bribery provisions contained in the German Criminal Code, which, pursuant
to draft legislation being prepared by the German government, may make the corruption and corruptibility of
physicians in private practice and other healthcare professionals a criminal offence; and

analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws which may apply to items or services reimbursed by any third-party payer, including commercial
insurers; state laws that require 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; 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; and state laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and may not
have the same effect, thus complicating compliance efforts.

The risk of LivaNova being found in violation of these 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 harbours available under such laws,
it is possible that some of LivaNova’s business activities, including its relationships with surgeons and other healthcare
providers, some of whom recommend, purchase and/or prescribe LivaNova’s devices, group purchasing organisations and
its independent sales agents and distributors, could be subject to challenge under one or more of such laws. LivaNova is also
exposed to the risk that its employees, independent contractors, principal investigators, consultants, vendors, independent
sales agents and distributors may engage in fraudulent or other illegal activity. While LivaNova has policies and procedures in
place prohibiting such activity, misconduct by these parties could include, among other infractions or violations, intentional,
reckless and/or negligent conduct or unauthorised activity that violates US FDA regulations, including those laws that
require the reporting of true, complete and accurate information to the US FDA, manufacturing standards, federal and state
healthcare fraud and abuse laws and regulations, laws that require the true, complete and accurate reporting of financial
information or data or other commercial or regulatory laws or requirements. It is not always possible to identify and deter
misconduct by LivaNova’s employees and other third parties, and the precautions it takes to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting LivaNova from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

There are similar laws and regulations applicable to LivaNova outside the US, all of which are subject to evolving
interpretations. Global enforcement of anti-corruption laws has increased substantially in recent years, with more frequent
voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by governmental agencies,
and assessment of significant fines and penalties against companies and individuals. LivaNova’s operations create the risk
of unauthorised payments or offers of payments by one of its employees, consultants, sales agents, or distributors because
these parties are not always subject to LivaNova’s control. It is LivaNova’s policy to implement safeguards to discourage
these practices. However, LivaNova’s existing safeguards and any future improvements may prove to be less than effective,
and LivaNova’s employees, consultants, sales agents, or distributors may engage in conduct for which LivaNova might be
held responsible. Any alleged or actual violations of these regulations may subject LivaNova to government scrutiny, severe
criminal or civil sanctions and other liabilities, including exclusion from government contracting or government healthcare
programmes, and could negatively affect its business, reputation, operating results, and financial condition. In addition, a
governmental authority may seek to hold LivaNova liable for successor liability violations committed by any companies in
which it invests or that it acquires.

If a governmental authority were to conclude that LivaNova is not in compliance with applicable laws and regulations, LivaNova
and its officers and employees could also be subject to exclusion from participation as a supplier of product to beneficiaries.
If LivaNova is excluded from participation based on such an interpretation it could adversely affect its reputation and business
operations. Any action against LivaNova for violation of these laws, even if it successfully defends against it, could cause
LivaNova to incur significant legal expenses and divert its management’s attention from the operation of its business.

LivaNova’s insurance policies may not be adequate to cover future losses.

LivaNova’s insurance policies (including general and products liability) provide insurance in such amounts and against such
risks LivaNova has reasonably determined to be prudent in accordance with industry practices or as is required by law
or regulation. Although, based on historical loss trends, the Company believes that LivaNova’s insurance coverage will
be adequate to cover future losses; the Company cannot guarantee that this will remain true. Historical trends may not
be indicative of future losses, and losses from unanticipated claims could have a material adverse impact on LivaNova’s
consolidated earnings, financial condition, and/or cash flows.

Consolidation in the healthcare industry could have an adverse effect on LivaNova’s revenue and results
of operations.

Many healthcare industry companies, including medical device companies, are consolidating to create new companies
with greater market power. As the healthcare industry consolidates, competition to provide goods and services to industry
participants will become more intense. These industry participants may try to use their market power to negotiate price
concessions or reductions for medical devices that incorporate components LivaNova produces. Increasing pricing pressures
as a result of industry consolidation could have an adverse effect on LivaNova’s revenue, results of operations, financial
position and cash flows.

LivaNova is substantially dependent on patent and other proprietary rights and failing to protect such rights or
to be successful in litigation related to LivaNova’s rights or the rights of others may result in LivaNova’s payment
of significant monetary damages and/or royalty payments, negatively impact its ability to sell current or future
products, or prohibit it from enforcing its patent and other proprietary rights against others.

LivaNova operates in an industry characterised by extensive patent litigation. Patent litigation against LivaNova could result
in significant damage awards and injunctions that could prevent the manufacture and sale of affected products or require
LivaNova to pay significant royalties in order to continue to manufacture or sell affected products.

LivaNova also relies on a combination of patents, trade secrets, and non-disclosure and non-competition agreements to
protect its proprietary intellectual property and LivaNova will continue to do so. While LivaNova intends to defend against
any threats to its intellectual property, these patents, trade secrets, or other agreements may not adequately protect its
intellectual property. Further, pending patent applications may not result in patents being issued to LivaNova. Patents issued
to or licensed by LivaNova in the past or in the future may be challenged or circumvented by competitors and such patents
may be found invalid, unenforceable or insufficiently broad to protect LivaNova’s technology and may limit its competitive
advantage. Third parties could obtain patents that may require LivaNova to negotiate licences to conduct its business,
and the required licences may not be available on reasonable terms or at all. LivaNova also relies on non-disclosure and
non-competition agreements with certain employees, consultants, and other parties to protect, in part, trade secrets and
other proprietary rights. The Company cannot be certain that these agreements will not be breached, that LivaNova will
has adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary
information, or that third parties will not otherwise gain access to LivaNova’s trade secrets or proprietary knowledge.

In October 2009 for example, the legacy Cyberonics business entered into a licence arrangement with Flint Hills Scientific,
L.L.C., which was amended in January 2011 and January 2015. The licence relates to the ability of the AspireSR generator
to, among other things, provide additional stimulation automatically by responding to a patient’s relative heart-rate changes
that exceed variable thresholds. The licence provides for a royalty fee in the low single digit percentages as it relates to
AspireSR sales. Failure to protect such a licence arrangement could have a material adverse effect on the Neuromodulation
Business Unit.

In addition, the laws of certain countries in which LivaNova markets its products are not uniform and may not protect
LivaNova’s intellectual property rights equally. If LivaNova is unable to protect its intellectual property in particular countries,
it could have a material adverse effect on LivaNova’s business, financial condition or results of operations.

LivaNova is exposed to foreign currency exchange risk.

LivaNova transacts business in numerous countries around the world and expects that a significant portion of its business will
continue to take place in international markets. Consolidated financial statements are prepared in the Company’s functional
currency, while the financial statements of each of the Company’s subsidiaries are prepared in the functional currency of
that entity.

Accordingly, fluctuations in the exchange rate of the functional currencies of the Company’s foreign currency entities
against the functional currency of the Company will impact its results of operations and financial condition. Several of the
Company’s subsidiaries conduct transactions in currencies different to their functional currency. As such, it is expected that
the Company’s revenue and earnings will continue to be exposed to the risks that may arise from fluctuations in foreign
currency exchange rates, which could have a material adverse effect on the Company’s business, results of operation or
financial condition. Although the Company may elect to hedge certain foreign currency exposure, the Company cannot be
certain that the hedging activity will eliminate the Company’s currency risk.

Changes in tax laws or exposure to additional income tax liabilities could have a material impact on LivaNova’s
financial condition and results of operations.

LivaNova is exposed to potentially adverse changes in the tax regime in each jurisdiction in which it operates. LivaNova is
subject to income taxes as well as non-income based taxes, in the US, the EU and various jurisdictions. LivaNova is also subject
to ongoing tax audits in various other foreign jurisdictions. Tax authorities may disagree with certain positions LivaNova has
taken and assess additional taxes. The Company believes that LivaNova’s accruals reflect the probable outcome of known
contingencies. However, there can be no assurance that LivaNova will accurately predict the outcomes of ongoing audits,
and the actual outcomes of these audits could have a material impact on LivaNova’s consolidated net income or financial
condition. Changes in tax laws or tax rulings could materially impact LivaNova’s effective tax rate or results of operations.

Furthermore, the increased international scrutiny of the tax payments of multinational companies, together with the
complexity of tax rules and other business activities, are such that LivaNova’s decisions related to tax may be publicly
criticised and may result in reputational damage.

LivaNova is subject to lawsuits.

LivaNova is or has been a defendant in a number of lawsuits for, among other things, alleged products liability and suits
alleging patent infringement, and could be subject to additional lawsuits in the future. Given the uncertain nature of litigation
generally, LivaNova is not able in all cases to estimate the amount or range of loss that could result from an unfavourable
outcome of the litigation (including tax litigation) to which LivaNova is a party. Any such future losses, individually or in the
aggregate, could have a material adverse effect on LivaNova’s results of operations and cash flows.

Risks related to access to financial resources.

The credit lines provided by LivaNova’s lenders are governed by clauses, commitments and covenants. The failure to comply
with these provisions can constitute a failure to perform a contractual obligation, which authorises the lender banks to
demand the immediate repayment of the facilities, making it difficult to obtain alternative resources.

Changes in LivaNova’s financial position are the result of a number of factors, specifically including the achievement of
budgeted objectives and the trends shaping general economic conditions, and the financial markets and the industry within
which LivaNova operates. LivaNova expects to generate the resources needed to repay maturing indebtedness and fund
scheduled investments from the cash flow produced by LivaNova’s operations, LivaNova’s available liquidity, the renewal
or refinancing of bank borrowings and possibly, access to the capital markets. Even under current market conditions, the
Company expects that LivaNova’s operations will generate adequate financial resources. Nevertheless, given the volatility
in current financial markets, the possibility that problems in the banking and monetary markets could hinder the normal
handling of financial transactions cannot be excluded.

Certain of LivaNova’s debt instruments will require it to comply with certain affirmative covenants and specified
financial covenants and ratios.

Certain restrictions in LivaNova’s debt instruments could affect its ability to operate and may limit LivaNova’s ability to react to
market conditions or to take advantage of potential business opportunities as they arise. For example, such restrictions could
adversely affect LivaNova’s ability to finance its operations, make strategic acquisitions, investments or alliances, restructure
its organisation or finance capital needs. Additionally, LivaNova’s ability to comply with these covenants and restrictions may
be affected by events beyond LivaNova’s control such as prevailing economic, financial, regulatory and industry conditions.
If any of these restrictions or covenants is breached, LivaNova could be in default under one or more of its debt instruments,
which, if not cured or waived, could result in acceleration of the indebtedness under such agreements and cross defaults
under its other debt instruments. Any such actions could result in the enforcement of LivaNova’s lenders’ security interests
and/or force LivaNova into bankruptcy or liquidation, which could have a material adverse effect on LivaNova’s financial
condition and results of operations.

Risks related to the reduction or interruption in supply and an inability to develop alternative sources for supply
may adversely affect LivaNova’s manufacturing operations and related product sales.

LivaNova maintains manufacturing operations in nine countries located throughout the world and purchases many of the
components and raw materials used in manufacturing these products from numerous suppliers in various countries. Some of
these companies are highly unionised. A close collaborative relationship between a manufacturer and its suppliers is typical
in the medical device industry. While this approach can produce economic benefits in terms of lower costs, it also causes
LivaNova to rely heavily on its suppliers. As a result, any problem affecting a supplier (whether due to external or internal
causes) could have a negative impact on LivaNova.

In addition, LivaNova manufactures its products at its own facilities or through subcontractors located in various countries,
purchasing the components and materials used to manufacture these products from numerous suppliers in various countries.
However, in a few limited cases, specific components and raw materials are purchased from primary or main suppliers (or
in some cases, a single supplier) for reasons related to quality assurance, cost-effectiveness ratio and availability. While
LivaNova work closely with its suppliers to ensure supply continuity, the Company cannot guarantee that LivaNova’s efforts
will always be successful. Moreover, due to strict standards and regulations governing the manufacture and marketing of
LivaNova’s products, LivaNova may not be able to quickly locate new supply sources in response to a supply reduction or
interruption, with negative effects on its ability to manufacture its products effectively and in a timely fashion.

LivaNova manufactures its products at production facilities in Italy, France, Costa Rica, Germany, the US, Canada, Brazil,
Australia and the Dominican Republic, all of which are exposed to the risk of production stoppages caused by exceptional
or accidental events (fires, shutdowns of access roads, etc.) or natural calamities (floods, earthquakes, etc.). Even though
LivaNova has implemented what the Company believes to be appropriate preventive actions and insurance coverage, the
possibility that the occurrence of events of exceptional severity or duration could have an impact on LivaNova’s performance
cannot be excluded.

LivaNova’s inability to integrate recently acquired businesses or to successfully complete future acquisitions
could limit its future growth or otherwise be disruptive to its ongoing business.

From time to time, LivaNova expects to pursue acquisitions in support of its strategic goals. In connection with any such
acquisitions, LivaNova faces significant challenges in managing and integrating any expanded or combined operations,
including acquired assets, operations and personnel. There can be no assurance that acquisition opportunities will be
available on acceptable terms or at all, or that LivaNova will be able to obtain necessary financing or regulatory approvals
to complete potential acquisitions. LivaNova’s success in implementing this strategy will depend to some degree upon
the ability of management to identify, complete and successfully integrate commercially viable acquisitions. Acquisition
transactions may disrupt LivaNova’s ongoing business and distract management from other responsibilities.

The success of any acquisition, investment or alliance may be affected by a number of factors, including LivaNova’s ability to
properly assess and value the potential business opportunity or to successfully integrate any businesses LivaNova may acquire
into its existing business. The integration of the operations of acquired businesses requires significant efforts, including
the coordination of information technologies, R&D, sales and marketing, operations, manufacturing and finance. These
efforts result in additional expenses and involve significant amounts of management’s time that cannot then be dedicated
to other projects. Failure to successfully manage and coordinate the growth of the combined company could also have an
adverse impact on LivaNova’s business. In addition, LivaNova cannot be certain that its investments, alliances and acquired
businesses will become profitable or remain so. If LivaNova’s investments, alliances or acquisitions are not successful, it may
record unexpected impairment charges. Factors that could affect the success of potential future acquisitions include:

•

the presence or absence of adequate internal controls and/or significant fraud in the financial systems of
acquired companies;

adverse developments arising out of investigations by governmental entities of the business practices of
acquired companies;

any decrease in customer loyalty and product orders caused by dissatisfaction with the combined companies’
product lines and sales and marketing practices, including price increases;

LivaNova’s ability to retain key employees; and

the ability of the combined company to achieve synergies among its constituent companies, such as increasing
sales of the combined company’s products, achieving cost savings and effectively combining technologies to
develop new products.

LivaNova may not realise the cost savings, synergies and other benefits that are anticipated as a result of
the Mergers.

The combination of two independent companies is a complex, costly and time-consuming process. As a result of the
completed Mergers, LivaNova has been required to devote significant management attention and resources to integrating
the business practices and operations of Sorin and Cyberonics. The integration process may disrupt LivaNova’s business
operations and, if implemented ineffectively, could preclude realisation of the full benefits expected to be realised in
connection with the Mergers. LivaNova’s failure to meet the challenges involved in successfully integrating the operations
of Sorin and Cyberonics or otherwise to realise the anticipated benefits of the Mergers could cause an interruption of
LivaNova’s activities and could seriously harm LivaNova’s results of operations. In addition, the overall integration of the
two companies may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of client
relationships and diversion of management’s attention, and may cause the combined company’s stock price to decline. The
difficulties of combining the operations of the companies include, among others:

• managing a significantly larger company;

•

coordinating geographically separate organisations;

the potential diversion of management focus and resources from other strategic opportunities and from
operational matters;

•

retaining existing customers and attracting new customers;

• maintaining employee morale and retaining key management and other employees;

•

integrating two unique business cultures, which may prove to be incompatible;

the possibility of faulty assumptions underlying expectations regarding the integration process;

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

coordinating distribution and marketing efforts;

integrating information technology, communications and other systems;

changes in applicable laws and regulations;

• managing tax costs or inefficiencies associated with integrating the operations of the combined company;

• unforeseen expenses associated with the Mergers; and

•

effecting actions that may be required in connection with obtaining regulatory approvals.

Many of these factors are outside of LivaNova’s control and any one of them could result in increased costs, decreased revenue
and diversion of management’s time and energy, which could materially impact LivaNova’s business, financial condition and
results of operations. In addition, even if the operations of Sorin and Cyberonics are integrated successfully, LivaNova may
not realise the full benefits of the Mergers, including the synergies, cost savings or sales or growth opportunities that the
Company expects. These benefits may not be achieved within the anticipated time frame, or at all. As a result, the Company
cannot assure the Company’s shareholders that the combination of Sorin and Cyberonics will result in the realisation of the
full benefits anticipated.

LivaNova’s business relationships may be subject to disruption due to uncertainty associated with the Mergers.

Parties with which LivaNova does business may experience uncertainty associated with the Mergers. LivaNova’s business
relationships may be subject to disruption as customers, distributors, suppliers, vendors and others may attempt to negotiate
changes in existing business relationships or consider entering into business relationships with parties other than LivaNova.
These disruptions could have an adverse effect on LivaNova’s business, financial condition, and/or results of operations or
prospects, including an adverse effect on LivaNova’s ability to realise the anticipated benefits of the Mergers.

LivaNova may have difficulty attracting, motivating and retaining executives and other key employees due to uncertainty
associated with the recent Mergers.

Since the Mergers are now complete, LivaNova’s success will depend in part upon its ability to retain key employees of
Sorin and Cyberonics and hire new personnel. Competition for qualified personnel can be intense. Current and prospective
employees may experience uncertainty about the effect of the Mergers, which may impair LivaNova’s ability to attract, retain
and motivate key management, sales, marketing, technical and other personnel.

In addition, pursuant to change-in-control provisions in LivaNova’s employment and transition agreements, certain of
LivaNova’s key employees are entitled to receive severance payments upon a constructive termination of employment.
Certain of LivaNova’s key employees potentially could terminate their employment following specified circumstances set
forth in the applicable employment or transition agreement, including certain changes in such key employees’ title, status,
authority, duties, responsibilities or compensation, and collect severance. Such circumstances could occur in connection with
the Mergers as a result of changes in roles and responsibilities. If LivaNova’s key employees depart, the continued integration
of Sorin’s and Cyberonics’ businesses may be more difficult and LivaNova’s operations may be harmed. Furthermore,
LivaNova may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and
may lose significant expertise and talent relating to the businesses of Sorin or Cyberonics, and LivaNova’s ability to realise the
anticipated benefits of the Mergers may be adversely affected. In addition, there could be disruptions to or distractions for
the workforce and management associated with activities of labour unions or works councils or integrating employees into
the combined company. Accordingly, no assurance can be given that LivaNova will be able to attract or retain key employees
to the same extent that the legacy Sorin and Cyberonics companies were able to attract or retain employees in the past.

LivaNova has and will continue to incur certain transaction and merger-related costs in connection with the Mergers.

LivaNova has incurred and expects to incur a number of non-recurring direct and indirect costs associated with the Mergers.
These costs and expenses include fees paid to financial, legal and accounting advisors, filing fees, printing expenses and
other related charges as well as ongoing expenses related to facilities and systems consolidation costs, severance payments
and other potential employment-related costs, including payments remaining to be made to certain Sorin and Cyberonics
executives. In the Transitional Period, LivaNova incurred $42.1 million in expenses related to the Mergers and expects
additional expenses in future for the integration of the two merged businesses. In addition, LivaNova incurred $13.7 million
and $11.3 million in integration and restructuring expenses, respectively, during the Transitional Period, of which integration
expenses related to systems integration, organisation structure integration, finance, synergy and tax planning, transitioning
of accounting methodologies, the Company’s listing in London and certain re-branding efforts, and restructuring efforts
related to LivaNova’s intent to leverage economies of scale, eliminate overlapping corporate expenses and streamline
distributions, logistics and office functions in order to reduce overall costs. While the Company has assumed a certain level
of expenses in connection with the terms of the Merger Agreement, there are many factors beyond the Company’s control,
including unanticipated costs that could affect the total amount or the timing of these expenses. Although the Company
expects that the benefits of the Mergers will offset the transaction expenses and implementation costs over time, this net
benefit may not be achieved in the near term or at all.

The IRS may not agree with the conclusion that the Company should be treated as a foreign corporation for US
federal tax purposes, and the Company may be required to pay substantial US federal income taxes.

The Company believes that under current law, it is treated as a foreign corporation for US federal tax purposes because it is
a UK incorporated entity. Although the Company is incorporated in the UK, the IRS may assert that it should be treated as a
US corporation (and, therefore, a US tax resident) for US federal tax purposes pursuant to Section 7874. For US federal tax
purposes, a corporation is considered a tax resident in the jurisdiction of its organisation or incorporation, except as provided
under Section 7874. Subject to the discussion of Section 7874 below, because the Company is a UK incorporated entity, it
would be classified as a foreign corporation (and, therefore, a non-US tax resident) under these rules. Section 7874 provides
an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a US corporation for US
federal tax purposes.

For the Company to be treated as a foreign corporation for US federal tax purposes under Section 7874, in connection
with the Mergers completed on 19 October 2015, either (i) the former stockholders of Cyberonics must own (within the
meaning of Section 7874) less than 80 per cent. (by both vote and value) of the Company’s Ordinary Shares by reason of
holding shares of Cyberonics common stock, or (ii) the Company must have substantial business activities in the UK after
the Mergers (taking into account the activities of the Company’s expanded affiliated group). For purposes of Section 7874,
“expanded affiliated group” means a foreign corporation and all subsidiaries in which the foreign corporation, directly or
indirectly, owns more than 50 per cent. of the shares by vote and value. The Company does not expect to have substantial
business activities in the UK within the meaning of these rules.

The Company believes that because the former stockholders of Cyberonics own (within the meaning of Section 7874)
less than 80 per cent. (by both vote and value) of the Ordinary Shares by reason of holding shares of Cyberonics common
stock, the test set forth above to treat the Company as a foreign corporation was satisfied in connection with the Mergers
completed on 19 October 2015. However, the IRS may disagree with the calculation of the percentage of the Ordinary
Shares deemed held by former holders of Cyberonics common stock by reason of being former holders of Cyberonics
common stock due to the calculation provisions laid out under Section 7874 and accompanying guidance, or the Section
7874 Percentage. The rules relating to calculating the Section 7874 Percentage are new and subject to uncertainty, and thus
it cannot be assured that the IRS will agree that the ownership requirements to treat the Company as a foreign corporation
were met. In addition, there have been legislative proposals to expand the scope of US corporate tax residence, including
by potentially causing the Company to be treated as a US corporation if the management and control of the Company
and its affiliates were determined to be located primarily in the US. There have also been recent IRS publications expanding
the application of Section 7874 and there could be prospective or retroactive changes to Section 7874 or the US Treasury
Regulations promulgated thereunder that could result in the Company being treated as a US corporation. For example, the
IRS and US Treasury recently issued new rules that (i) make changes to the manner in which the Section 7874 Percentage
is calculated, (ii) limit the ability to acquire certain US companies within a 36 month period and (iii) recharacterise certain
intercompany indebtedness as equity in certain circumstances. Certain of these changes may affect the Company’s ability to
undertake future planning and acquisition strategies (see discussion “The Company’s ability to engage in certain acquisition
strategies and certain tax planning may be impacted by recent IRS guidance. Status as a foreign corporation for US federal
income tax purposes could be affected by a change in law” below).

The IRS may not agree with the conclusion that Section 7874 does not limit Cyberonics’ and its US affiliates’ ability to utilise
their US tax attributes and does not impose an excise tax on gain recognised by certain individuals.

If the Section 7874 Percentage is calculated to be at least 60 per cent. but less than 80 per cent., Section 7874 imposes a
minimum level of tax on any “inversion gain” of a US corporation (and any US person related to the US corporation) after
the acquisition. Inversion gain is defined as (i) the income or gain recognised by reason of the transfer of property to a
foreign related person during the 10-year period following the Cyberonics merger, and (ii) any income received or accrued
during such period by reason of a license of any property by the US corporation to a foreign related person. The effect of
this provision is to deny the use of certain US tax attributes (including net operating losses and certain tax credits) to offset
US tax liability, if any, attributable to such inversion gain. In addition, the IRS and the US Treasury Department have issued
guidance that has further limited benefits of certain post-combination transactions for combinations resulting in a Section
7874 Percentage of at least 60 per cent. but less than 80 per cent., and have announced the intention to issue future
guidance that could potentially limit benefits of interest deductions from intercompany debt or other deductions deemed to
inappropriately “strip” US source earnings.

Additionally, if the Section 7874 Percentage is calculated to be at least 60 per cent. but less than 80 per cent., Section
7874 and rules related thereto would impose the Section 4985 Excise Tax on the gain recognised by certain “disqualified
individuals” (including the former officers and directors of Cyberonics) on certain Cyberonics stock-based compensation
held thereby at a rate equal to 15 per cent. If the Section 4985 Excise Tax is applicable, the compensation committee of the
Cyberonics board previously determined that it is appropriate to provide such individuals with a payment with respect to
the Section 4985 Excise Tax, so that, on a net after-tax basis, they would be in the same position as if no such Section 4985
Excise Tax had been applied.

The Company believes the Section 7874 Percentage following the combination of Cyberonics and Sorin was less than
60 per cent. As a result, the Company believes that (i) Cyberonics and its US affiliates will be able to utilise their US
tax attributes to offset their US tax liability, if any, resulting from certain subsequent specified taxable transactions, and
(ii) “disqualified individuals” will not be subject to the Section 4985 Excise Tax. However, the rules relating to calculating the
Section 7874 Percentage are new and subject to uncertainty, and thus it cannot be assured that the IRS will agree that the
Section 7874 Percentage following the combination of Cyberonics and Sorin was less than 60 per cent.

The Company’s ability to engage in certain acquisition strategies and certain internal restructurings may be
impacted by recent IRS guidance.

The IRS and US Treasury recently issued new rules that materially change the manner in which the Section 7874 Percentage
will be calculated in certain future acquisitions of US businesses in exchange for Company equity, which may impact the
Company’s ability to engage in particular acquisition strategies. For example, the new temporary regulations would impact
certain acquisitions of US companies for stock in the Company in the 36 month period beginning 19 October 2015 by

excluding from the Section 7874 Percentage the portion of shares of the Company that are allocable to the legacy Sorin
shareholders. This new rule would generally have the effect of increasing the otherwise applicable Section 7874 Percentage
with respect to a future acquisition of a US business.

New rules also provide that certain intercompany debt instruments issued on or after 4 April 2016 will be treated as equity for
US federal income tax purposes, therefore limiting US tax benefits and resulting in possible US withholding taxes. Moreover,
while these new rules are not retroactive, they could impact the Company’s ability to engage in future restructurings if such
transactions cause an existing debt instrument to be treated as reissued.

The Company’s status as a foreign corporation for US federal income tax purposes could be affected by a change in law.

The Company believes that under current law, it is treated as a foreign corporation for US federal tax purposes because it is a
UK incorporated entity. However, changes to the inversion rules in Section 7874 or the US Treasury Regulations promulgated
thereunder could adversely affect the Company’s status as a foreign corporation for US federal tax purposes, and any such
changes could have prospective or retroactive application to the Company and its respective stockholders, shareholders and
affiliates. For example, the IRS and US Treasury recently issued new rules that (i) make changes to the manner in which the
Section 7874 Percentage is calculated in the case of future acquisitions, (ii) limit the ability to acquire certain US companies
within a 36 month period and (iii) characterise certain intercompany indebtedness as equity in certain circumstances. See
discussion “The Company’s ability to engage in certain acquisition strategies and certain tax planning may be impacted by
recent IRS guidance. Status as a foreign corporation for US federal income tax purposes could be affected by a change in
law” above.

In addition, recent legislative proposals and IRS guidance have aimed to expand the scope of US corporate tax residence,
including by reducing the Section 7874 Percentage threshold at or above which the Company would be treated as a US
corporation or by determining the Company’s US corporate tax residence based on the location of the management and
control of the Company and its affiliates. Any such changes to Section 7874 or other such legislation, if passed, could have
a significant adverse effect on the Company’s financial results.

Future changes to US and foreign tax laws could adversely affect the Company.

The US Congress, the UK Government, the Organisation for Economic Co-operation and Development and other government
agencies in jurisdictions where the Company and its affiliates do business have had an extended focus on issues related to
the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where payments
are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. In addition, other
recent legislative proposals in the US would treat the Company as a US corporation if the management and control of
the Company and its affiliates were determined to be located primarily in the US and/or would reduce the Section 7874
Percentage threshold at or above which the Company would be treated as a US corporation. Furthermore, the 2016 US
Model Income Tax Convention recently released by the US Treasury Department would reduce potential tax benefits with
respect to the Company and its affiliates if the Section 7874 Percentage were calculated to be at least 60 per cent. but less
than 80 per cent. by imposing full withholding taxes on payments pursuant to certain financing structures, distributions
from US subsidiaries and payments pursuant to certain licensing arrangements. Thus, the tax laws in the US, the UK and
other countries in which the Company and its affiliates do business could change on a prospective or retroactive basis, and
any such changes could adversely affect the Company.

The Company may not qualify for benefits under the tax treaty entered into between the UK and the US.

The Company believes that it operates in a manner such that it is eligible for benefits under the tax treaty entered into
between the UK and the US. However, its ability to qualify for such benefits will depend upon the requirements contained
in such treaty.

The failure by the Company or its subsidiaries to qualify for benefits under the tax treaty entered into between the UK and
the US could result in adverse tax consequences for the Company and its subsidiaries.

The 2016 US Model Income Tax Convention recently released by the US Treasury Department would reduce potential tax
benefits with respect to the Company and its affiliates if the Section 7874 Percentage is calculated to be at least 60 per
cent. but less than 80 per cent. by imposing full withholding taxes on payments pursuant to certain financing structures,
distributions from US subsidiaries and payments pursuant to certain licensing arrangements. If the proposed treaty is enacted
with applicability to the Company or its affiliates, it would result in material reductions in the benefit of qualifying for a treaty.

The Company believes that it operates so as to be treated exclusively as a resident of the UK for tax purposes,
but the relevant tax authorities may treat it as also being a resident of another jurisdiction for tax purposes.

The Company is a company incorporated in the UK. Current UK law provides that the Company will be regarded as being
a UK resident for tax purposes from incorporation and shall remain so unless (a) it is concurrently resident in another
jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the UK and (b) there is a
provision or procedure in that tax treaty which allocates or determines exclusive residence to that other jurisdiction.

Based upon the Company’s management and organisational structure, the Company believes that it should be regarded as
resident exclusively in the UK from its incorporation for tax purposes. However, because this analysis is highly factual and
may depend on future changes in the Company’s management and organisational structure, there can be no assurance
regarding the final determination of its tax residence. Should the Company be treated as resident in a country or jurisdiction
other than the UK, it could be subject to taxation in that country or jurisdiction on its worldwide income and may be required
to comply with a number of material and formal tax obligations, including withholding tax and/or reporting obligations
provided under the relevant tax law, which could result in additional costs and expenses for the Company, as well as its
shareholders, lenders and/or bondholders.

The effective tax rate that will apply to the Company is uncertain and may vary from expectations.

No assurances can be given as to what the Company’s worldwide effective corporate tax rate will be because of, among
other things, uncertainty regarding the tax policies of the jurisdictions where it operates. The Company’s actual effective tax
rate may vary from its expectations and that variance may be material. Additionally, tax laws or their implementation and
applicable tax authority practices could change in the future.

Cautionary Statement about Forward-Looking Statements

Certain statements in this Strategic Report are “forward-looking statements”. These statements include, but are not
limited to, statements about the benefits of the business combination of Cyberonics and Sorin, LivaNova’s plans, objectives,
strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or
future events and involve known and unknown risks that are difficult to predict. As a result, LivaNova’s actual financial
results, performance, achievements or prospects may differ significantly from those expressed or implied by these forward-
looking statements. In some cases, forward-looking statements can be identified by use of words such as “may”, “could”,
“seek”, “guidance”, “predict”, “potential”, “likely”, “believe”, “will”, “should”, “expect”, “anticipate”, “estimate”,
“plan”, “intend”, “forecast”, “foresee” or variations of these terms and similar expressions, or the negative of these terms
or similar expressions. Such forward-looking statements are necessarily based on estimates and assumptions that, while
considered reasonable by LivaNova and its management based on their knowledge and understanding of the business and
industry, are inherently uncertain. These statements are not guarantees of future performance, and shareholders should not
place undue reliance on forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond LivaNova’s control, that
could cause LivaNova’s actual results to differ materially from the forward-looking statements contained in this Strategic
Report. Such risks, uncertainties and important factors include, among others: the statements included in this section of the
Strategic Report, and other documents that have been published and/or publicly filed by LivaNova; LivaNova’s ability to hire
and retain key personnel; LivaNova’s ability to attract new customers and retain existing customers in the manner anticipated;
the reliance on and integration of information technology systems; changes in legislation or governmental regulations
affecting LivaNova; changes relating to competitive factors in the industries in which LivaNova operates; international,
national or local economic, social or political conditions that could adversely affect LivaNova, its partners or customers;
conditions in the credit markets; risks associated with assumptions made in connection with critical accounting estimates and
legal proceedings; LivaNova’s organisational and governance structure; risks that the business of legacy Cyberonics and Sorin
will not be integrated successfully or that the combined companies will not realise the estimated cost savings, value of certain
tax assets, synergies or growth, or that such benefits may take longer to realise than expected; the inability of LivaNova to
meet expectations regarding the timing, completion and accounting of tax treatments; risks relating to unanticipated costs
of integration, including the operating costs, customer loss or business disruption being greater than expected; reductions
in customer spending, a slowdown in customer payments and changes in customer demand for products and services;
LivaNova’s international operations, which are subject to the risks of currency fluctuations and foreign exchange controls;
and the potential of international unrest, economic downturn or effects of currencies, tax assessments, tax adjustments,
anticipated tax rates, raw material costs or availability, benefit or retirement plan costs or other regulatory compliance costs.

These factors are not necessarily all of the important factors that could cause LivaNova’s actual financial results, performance,
achievements or prospects to differ materially from those expressed in or implied by any of such forward-looking statements.
Other unknown or unpredictable factors also could harm LivaNova’s results. All forward-looking statements attributable to
LivaNova or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set out above.
Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any
obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future
events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent
required by applicable laws. If LivaNova updates one or more forward-looking statements, no inference should be drawn
that it will make additional updates with respect to these forward-looking statements.

The Strategic Report for the period ended 31 December 2015 has been reviewed and approved by the Board of
directors of the Company on 27 April 2016.

ANDRÉ-MICHEL BALLESTER
CHIEF EXECUTIVE OFFICER

DIRECTORS’ REPORT

The directors present their report together with the audited financial statements for the period ended 31 December 2015.

Corporate Governance statement

The Corporate Governance statement as required by DTR 7.2.1 is set out on page 55 of this UK Annual Report. All information
detailed in the Corporate Governance statement is incorporated by reference into this Directors’ Report and is deemed to
form part of the Directors’ Report.

DTRs

For the purposes of DTR 4.1.5R(2) and DTR 4.1.8, this Directors’ Report and the Strategic Report on pages 1 to 48 comprise
the Management Report.

Directors

The directors of the Company, who held office from 19 October 2015 (save where otherwise stated) and up to the date of
this Directors’ Report, were as follows:

Chairman
Daniel J. Moore (from 14 September 2015)

Executive Director
André-Michel Ballester (from 14 September 2015)

Non-executive directors
Rosario Bifulco (to 16 November 2015)
Hugh Morrison
Alfred J. Novak
Dr. Arthur L. Rosenthal
Francesco Bianchi
Stefano Gianotti
Dr. Sharon O’Kane

In addition, Brian Sheridan (from the date of incorporation of the Company on 20 February 2015) and Demetrio Mauro
(from 17 April 2015) were directors of the Company until 14 September 2015.

The appointment and replacement of the directors is governed by the Companies Act and the Company’s articles of association.

The Board of directors is responsible for promoting the long-term success of the Company. The Board is responsible for
determining the strategy of the Company, relying upon a framework of corporate governance and internal controls which
are designed to protect the Company’s assets. The day-to-day management of the business is delegated to the executive
leadership team, primarily comprised of senior business managers, apart from matters specifically reserved for the board’s
decision. The Board delegates some of its duties and powers to board committees, each of which has a written charter,
available on the Company’s website.

Pursuant to the Company’s articles of association, the current directors of the Company have been appointed for a term
that will expire at the first annual meeting of members of the Company following the completion of the Company’s second
full financial year in 2017. Subject to the articles of association, a director may be appointed by an ordinary resolution at a
general meeting or by a decision of the Board of directors.

Directors’ indemnities

Each director is covered by appropriate directors’ and officers’ liability insurance and there are also deeds of indemnity in
place between the Company and each current and former director that were executed during the period under review.
These deeds of indemnity provide for the Company to indemnify the directors in respect of any proceedings brought by third
parties against them personally in their capacity as directors of the Company. The Company would also fund ongoing costs
in defending a legal action as they are incurred rather than after judgment has been given. In the event of an unsuccessful
defence in an action against them in a criminal or civil action, individual directors would be liable to repay defence costs

to the extent funded by the Company. In respect of any investigations or actions taken by a regulatory authority, individual
directors would be liable to repay defence costs to the extent funded by the Company if that regulatory authority has
determined that the relevant director has acted fraudulently, been grossly negligent, or has engaged in wilful misconduct
in relation to that claim.

Company details and branches outside the UK

The Company is a public limited company incorporated in England and Wales with registered number 095451374. The
Company’s registered address is 5 Merchant Square, North Wharf Road, London, W2 1AY.

The Company has one branch outside the UK: LivaNova PLC Filiale Italiana in Italy.

Share capital and the articles of association of the Company

The issued and fully paid share capital of the Company as at the close of business on 27 April 2016, being the latest
practicable date prior to the publication of this Directors’ Report, was made up as follows:1

Class of shares
Ordinary . . . . . . . . . . . . . . . . . . . . . . .

Number of shares

Nominal value

49,047,152

£49,047,152

There are no specific restrictions on the size of a holding or on the transfer of shares. No person has any special rights of
control over the Company’s share capital and all issued shares are fully paid. The directors are not aware of any agreements
between holders of the Company’s shares that may result in restrictions on the transfer of securities or voting rights.

Subsequent to the year end, the majority of the merger relief reserve as at 31 December 2015 was capitalised by way of a
bonus share issue, which gave rise to an increase in the Company’s share premium account. Following previously obtained
shareholder approval on 16 October 2015, and following the approval by the High Court Justice, Chancery Division on
6 April 2016, the share premium of the Company in the amount of $2,587 million was cancelled. The purpose of the
cancellation of the share premium account was to create distributable reserves in the books of account of the Company to
be used for any corporate purpose of the Company for which realised profits are required.

Shareholders shall not be entitled to vote at any shareholders’ meetings or at a separate meeting of the holders of any class
of shares, either in person or by representative or proxy, in respect of any share held by them unless all amounts presently
payable by them in respect of that share have been paid.

If at any time the Board of directors is satisfied that any shareholder, or any other person appearing to be interested in the
Company’s shares held by such a shareholder, has been duly served with a notice under section 793 of the Companies Act
and is in default for the prescribed period in supplying to the Company the information thereby required, or, in purported
compliance with such a notice, has made a statement which is false or inadequate in a material particular, then the Board
of directors may, in its absolute discretion at any time thereafter by notice to such shareholder, direct that, in respect of the
shares in relation to which the default occurred, the shareholder shall not be entitled to attend or vote either personally or
by proxy at a general meeting or at a separate meeting of the holders of that class of shares or on a poll.

Details of employee share schemes are provided in note 21 to the consolidated Financial Statements.

The process of amending the articles of association is subject to the procedure outlined in the Companies Act.

Share repurchases

The Company has not acquired any of its own shares since its incorporation on 20 February 2015. The directors will
be seeking shareholder authority to repurchase the Company’s shares “on-market” and “off-market” pursuant to the
Companies Act at the 2016 Annual General Meeting.

The Company established its EBT, an off-shore discretionary employee benefit trust on 19 October 2015. On 19 October
2015, the EBT was loaned £222,728 by LivaNova UK Limited (a subsidiary of the Company), to enable the EBT to subscribe
for 222,728 Ordinary Shares. The EBT has been used to transfer fully paid Ordinary Shares to employees of the Company
and its subsidiaries, to settle equity awards held by such employees pursuant to the Incentive Award Plan.

Significant shareholdings

As at 27 April 2016, being the latest practicable date prior to the publication of this Directors’ Report, the Company’s
significant shareholders who had notified the Company in accordance with the DTRs that they are interested in 3 per cent.
or more of the issued Ordinary Shares with voting rights of the Company are as follows:

Number of shares held

% in the issued share capital

Bios S.p.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fidelity Management & Research Company . . . . .
Paulson & Co., Inc . . . . . . . . . . . . . . . . . . . . . . . .
Tower 6 S.A.R.L.. . . . . . . . . . . . . . . . . . . . . . . . . .
RWC European Focus Fund Inc. . . . . . . . . . . . . . .

Dividend

4,262,285
3,721,152
2,347,923
2,253,040
1,486,084
1,480,000

8.69
7.58
4.78
4.59
3.02
3.01

No dividend has been proposed during, or in respect of, the course of the year under review. There is no immediate intention
for the Company to pay dividends. The declaration and payment by the Company of any future dividends and the amount
of any such dividends will depend upon the Company’s results, financial condition, future prospects, profits being available
for distribution and any other factors deemed by the directors to be relevant at the time, subject always to the requirements
of applicable law.

Change of control

The Companies Act requires the Company to identify (i) those significant arrangements to which the Company is party that
take effect, alter or terminate upon a change of control of the Company following a takeover bid, (ii) the effects of any such
agreements, and (iii) any agreements with the Company and its directors or employees for compensation for loss of office
or employment that occurs because of a takeover bid.

The legacy Sorin business entered into a loan agreement with the EIB for €100 million on 6 May 2014. The facility provides
that the EIB may require the Company to repay the loan amount in the event of a change of control. On 2 October 2015,
prior to the closing of the Mergers, Sorin entered into an amendment and restatement agreement with the EIB where the
parties agreed that the Mergers did not constitute a change of control.

In addition, provisions under the rules of the Company’s share incentive schemes, or awards made under those schemes, may
cause options and awards granted under those schemes to vest and become exercisable in the event of a change in control.

Political donations

The Company has not made any political donations, or incurred any political expenditure, in the period under review. In
addition, the Company has not made any contributions to a non-EU political party during the period under review. The
legacy Cyberonics business had a PAC, which was entirely funded by employee donations. The PAC was formally closed in
January 2016 and made its final donation in April 2015.

Employee policies

LivaNova has a culture of continuous improvement through investment in people at all levels within LivaNova. LivaNova
is committed to pursuing equality and diversity in all its employment activities, including recruitment, training, career
development and promotion and ensuring there is no bias or discrimination in the treatment of people. LivaNova supports
the principle of equal opportunities in employment and opposes all forms of unlawful or unfair discrimination on the
grounds of race, age, nationality, religion, ethnic or national origin, sexual orientation, gender or gender reassignment,
marital status or disability. Wherever possible, vacancies are filled from within LivaNova and efforts are made to create
opportunities for internal promotion.

It is LivaNova’s policy to encourage applications for employment from disabled people and to assist with their training and
development, particularly in light of their aptitudes and abilities. If an existing employee becomes disabled, it is LivaNova’s
policy wherever practicable to provide continuing employment under normal terms and conditions and to provide training,
career development, and promotion to the disabled employee to the fullest extent possible.

Employees are consulted regularly about changes that may affect them either through their trade union-appointed or
works council representatives or by means of regular meetings with particular groups of employees. The consultations and
meetings are used to ensure that employees are kept up to date with LivaNova’s business performance and the financial
and economic factors affecting that performance. LivaNova also cascades information regularly to all employees, either by
means of LivaNova’s intranet or through employees’ managers, to provide them with important and up-to-date information
regarding key events and to obtain feedback from them.

LivaNova encourages share ownership among its employees by granting equity awards to selected employees under the
Incentive Award Plan.

In addition, the Company operates through local subsidiaries in many countries, some of which, including France, Germany
and Italy, have legal requirements to have works councils, which include employee representatives.

Greenhouse gas emissions

This Directors’ Report does not include information on emissions of carbon dioxide. Neither the legacy Cyberonics business
nor the legacy Sorin business recorded such emissions information on a group-wide basis, although certain local operations
recorded some limited information in compliance with local environmental laws. Therefore, for the purposes of this Directors’
Report, being the first year the Company has operated as a combined business, the cost of collecting the information and
estimating emissions was not considered to be proportionate to the benefit. The Company will provide its first year of
emission information in its UK Annual Report for the year ended 31 December 2016.

Financial risk management objectives/policies and hedging arrangements

Please refer to note 4 to the consolidated Financial Statements for information on LivaNova’s financial risk management
objectives/policies and hedging arrangements.

Events since 31 December 2015

Certain important events affecting the Company and its subsidiaries that have occurred since 31 December 2015 are set out
in the following sections of the Strategic Report:

•

Section II (Business), part B (Business Units and the New Ventures) paragraph headed “Cardiopulmonary
Recent Developments”;

Section II (Business), part B (Business Units and the New Ventures) paragraph headed “Heart Valve
Recent Developments”;

Section II (Business), part B (Business Units and the New Ventures) paragraph headed “CRM
Recent Developments”.

Please also refer to “Share capital and the articles of association of the Company” above for further information on the
reduction of capital which became effective on 6 April 2016.

Future developments

An indication of certain expected future developments of the Company and its subsidiaries are set out in the following
sections of the Strategic Report:

•

Section II (Business), part B (Business Units and the New Ventures) paragraph headed “CRM Recent Developments”;

Section II (Business), part B (Business Units and the New Ventures) paragraph headed “New Ventures – Heart
Failure, Sleep Apnea and Mitral Regurgitation”.

Research and Development

Details of the activities of the Company in the field of research and development are set out in Section II (Business), part C
(Research and Development) of the Strategic Report.

Statement of disclosure to the Company’s UK statutory auditor

In accordance with section 418 of the Companies Act, each director at the date of this Directors’ Report confirms that:

•

so far as he or she is aware, there is no relevant audit information of which the Auditor is unaware; and

• he or she has taken all the steps he or she ought to have taken as director to make himself or herself aware of

any relevant audit information and to establish that the Auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act.

PricewaterhouseCoopers LLP has indicated their willingness to continue in office, and a resolution that they be re-appointed
will be proposed at the 2016 Annual General Meeting.

Directors’ responsibility statement

The directors are responsible for preparing the UK Annual Report, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.

The Companies Act requires the directors to prepare financial statements for each financial year. The directors have prepared
the LivaNova group and Company financial statements in accordance with IFRS as adopted by the European Union. Under
the Companies Act, the directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the LivaNova group and the Company, and of the profit or loss of the LivaNova group
and the Company for that period. In preparing these financial statements, the directors are required to:

•

select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

•

state whether applicable IFRS as adopted by the European Union have been followed, subject to any material
departures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the LivaNova
group and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
LivaNova group and the Company and enable them to ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act and, as regards the LivaNova group and the Company’s financial statements, Article
4 of the IAS Regulation. They are also responsible for safeguarding the assets of LivaNova and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of each director’s knowledge:

•

the financial statements, prepared in accordance with the applicable accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries and
subsidiary undertakings taken as a whole; and

this Directors’ Report and the Strategic Report include a fair review of the development or performance of the
business and the position of the Company and its subsidiaries and subsidiary undertakings taken as a whole,
together with a description of the principal risks and uncertainties that they face.

By order of the Board of directors on 27 April 2016,

Brian Sheridan
Company Secretary

Corporate Governance in 2015

CORPORATE GOVERNANCE REPORT

As a dual-listed company with shares listed on NASDAQ and the standard listing segment of the FCA’s Official List, the
Company is subject to the corporate governance rules under the NASDAQ Rules, which are available on the NASDAQ website
www.nasdaq.com. The Company also complies with the requirement of DTR 7.1 of the DTRs to have an audit committee,
which it calls the Audit & Compliance Committee. All members of the Company’s Audit & Compliance Committee are
independent directors and at least one member, being Hugh Morrison, has competence in accounting and/or auditing.

The Company only complies with the UK Corporate Governance Code to the extent that the relevant provisions overlap,
and are consistent with, the NASDAQ Rules and the relevant provisions of the DTRs. Since the Company only has a standard
listing in London, the Company is not required to be in full compliance with the UK Corporate Governance Code.

The Company has complied in all respects with the corporate governance rules under the NASDAQ Rules and the relevant
provisions of the DTRs from the date of its dual-listing on 19 October 2015 to the end of 2015.

Board Composition and Independence

The corporate governance provisions of the NASDAQ Rules provide, inter alia that:

•

The Board is required to have a majority of independent directors.

The Company is required to have an audit committee consisting of at least three directors, all of whom can
read and understand financial statements and are independent directors under the heightened standard of
independence applicable to audit committee members. The audit committee must have at least three members,
including one with experience that results in the individual’s financial sophistication.

The Company is required to have a compensation committee consisting of at least two directors, all of whom are
independent directors under the heightened standard of independence applicable to compensation committee
members. The compensation committee must determine, or recommend to the full Board for determination,
the compensation of the chief executive officer and all other executive officers.

• Nominees for directors must be selected, or recommended for the Board’s selection, either by independent
directors constituting a majority of the Board’s independent directors or by a nominating committee consisting
solely of independent directors.

•

The Company must adopt a code of conduct applicable to all directors, officers and employees.

The Board currently has eight directors in total, following the resignation of Rosario Bifulco which took effect on 16
November 2015. The eight directors are currently comprised of a non-executive Chairman, six non-executive directors, and
one executive director. The Company has evaluated each of the Board directors by reference to the independence criteria
set out in the NASDAQ Rules and has determined that each of Hugh Morrison, Alfred J. Novak, Dr. Arthur L. Rosenthal,
Francesco Bianchi, Stefano Gianotti and Dr. Sharon O’Kane are independent, and each of Daniel J. Moore and André-
Michel Ballester are not independent, in each case, within the meaning of the NASDAQ Rules. Under the NASDAQ Rules,
“independent director” means a person other than an executive officer or employee of the Company or any other individual
having a relationship which, in the opinion of the Board of directors, would interfere with the exercise of independent
judgement in carrying out the responsibilities of a director. The NASDAQ Rules set out certain prescribed circumstances in
which a director will not be considered to be independent.

Further details of the current members of the Board are set out in the table below.

Name

Position

Appointment Date

Tenure

Daniel J. Moore . . . . . . . . Chairman

14 September 2015 < 1 year

André-Michel Ballester . .

Executive director – Chief Executive Officer

14 September 2015 < 1 year

Hugh Morrison . . . . . . . . Non-executive director

19 October 2015

< 1 year

Chairman of the Audit & Compliance Committee
Interim Chairman of the Nominating & Governance
Committee

Alfred J. Novak . . . . . . . . Non-executive director

19 October 2015

< 1 year

Member of the Audit & Compliance Committee
Member of the Compensation Committee

Dr. Arthur L. Rosenthal . . Non-executive director

19 October 2015

< 1 year

Chairman of the Compensation Committee

Francesco Bianchi . . . . . . Non-executive director

19 October 2015

< 1 year

Member of the Audit & Compliance Committee
Member of the Compensation Committee

Stefano Gianotti . . . . . . . Non-executive director

19 October 2015

< 1 year

Member of the Nominating & Governance Committee

Dr. Sharon O’Kane. . . . . . Non-executive director

19 October 2015

< 1 year

Member of the Nominating & Governance Committee

As at the date of this Corporate Governance Report, one of the eight directors on the Board is female, constituting 12.5
per cent. of the Board.

Internal Control over Financial Reporting

On 19 October 2015, the Mergers were completed. The Company has incorporated internal controls over significant
processes to the extent that it believes appropriate and necessary considering the level of integration during the period since
the Mergers.

As a result of the Mergers, the internal controls over financial reporting utilised by Cyberonics prior to the Mergers became
the internal controls over financial reporting of LivaNova and LivaNova is currently in the process of evaluating and integrating
Sorin’s historic internal controls over financial reporting with Cyberonics.

The Company has based its internal control structure on the COSO Framework. In accordance with the COSO Framework,
the Board of directors is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes, and includes those policies and
procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and

dispositions of the Company’s assets;

• provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that the Company’s receipts
and expenditures are being made only in accordance with authorisations of the Company’s management and
directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or

disposition of the Company’s assets that could have a material effect on the financial statements.

Management of Financial Risk

Increasing market fluctuations may result in significant earnings and cash flow volatility risk for the Company. The Company’s
operating business as well as its investment and financing activities are affected particularly by changes in foreign exchange
rates, interest rates and concentration of procurement suppliers. In order to optimise the allocation of the financial resources
across the Company’s segments and entities, as well as to achieve its aims, the Company identifies, analyses and manages
the associated market risks. The Company seeks to manage and control these risks primarily through its regular operating
and financing activities, and uses derivative financial instruments when deemed appropriate.

The CFO oversees the management of these risks. The CFO is supported by a senior financial management team that
advises on financial risks and the appropriate financial risk governance framework for the Company. The senior financial
management team provides assurance to the Company’s senior management that the Company’s financial risk activities
are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in
accordance with group policies and group risk appetite. All derivative activities for risk management purposes are carried
out by specialist teams that have the appropriate skills, experience and supervision. It is the Company’s policy that no trading
in derivatives for speculative purposes may be undertaken. Intercompany financing or investments of operating units are
preferably carried out in their functional currency or on a hedged basis. The Board of directors reviews and agrees policies
for managing each of these risks.

Board Committees

Audit & Compliance Committee

Please see below for the Audit & Compliance Committee Report for further information on the work of the Audit &
Compliance Committee in 2015.

Compensation Committee

The Compensation Committee is comprised of Dr. Arthur L. Rosenthal, Alfred J. Novak and Francesco Bianchi, of whom Dr. Arthur
L. Rosenthal is the Chairman. Each member of the Compensation Committee shall be “independent” as defined from time to
time by the NASDAQ Rules and by the applicable regulations of the SEC. The Compensation Committee shall meet at least twice
each year, and otherwise as required. Appointments made to the Compensation Committee are for a period of up to three years,
extendable by no more than two additional three-year periods, so long as the members continue to be independent.

The responsibilities of the Compensation Committee include: (i) the review, evaluation, and approval of agreements, policies,
plans and programmes for officer and director compensation for the Company; (ii) the review, evaluation, and approval of
the Company’s equity awards and equity plans; (iii) the review of the compensation disclosure to be included in the proxy
statement for the Company’s Annual General Meeting; (iv) to prepare a report of the Compensation Committee for inclusion
in the Company’s proxy statement; and (v) to perform such other functions as the Board may assign to the Compensation
Committee from time to time.

Nominating & Governance Committee

The Nominating & Governance Committee is comprised of Stefano Gianotti, Sharon O’Kane and Hugh Morrison. Following
the resignation of Rosario Bifulco on 16 November 2015, Hugh Morrison has acted as the interim Chairman, while the
Nominating & Governance Committee has begun the process of searching for an appropriate replacement for the Board
of directors. Each member of the Nominating & Governance Committee is required to be “independent” as defined from
time to time by the NASDAQ Rules applicable to US listed companies. Appointments to the Nominating & Governance
Committee are for a period of up to three years, which may be extended for further periods of up to three years, provided the
director still meets the criteria for membership of the Nominating & Governance Committee. The Nominating & Governance
Committee is expected to meet at least twice a year, and otherwise as required.

The responsibilities of the Nominating & Governance Committee include: (i) assisting the Board to identify individuals
qualified to become Board members and to recommend nominees to the Board; (ii) to advise the Board about the appropriate
composition of the Board and its committees; (iii) to advise the Board about and recommend to the Board appropriate
corporate governance practices and to assist the Board in implementing those practices; (iv) to lead the Board in its annual
review of the performance of the Board and its committees; and (v) to perform such other functions as the Board may assign
from time to time to the Nominating & Governance Committee.

The terms of reference for the Company’s Board Committees describing their roles and responsibilities more fully can be
found on the Company’s website at www.livanova.com.

Audit & Compliance Committee Report

The Audit & Compliance Committee is comprised of Hugh Morrison, Alfred J. Novak and Francesco Bianchi, of whom Hugh
Morrison is the Chairman and a “financial expert” as defined by the SEC. The Audit & Compliance Committee is required
to meet at least three times a year at appropriate intervals in the financial reporting and audit cycle and otherwise as
required. The members of the Audit & Compliance Committee will serve until their successors are duly elected for a period
of up to three years extendable by no more than two additional three-year periods, so long as the members continue to be
“independent” as defined from time to time by the NASDAQ Rules and by the applicable regulations of the SEC.

Key activities of the Audit & Compliance Committee

• Reviewing the Company’s consolidated financial statements and internal controls with management and the

independent auditors.

• Monitoring actions taken by the Company to comply with its internal accounting and control policies as well as

external financial, legal and regulatory requirements.

• Monitoring the Company’s internal audit function.

• Reviewing the qualifications and independence of the registered public accounting firm engaged for the

purpose of auditing the Company’s consolidated financial statements.

•

Selecting the Company’s independent auditors and evaluating their performance.

• Reviewing and approving the Company’s investment policy (including, without limitation, any investment

guidelines with regard to maturity, liquidity, risk and diversification) and any modifications thereto.

Role of the Audit & Compliance Committee

The work of the Audit & Compliance Committee falls into the six following areas:

Independent Auditor

• Review and approve the plan and scope of the audit, non-audit services and the fees to be paid for such

services, and ensuring these services are consistent with the terms of engagement.

• Monitor the independent auditor’s compliance with relevant ethical and professional guidance on the rotation

of the audit partner and the level of fees paid by the Company.

• Review the findings of any audit with the independent auditor, which review shall include but not be limited to

a discussion of any major issues which arose during the audit and key accounting and audit judgments.

Financial Statements

• Review, discuss with management and the independent auditor the annual audited consolidated financial

statements, including major issues regarding accounting and auditing principles and practices.

• Review the Company’s major financial risk exposures along with management, including steps management

has taken to monitor and control such exposures.

• Discuss with the independent auditor the matters required to be discussed by US GAAP and IFRS relating to the

conduct of the Company’s audit.

Internal Audit

• Review and approve an annual internal audit plan regarding the objectives, organisational structure, qualifications

and staffing of the internal audit team.

• Monitor and review the effectiveness of the Company’s internal audit function in the context of the Company’s

overall risk management system.

Ethical and Legal Compliance

• Review the Company’s procedures for detecting fraud.

•

Investigate, at its discretion, any matter brought to its attention by reviewing the Company’s books, records
and facilities.

• Review regular reports from the money laundering reporting officers and the adequacy and effectiveness of the

Company’s anti-money laundering system and controls.

Internal Controls and Risk Management

• Review the adequacy and effectiveness of the Company’s internal financial controls and internal controls and

risk management systems.

General

• Conduct an annual self-evaluation of the Audit & Compliance Committee’s organisation and operation.

The terms of reference for the Audit & Compliance Committee describes the role of the Audit & Compliance Committee and
its responsibilities more fully and can be found on the Company’s website at www.livanova.com.

Activities of the Audit & Compliance Committee in 2015 and since the year end

From 19 October 2015 to present, the Audit & Compliance Committee held three physical meetings and three meetings by
telephone. Each meeting was quorate, and the CFO and the Company Secretary also attended by invitation. The Audit &
Compliance Committee also met regularly with the external auditor without management present. The Audit & Compliance
Committee’s programme of work in 2015 was as follows:

Month

Activity

October 2015 . . . . . . . . .

• Appointed PricewaterhouseCoopers LLP and PricewaterhouseCoopers S.p.A. as the

Company’s independent auditors for UK and US reporting purposes, respectively

November 2015. . . . . . . .

• Reviewed the Auditor’s audit plan for 2015

• Reviewed the Company’s IT plan, including IT and cyber-security matters

• Considered the Company’s internal audit plan for 2016

• Considered the Company’s compliance report

December 2015 . . . . . . . .

• Reviewed and approved the Company’s transitional Form 10-Q filing for the period from

25 July 2015 to 18 October 2015

Since the year end . . . . . .

• Considered the Company’s significant accounting estimates and critical accounting policies

• Reviewed the Company’s draft earnings release

• Considered the Company’s cybersecurity preparedness

• Discussed the Company’s SEC financial filings and financial statements

• Reviewed and approved the Company’s transitional Form 10-K/T filing for the period 25

April 2015 to 31 December 2015

Further questions

As Chairman of the Audit & Compliance Committee, I shall be pleased to answer any questions that shareholders may have
at the 2016 Annual General Meeting.

Yours faithfully,

HUGH MORRISON
CHAIRMAN OF THE AUDIT & COMPLIANCE COMMITTEE
27 April 2016

DIRECTORS’ REMUNERATION REPORT

Letter from the Chairman of the Compensation Committee

Dear Shareholder,

I am pleased to present the first Directors’ Remuneration Report following the merger of Sorin and Cyberonics to form
LivaNova, which was completed on 19 October 2015. The Company was incorporated on 20 February 2015 and this report
covers the period from incorporation to 31 December 2015.

The prospectus published on 12 October 2015 in connection with the admission of the Company’s Ordinary Shares to the
Official List and to trading on the Main Market of the LSE, set out details of the existing incentive schemes of Sorin and
Cyberonics and how those were treated in the Mergers. The prospectus also set out details of the new incentive award plan
put in place by the Company on completion of the Mergers.

This Directors’ Remuneration Report sets out the Company’s proposed future remuneration policy for the new combined
company, as well as details of the remuneration paid to the Company’s directors in the period ended 31 December 2015.
The proposed remuneration policy set out in the Remuneration Policy Report section of this Directors’ Remuneration Report
will be put to shareholders for approval in a binding vote at the annual general meeting on 15 June 2016, where they will
be asked to approve the policy for a period of up to three years.

Major decisions on remuneration in the period

•

In June 2015, prior to the closing of the Mergers, the Cyberonics Compensation Committee engaged Pearl
Meyer to recommend a peer group of companies for benchmarking the compensation of LivaNova’s directors
and executive officers.

In July 2015, also at the request of the Cyberonics Compensation Committee, Pearl Meyer produced reports
describing compensation benchmarks for our non-employee directors and our CEO.

In August and September 2015, our director designated to serve as the chairman of the Board negotiated the
terms of a new U.K. service contract for our CEO-designee, subject to the final approval of the Board.

In September 2015 the director-designees for the Board and the Compensation Committee (in this Directors’
Remuneration Report, the “Committee”) met and discussed committee governance, including a draft of the
Committee’s charter, the appointment of an independent compensation consultant, the independence of the
director-designees, and priorities for the Committee’s business after the Mergers closed, including the service
contract and remuneration for our CEO.

• On 19 October 2015, the day of the Mergers closing, our Board met and confirmed the appointment of the
director-designees as members of the Committee, approved the Committee’s charter, approved a remuneration
scheme for the Board, and approved an award of SARs for our CEO, as contemplated by the merger agreement,
among many other matters of Board business. Also at that time, the Committee met and confirmed the
independence and appointment of its compensation consultant and approved the service contract for our CEO.

•

The Committee met again in November 2015, approving an award of RSUs for our CEO, again as contemplated
by the remuneration package negotiated with our CEO in connection with his service contract, and discussing
its overarching philosophy on executive officer compensation. During the balance of the financial year, the
Committee planned for its first full financial year, 2016.

Our remuneration philosophy

The key principles underlying LivaNova’s remuneration philosophy are:

• Reward consistent and high-level performance - to encourage directors to perform in a consistent,

responsible way with the focus on long-term creation of value for LivaNova’s shareholders;

• Reinforce business strategy – to reward directors for setting the business strategy on a path that enables

strong execution by LivaNova’s management team to achieve business objectives and strategic goals;

• Stable fixed compensation – to insulate director remuneration from business strategy decisions that might
otherwise favour short-term strategy over long-term strategy, thereby to ensure that our director remuneration
packages do not adversely influence business strategy; and

• Competitive remuneration – to recruit and retain the key talent, essential to the successful operation of

LivaNova’s business by ensuring that our remuneration packages are competitive with our market peers.

In forming its director remuneration philosophy, the Committee reviews the total compensation paid to our non-employee
directors and non-executive Chairman of our Board. The purpose of the review is to ensure that the level of compensation
is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform our
Board’s duties and to compensate our directors fairly for their services. The review includes the consideration of qualitative
and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Committee
considers: (i) the time and effort involved in preparing for Board and committee meetings and the additional duties assumed
by committee chairs and the Chairman of our Board; (ii) the level of continuing education required to remain informed of
broad corporate governance trends and material developments relevant to strategic initiatives within our company; (iii) the
risks associated with fulfilling fiduciary duties; and (iv) the compensation paid to directors at a peer group of companies as
determined by the Committee’s compensation consultant.

As Chairman of the Committee, I am committed to ensuring an open dialogue with our shareholders. If you have any
questions about remuneration generally, or the presentation or the content of this report, please contact me via mail sent to
the Company Secretary, LivaNova PLC, 5 Merchant Square, North Wharf Road, London, W2 1AY, United Kingdom.

Dr. Arthur L. Rosenthal
Chairman of the Compensation Committee
27 April 2016

Introduction and Compliance Statement

The purpose of this Directors’ Remuneration Report is to inform shareholders of the remuneration of the Company’s
directors for the period ended 31 December 2015 and the remuneration policy for subsequent years. This report is divided
into three sections:

•

the Chairman’s letter on pages 61 to 62 above;

the Remuneration Policy Report; and

the Annual Remuneration Report.

The remuneration policy set out in the Remuneration Policy Report will be put to shareholders for approval in a binding vote
at the annual general meeting on 15 June 2016 and the policy will be effective from that date. Shareholders will be asked to
approve the policy for a period of up to three years starting from the effective date. The Annual Remuneration Report and
the Chairman’s letter will be put to an advisory vote at the annual general meeting.

This Directors’ Remuneration Report has been prepared by the Committee on behalf of the Board in accordance with the
Companies Act, Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 (as amended) and the Listing Rules of the FCA.

The Remuneration Policy Report (which is not subject to audit) details the role of the Committee, the principles of
remuneration and other matters. The Annual Remuneration Report (elements of which are audited) details the directors’
and former directors’ fixed and variable pay, share awards, benefits and pension arrangements.

The Company was incorporated on 20 February 2015 and its Ordinary Shares were admitted to trading on the NASDAQ
market and admitted to the standard segment of the Official List and to trading on the Main Market of the LSE on 19
October 2015. Therefore, this is the first year that shareholders have been asked to approve the directors’ remuneration
report and the directors’ remuneration policy.

Remuneration Policy Report – unaudited information

Introduction

The Committee presents the directors’ Remuneration Policy Report, which will be put to shareholders as a binding vote
at the Company’s annual general meeting to be held on 15 June 2016 and, subject to shareholder approval, shall take
immediate effect.

Compensation Committee - objectives

The Board has delegated to the Committee responsibility for determining the policy in relation to the remuneration package
for the Company’s sole executive director, André-Michel Ballester, and other senior management. This delegation includes
their terms and conditions of employment, in addition to the operation of the Group’s share-based employee incentive
arrangements. The Committee has clearly defined terms of reference in its committee charter, which is available on the
Company’s corporate website at www.livanova.com.

Remuneration strategy

The Company’s compensation plans and arrangements have been carefully designed to support the Company’s strategic
business objectives and align director and shareholder interests as follows:

• Reward consistent and high-level performance – The Company recognises its responsibility to maximise
long-term value and sustainable growth for shareholders. The level of director remuneration should reflect and
be evaluated against the long-term shareholder value that results from the Company’s business strategy, as
guided by the directors;

•

Independence – our director remuneration package ensures that business strategy decisions are independent
of the potential impact those decisions may have on a director’s remuneration, consistent with our directors’
duties and responsibilities to our shareholders;

• Share ownership – we want our directors to think and act like business owners to ensure there is affinity
between shareholder and director interests; directors are partly remunerated in equity and encouraged through
our share ownership guidelines to hold a meaningful number of shares so as to achieve this objective; and

• Value for money – our compensation packages seek to recruit and retain key talent to ensure competitiveness
and reward individual skills and experience whilst also incentivising our executive team to build value for
LivaNova through share based incentives.

Future policy tables

Executive directors

The following table and accompanying notes explain the different elements of remuneration paid to the Company’s executive
directors. Currently, André-Michel Ballester, the Company’s CEO, is the Company’s sole executive director.

Base salary (fixed remuneration)

•

Purpose and link to strategy .

• Operation . . . . . . . . . . . . . . .

In order to attract and retain executive directors with the capability of driving LivaNova’s
corporate strategy, the Company needs to provide base salaries for executive directors
that are appropriate for the role and that reflect what such executive directors would
receive were they to work for one of LivaNova’s competitors. Base salaries help
balance the incentive portions of the remuneration program and thereby provide
stability and reduce the incentive for excessive risk-taking.

Salary levels and increases reflect a range of factors, including responsibilities,
experience, tenure,
in
compensation for other members of senior management, changes in size, value or
complexity of the company, benchmarking analysis and external advice relating to
any of the foregoing.

individual performance, market conditions, changes

Salaries are normally reviewed annually, with any increase applying from 1 April of
each year.

Salaries for any new appointment of an executive director will be set in accordance
with the recruitment policy set out on page 72 of this Remuneration Policy Report.

The Committee takes into consideration the impact of base salary increases on the
package as a whole, as bonuses as well as some other elements of pay (such as
pension contributions) are generally worked out based on a percentage of salary.

The Committee considers the following factors in establishing base salaries:

•

individual performance during the recently-concluded financial year and potential
future contribution;

responsibilities, including any recent changes in those responsibilities;

level of expertise and experience of the executive officer compared to that
required for a position;

strategic importance of a position;

internal pay equity among positions; and

competitive benchmarking data.

• Maximum opportunity. . . . . .

The current base salary of André-Michel Ballester, the Company’s sole executive
director, is disclosed in the Annual Remuneration Report.

The Committee will apply the foregoing factors each year to assess whether André-
Michel Ballester’s salary should be adjusted. Future salary increases for André-Michel
Ballester will take into account the magnitude of salary increases across the Company
but will not be based exclusively on this consideration. The Committee retains the
discretion to approve higher increases in certain circumstances, for example, following
an increase in the scope and/or responsibility of the role, a significant change in
market practice or the development of an individual in a role.

The Committee does not specify a maximum salary due to unintended consequences
such as setting undue expectations.

•

Performance assessment /
targets . . . . . . . . . . . . . . . . .

Salaries are reviewed annually by the Committee at the appropriate meeting, having
due regard to the individual’s experience, performance and added value to the business.

Benefits (fixed remuneration)

In order to attract and retain executive directors with the capability of driving
LivaNova’s corporate strategy, the Company needs to provide a range of market-
competitive benefits similar to the benefits they would receive if they were to work
for one of LivaNova’s competitors.

Benefits may vary depending on the personal choices, country of residence and
situation of the executive director.

Relocation or other related assistance may be provided to support the appointment
or relocation of an executive director.

A wide-range of benefits may be provided to executive directors, including, but not
limited to:

–

private medical cover (for the executive director and his or her family);

life assurance;

long-term incapacity cover;

critical illness cover;

childcare vouchers;

company car or car allowance;

holiday and sick pay;

relocation assistance benefits; and

directors’ and officers’ insurance.

The Committee retains the discretion to provide additional benefits where necessary
or relevant in the context of a particular executive director’s role or location.

Relocation or other related assistance could include, but is not limited to, removal
and other relocation costs, assistance with accommodation and/or accommodation
allowance, living expenses and financial, immigration, visa and tax consultancy
advice. In some cases, such payments may be grossed up and/or tax equalisation
arrangements may be put in place.

• Maximum opportunity. . . . . .

The cost to the Company of providing such benefits will vary from year to year
in accordance with the cost of providing such benefits, which will be kept under
regular review.

•

Performance assessments /
targets . . . . . . . . . . . . . . . . .

Not applicable.

Pension (fixed remuneration)

•

Purpose and link to strategy

• Operation . . . . . . . . . . . . . . .

In order to attract and retain executive directors with the capability of driving
LivaNova’s corporate strategy, the Company needs to provide market-competitive
retirement benefits similar to the benefits they would receive if they were to work for
one of LivaNova’s competitors.

The Company’s policy is to provide market competitive pension arrangements or a
cash alternative based on a percentage of the executive director’s base salary and
annual bonus. The Company retains flexibility to accrue funds to contribute to a
private pension fund or distribute as cash to the executive director.

• Maximum opportunity. . . . . .

The maximum pension opportunity is linked to the executive director’s maximum
salary and bonus opportunity.

•

Performance assessment /
targets . . . . . . . . . . . . . . . . .

Not applicable.

Annual performance bonus (variable remuneration)

•

Purpose and link to strategy .

Annual performance bonuses are in place to incentivise the delivery of stretching,
near-term business targets based on LivaNova’s business strategy. These bonuses
provide a strong link between reward and performance and drive the creation of
further shareholder value.

• Operation . . . . . . . . . . . . . . .

Bonus payments are determined by the Committee after the financial year end.

• Maximum opportunity. . . . . .

The annual bonus is typically paid in April in each year, based on the audited
performance of the Company in the previous financial year.

The Committee has ultimate discretion over whether a bonus is paid in cash or in
other forms such as shares or share options.

The Company has the right to amend, reduce, hold back, defer, claw back and alter
the structure of any payments in certain circumstances including in order to comply
with applicable law, regulation and governance codes or policies that regulate or
govern executive pay from time to time. The Company is developing a retention
and clawback policy in compliance with its legal obligations and the key principles
of its remuneration philosophy which will operate in respect of annual performance
bonuses as appropriate.

Typically executive director annual bonus targets will be set as a percentage of their
base salary. In no circumstances will a director’s annual bonus target exceed 200 per
cent. of base salary.

Bonus payments are based on the percentage achievement of performance objectives
set by the Committee at the start of each financial year.

No bonus is payable unless the executive director achieves at least 80 per cent.
of the performance objectives. The maximum payment is 200 per cent. of base
salary and is only payable if the executive director achieves 150 per cent. of the
performance objectives.

•

Performance assessment /
targets . . . . . . . . . . . . . . . . .

Performance criteria and bonus targets are set by the Committee at the start of each
financial year, with a view to supporting the achievement of LivaNova’s strategy.

The relevant performance criteria are designed to capture LivaNova’s overall financial
and strategic performance and the executive director’s individual performance.
Performance criteria will encompass financial and non-financial measures and the
applicable weighting will be determined by the Committee each year. Examples of
financial measures include net sales and net profit targets. Financial measures will
typically represent the majority of the bonus with other, non-financial measures
representing the balance.

Long-term incentive schemes (variable remuneration) – Incentive Award Plan

•

Purpose and link to strategy

To promote the success and enhance the value of the Company by linking the individual
interests of the executive directors (amongst others) to those of the Company’s
shareholders by providing such individuals with an incentive for outstanding
performance to generate superior returns to the Company’s shareholders.

The plan also intends to provide flexibility to the Company in its ability to motivate,
attract and retain the services of the executive directors (amongst others) upon whose
judgement, interest and special effort the successful conduct of the Company’s
operations is largely dependent.

• Operation . . . . . . . . . . . . . . .

Awards may be granted under the Incentive Award Plan in the form of options, SARs,
restricted stock, RSUs, and other share- and cash-based awards.

The Committee determines on an annual basis, and from time to time as needed (i.e.,
new employee or promotion), the type of awards to be granted to executives and
other employees under the plan. These awards will typically consist of time-based or
performance-based RSUs, or SARs, or a combination thereof.

The Committee’s current strategy is to grant an annual award to its executive director(s)
under the plan. Each annual award is subject to time-based and performance-based
vesting over a four year period. Awards will usually comprise four elements as follows:

•

an award of RSUs which are subject to performance-based vesting on achievement
of appropriate financial performance targets (such as net sales targets). Vesting
occurs in four equal annual tranches, subject to the relevant performance criteria
being met each year;

an award of RSUs which are subject to performance-based vesting on achievement
of different financial performance targets (such as net income targets). Vesting
occurs in four equal annual tranches, subject to the relevant performance criteria
being met each year;

an award of RSUs which are subject to a one-time market-based performance
target which is measured in the fourth year of the award; and

an award of SARs which are subject to time-based vesting e.g. 25 per cent.
vesting over a four-year period.

Performance-based RSUs awarded under the Incentive Award Plan may incorporate
any of a variety of different performance objectives (as detailed below), but the
Committee currently employs objectives that management, our Board, investors and
analysts use to evaluate the performance of our business (e.g., adjusted net sales and
adjusted net profit), as well as a market-based objective. Generally, the Committee
sets a target annual equity value for each participating director based on the scope
of the director’s responsibilities, actual performance during the past year, anticipated
future performance, internal equity considerations, and compensation benchmarking
data from the Committee’s independent consultant, and grants awards with a grant
date value equal to the target annual value.

An executive director’s rights in respect of unvested RSUs and SARs will lapse
automatically upon termination of the executive director’s employment.

All awards are subject to the terms of applicable law, regulation and governance
codes that regulate or govern executive remuneration and compensation from time
to time. The Company is developing a retention and clawback policy in compliance
with its legal obligations and the key principles of its remuneration philosophy which
will operate in respect of awards under the Incentive Award Plan as appropriate.

• Maximum opportunity. . . . . .

•

Performance assessment /
targets . . . . . . . . . . . . . . . . .

The maximum aggregate number of Ordinary Shares with respect to which awards
may be granted to any person in any calendar year under the Incentive Award Plan is
one million and the maximum aggregate amount that may be paid to any one person
during any calendar year with respect to one or more awards payable in cash under
the Incentive Award Plan is $10 million. The Company’s current practice is to limit an
executive director’s annual award to a value in the range of four to five times base
salary. The Company currently intends to adhere to this range except as necessary to
induce a new executive director to join the Company.

The Committee can select any one or more of a number of performance criteria to
serve as objectives for the vesting of equity awards including (but not limited to): (i) a
growth measure (e.g. net earnings, net sales, net income, earnings per share ); (ii) an
investment return measure (e.g. return on assets, capital, shareholder’s equity, sales or
total shareholder return); (iii) an efficiency measure (e.g. gross or net operating margin,
costs, reductions in costs and cost control measures; or (iv) regulatory achievements
or compliance measures etc., any of which may be measured in absolute terms or as
compared to any incremental increase or decrease or as compared to results of a peer
group or to market performance indices or indicators. The Committee’s current approach
is to combine financial, market and time-based vesting criteria as described above.

Notes on the future policy tables for executive directors

Pursuant to the terms of an agreement made in connection with the negotiation of his service contract, in 2015, our executive
director received an initial award of SARs and an initial award of RSUs, both subject to time-based service conditions. The
award of SARs was anticipated and described in the Merger Agreement. The Committee awarded the RSUs to provide a
retention incentive coextensive with our executive director’s service contract. The time-based vesting requirement is believed
to be appropriate to have our executive director retain a long-term interest in the Company.

Under the terms of the same agreement, our executive director will receive an annual equity award in each of the next four
years commencing with 2016. Each annual award will be divided into four tranches. For 2016, two tranches will comprise
RSUs subject to two different one-year performance objectives. These performance objectives will include an adjusted net
sales objective and an adjusted net profit objective. The Committee selected adjusted net sales and adjusted net profit as
appropriate company objectives because they are the financial metrics that are most widely used by management, our
Board, investors, and analysts to evaluate the performance of our business. The Committee chose one-year objectives due
to the potential for conflicting objectives among annual awards subject to financial metrics measured over an extended
period of years.

Also in 2016, one tranche will comprise a market-based condition, with all units vesting if, and only if, the market objective
is achieved during the period between 1 May 2019 and 30 April 2020. The Committee chose a market-based objective
because the market directly determines the return on investment for our shareholders. Also in 2016, one tranche will
comprise SARs subject to a time-based service condition.

In years 2017 to 2019, the Committee may vary the type and mix of equity awards.

For the SARs awarded under the Incentive Award Plan which are subject to time-based vesting, no performance conditions
apply as the awards are only subject to continued service as an executive director. The multi-year vesting period for these
awards is believed to be appropriate in order to have an executive director retain a long-term interest in the Company. The
value of awards will move with the Company share price, which provides an incentive to deliver on the Company’s long-term
strategic objectives and is in line with our shareholders’ interest.

Non-executive director remuneration

The following table sets out the Company’s remuneration policy with respect to its Chairman and other non-executive
directors. Non-executive directors do not participate in the Company’s bonus arrangements or retirement benefit plans,
although they do participate in the Incentive Award Plan.

Non-executive directors and Chairman

•

Purpose and link to strategy .

• Operation . . . . . . . . . . . . . . .

• Maximum opportunity. . . . . .

To provide competitive fees, in the form of cash and equity awards, for the
performance of non-executive director duties, sufficient to attract and retain high
calibre individuals in this role. Payment of a proportion of fees in RSUs – which are
subject to a one-year vesting period – aligns non-executive directors’ interests with
those of shareholders.

The Company has a non-employee director compensation policy, further details of
which were set out in the prospectus published on 12 October 2015 in connection
with the admission of the Company’s Ordinary Shares to the Official List and to trading
on the Main Market of the LSE. The policy will be reviewed periodically. Individual
fees reflect responsibility and time commitment, as well as the skills and experience
of the individual. Additional fees may be paid for further responsibilities, such as
serving as Chairman, chairmanship of committees and membership of committees.

Fees will be paid in cash and/or an award of RSUs as determined by the Committee.

Cash payments are made quarterly in advance.

All RSUs have a one-year vesting period – they will be settled immediately preceding
the date of each annual general meeting of the Company.

Expenses reasonably incurred in the performance of the role may be reimbursed
or paid for directly by the Company, as appropriate, including any tax due on the
expenses, such as travel expenses to and from Board and committee meetings,
expenses for accommodations, and other expenses ancillary to meeting attendance.
Non-executive directors will also be covered by the Company’s indemnity insurance.

Annual fees are determined by the Committee and are subject to periodic review in
light of market practice, anticipated workload, tasks and potential liabilities. They
currently comprise the following components:

•

a basic cash retainer, plus an additional cash retainer for the Chairman of
our Board;

an additional cash retainer for each member of the Audit & Compliance
Committee, plus an additional cash retainer for the chairperson of the committee;

an additional cash retainer for each member of the Committee, plus an additional
cash retainer for the chairperson of the committee;

an additional cash retainer for each member of the Nominating & Governance
Committee, plus an additional cash retainer for the chairperson of the committee; and

annual awards of RSUs as detailed in the Company’s non-employee director
compensation policy.

The maximum aggregate level of non-executive director fees is detailed in the
Company’s non-employee director compensation policy.

•

Performance assessment /
targets . . . . . . . . . . . . . . . . .

Not applicable. The RSUs awarded to non-executive directors are subject to time
based vesting only.

Notes on the future policy tables for non-executive directors

On 19 October 2015, the non-executive directors received RSU awards pursuant to the Incentive Award Plan. The RSUs
are subject to time-based vesting and will vest on the earlier of: (i) the first anniversary of the date of grant; (ii) the day
immediately preceding the first annual meeting of the Company’s shareholders; and (iii) the date of a change in control of
the Company. RSUs awarded to non-executive directors are subject to time-based vesting, no performance conditions apply
as the awards are only subject to continued service on the Board. The vesting period for these awards is believed to be
appropriate for the non-executive directors. The value of awards will move with the Company share price, which provides
an incentive to deliver on the Company’s strategic objectives and is in line with our shareholders’ interest.

Illustration of how our remuneration policy works

The bar chart below illustrates the level and mix of the potential total remuneration that André-Michel Ballester, currently
the Company’s only executive director, could receive under the remuneration policy under three different performance
scenarios: minimum, on target and maximum performance.

Maximum

31%

35%

34%

Target

35% 26% 39%

Minimum

57% 43% Total
2.330

Total
4.348

Total
3.842

Base Pay, benefits and
pension on base pay

Annual bonus and
related pension

Long-term incentive
awards (including
service related SARs)

1,000 2,000 3,000 4,000 5,000

All figures in ($’000).

Notes

•

The executive director’s pension entitlement is linked to his base salary and bonus payment for 2016 and
therefore varies across the minimum, target and maximum performance scenarios.

The minimum scenario comprises the basic salary, the estimated cost of contractual benefits (housing allowance,
company car and health insurance) and the basic pension entitlement which will be paid to André-Michel
Ballester during 2016. André-Michel Ballester may also become entitled to a one-off relocation allowance of
$50,000. This figure has not been included in the bar chart as it is not certain that it will become payable in
2016 (and it is not performance-linked).

• Annual bonus has been included in the target scenario (100 per cent. of base salary) and the maximum scenario

(150 per cent. of base salary).

• With respect to the award under the Incentive Award Plan made to André-Michel Ballester on 11 March 2016
the following components have been included in the on-target and maximum scenarios: (i) 25 per cent. of
the RSUs which are subject to adjusted net-sales target; and (ii) 25 per cent. of the RSUs which are subject to
an adjusted net-profit performance target. These RSUs have been valued by multiplying the number of shares
underlying the RSUs by the Company share price on the date of grant. RSUs awarded in March 2016 which
are subject to performance based vesting after 31 December 2016 have not been included in the bar chart. All
SARs awarded on 11 March 2016 have been included in the minimum, target and maximum scenarios as these
were awarded in 2016 and are subject only to time-based vesting over a four year period. The intrinsic value
for these SARs has been calculated as $1,000,000 (being the number of SARs multiplied by the Black Scholes
value of the Ordinary Shares at the time of grant).

•

In order to avoid duplication, any share based awards granted to André-Michel Ballester which are disclosed in
the 2015 single total figure of remuneration on page 77 of the Annual Remuneration Report have not been
included in this bar chart. This includes the following awards which vest in 2016: (i) legacy Sorin Plan RSUs
which could entitle him up to 6,432 Ordinary Shares; (ii) SARs awarded on 19 October 2015 which could entitle
him up to 166,703 Ordinary Shares; and (iii) RSUs awarded on 18 November 2015 which could entitle him up
to 89,174 Ordinary Shares, 20 per cent. of which will vest in 2016.

Policy on recruitment arrangements

The compensation package for any new executive director would, so far as practicable, be consistent with the policy table
set forth above, taking account of the experience and skills of the individual, market conditions and the executive’s country
of residence. However, the Committee retains the discretion to offer a compensation package needed to meet the individual
circumstances of the recruited executive director and enable the hiring of a high-calibre individual with the necessary skills
and expertise. In no event, however, will the target variable annual incentive exceed 200 per cent. of base salary. Except as
set out below, variable remuneration will follow the policy.

The Company recognises that in many cases, an external appointee may forfeit significant cash bonuses and/or share
awards from a prior employer. The Committee believes that it needs the ability to compensate new hires for bonuses and/
or incentive awards lost on joining LivaNova. The Committee will use its discretion in settling any such compensation, which
will be decided on a case-by-case basis; provided that in no event shall such compensation exceed the value of compensation
forfeited by the external appointee, as confirmed by the appointee in a written agreement with the Company.

The Company also recognises that if it requires a new executive director to relocate in connection with accepting a position
with the Company, the Company will also pay relocation and related costs as described in the future policy table on page 65.

If the Company appoints an existing employee as an executive director of the Company or if an executive director joins
as a result of a transfer of an undertaking, merger, reconstruction or similar reorganisation of the Company, pre-existing
obligations with respect to remuneration, such as pension, benefits and legacy equity awards, will be honoured. Should these
differ materially from current arrangements, these will be disclosed in the subsequent remuneration implementation report.

Any new non-executive directors will be paid in accordance with the current fee levels on appointment, in line with the
policy set out above.

A timely announcement with respect to any director’s appointment and, where required by law or the rules of the FCA,
remuneration arrangements, will be made to regulatory news services and posted on the Company’s website.

Executive director service contracts and payments for loss of office

The key employment terms and other conditions in an executive director’s service contract, including payments for loss of
office, are set out below:

Provision

Notice period . . . . . . . . . . . . . . . .

Policy

• 12 months’ prior written notice by either the Company or the executive director.
This would also be the maximum notice period for any new executive directors.
The notice period in André-Michel Ballester’s service contract is 12 months.

Benefits . . . . . . . . . . . . . . . . . . . .

•

The Company may agree that certain benefits will be specified within an executive
director’s service contract, including

• private medical cover (for the executive director and his or her family);

•

life assurance;

long-term incapacity cover;

critical illness cover;

childcare vouchers;

company car or car allowance;

• holiday and sick pay; and

• directors’ and officers’ insurance.

• André-Michel Ballester, as the sole current executive director, is contractually

entitled to the foregoing benefits.

Termination payments . . . . . . . . .

•

The service contract may contain provisions that allow the Company to terminate
any executive director’s employment by making a payment of salary and
accommodation allowance only in lieu of notice (the “PILON”). The Company
can elect to pay the PILON in equal monthly instalments over a period of twelve
months following the termination of the executive director’s employment. The
PILON shall not exceed two times the sum of the executive director’s annual base
salary and target annual bonus amount. The PILON in André-Michel Ballester’s
service contract is equal to 12 months of base salary.

•

The service contract also provides for André-Michel Ballester to receive a bonus
(reflecting any accrued bonus entitlement up to the date of termination and
in respect of any outstanding notice period), in addition to the PILON if his
employment is terminated by the Company within six months following a change
of control of the Company or if André-Michel Ballester resigns within six months
following a change of control of the Company (and it is determined by a court
that he has been constructively dismissed).

Immediate termination. . . . . . . . .

•

The service contract of any executive director may also be terminated immediately
and with no liability to make payment in certain circumstances, such as his gross
misconduct, material breach of the terms of the service contract or if he is found
guilty of a serious breach of the rules or regulations of the FCA or any other
regulatory authority relevant to the Company.

External appointments . . . . . . . . .

The service contact of any executive director will require that the executive
director must seek Board consent regarding external appointments.

In the event that the employment of an executive director is terminated, any compensation payable will be determined in
accordance with the terms of the service contract between the Company and the employee, as well as the rules of any
incentive plans in which they participate. The Committee shall be entitled to exercise its judgement with regard to making
additional payments in settlement of potential claims, including but not limited to wrongful dismissal, unfair dismissal,
breach of contract, whistleblowing and discrimination, where it is appropriate to do so in the interests of the Company and
its shareholders. An executive director shall also be entitled to receive a redundancy payment in circumstances where, in
the judgement of the Committee, they satisfy the tests governing redundancy payments. Any redundancy payment shall be
calculated in accordance with the redundancy payment policy in place for all employees in the relevant country at the time
of the redundancy.

Where an executive director’s employment with the Company terminates prior to the payment of the annual bonus in
respect of a financial year, the Committee in its absolute discretion will determine whether any bonus should be paid. André-
Michel Ballester’s service contract provides that he will be entitled to his bonus following termination of employment where
his employment is terminated by the Company for a reason other than for “cause” or he resigns in circumstances which
constitute constructive dismissal. In this scenario André-Michel Ballester’s bonus would be pro-rated to the termination date.

The treatment of equity awards made by the Company is governed by the relevant plan rules and applicable award
agreements. The Committee retains the discretion to prevent awards from lapsing depending on the circumstances of the
departure and the best interests of the Company. The Committee has discretion to treat any departing director as a good
leaver. The following table summarises the leaver provisions relating to the SARs, stock options and restricted stock units
granted under the Incentive Award Plan held by André-Michel Ballester. The Committee anticipates that future awards made
to executive diectors and non-executive directors under the Incentive Award Plan would be subject to equivalent leaver
provisions.

Plan/Awards
Incentive Award Plan

Stock Appreciation Rights (SARs) –
October 2015 . . . . . . . . . . . . . . . .

Stock Appreciation Rights (SARs) –
March 2016. . . . . . . . . . . . . . . . . .

Restricted Stock Units (RSUs) –
November 2015 and March 2016 . .

Termination provisions

To the extent that André-Michel Ballester’s employment is terminated and it is
determined that such termination qualifies for “good leaver” status (which is where
André-Michel Ballester is terminated not for “cause” or he resigns for good reason)
under the terms of the applicable equity plan and award agreement, André-Michel
Ballester will be eligible for pro-rata vesting of the SAR (with the potential for full
acceleration at the discretion of the Company ); no lock-up period will apply. In such
circumstances, the vested SAR may then be exercised for one year following such
termination. The vesting of these SARs will also be accelerated upon a change in
control of the Company.

To the extent that André-Michel Ballester’s employment is terminated (other than
by reason of death or disability), any unvested SARs will lapse on the termination
of his employment. In such circumstances, the vested SAR may then be exercised
for three months following such termination. The vesting of these SARs will also be
accelerated upon a change in control of the Company.

To the extent that André-Michel Ballester’s employment is terminated, any unvested
RSUs will lapse and expire on the termination of his employment. The vesting of the
RSUs granted in November 2015 will also be accelerated upon a change in control
of the Company.

For the avoidance of doubt, authority is given to the Company to honour any commitments entered into at a time when the
relevant employee was not a director of the Company.

Chairman and non-executive directors’ letters of appointment

The Chairman and non-executive directors have letters of appointment that set out their duties and responsibilities. They do
not have service contracts with the Company or any of its subsidiaries.

The key terms of the appointments are set out in the table below. This is the policy for current and any new
non-executive directors:

Provision
Period . . . . . . . . . . . . . . . . . . . . . .

•

Policy

The appointments are ongoing until the annual general meeting following
the second full financial year of the Company, subject to earlier termination
in accordance with the Company’s articles of association and the termination
provisions below.

Termination . . . . . . . . . . . . . . . . . .

•

Each non-executive director’s appointment can be terminated by the Company or
the director with one month’s written notice.

• Appointment will terminate automatically on the termination by shareholders
or, where shareholder approval is required for the appointment to continue, the
withdrawal of approval by shareholders.

Executive directors’ service contracts and non-executive directors’ letters of appointment are available for inspection at the
Company’s registered office.

Statement of consideration of employment conditions elsewhere in the Company and differences to executive
director policy

When reviewing and determining pay for executive directors, the Committee takes into account the level and structure
of remuneration as well as salary budgets for other employees in the Company. More specifically, the Committee reviews
annual salary increase budgets for the general employee population in the United Kingdom, Europe and North America, as
well as the remuneration structure and policy for the global senior management population.

LivaNova employs approximately 4,500 employees and operates in more than 100 countries around the world. Given the
Company’s global scale and complexity, the Committee has not consulted directly with employees when designing the
remuneration policy for its executive directors.

Shareholder and employee consultation

The structure of remuneration for the Company’s directors was presented to shareholders in the prospectus published on 12
October 2015 in connection with the admission of the Company’s Ordinary Shares to the Official List and to trading on the
Main Market of the LSE, prior to the completion of the Mergers.

The Committee is mindful of shareholder views when evaluating and setting ongoing remuneration strategy, and through
the Company’s Investor Relations department intends to consult with key shareholders on a regular basis on compensation
and governance matters. In addition, the Committee will respond to outreach from shareholders as appropriate to address
shareholder concerns. No specific consultation with employees has been undertaken relating to director remuneration.

Committee discretion

The Committee has discretion on several areas of the remuneration policy, as set out in this Remuneration Policy Report. The
Committee may make minor amendments to the policy set out above for regulatory, exchange control, tax, or administrative
purposes, or to take account of a change in legislation, without obtaining shareholder approval for that amendment. In
addition, the Committee may also exercise operational and administrative discretions under relevant plan rules, as set
out in those rules. These discretions include, but are not limited to, determining entitlement to participate in the plan,
when awards or payments are to be made, the size of an award and/or payment (within the rules of the plan), exercising
discretion as to the measurement of performance conditions and pro-rating in the event of a change of control, making any
adjustment to awards or performance conditions for any significant events or exceptional circumstances and the application
of clawback or malus provisions.

Annual Remuneration Report

Introduction

The Committee presents the Annual Remuneration Report, which, together with the Chairman’s letter, will be put to
shareholders as an advisory vote at the annual general meeting of the Company to be held on 15 June 2016. Some of the
information contained in the annual remuneration report is subject to audit. Where the information is subject to audit, this
is identified in the relevant heading.

Activities of the Committee in 2015 and since the year end

The Committee was constituted on closing of the Mergers on 19 October 2015. The Chairman of the Committee is Dr. Arthur
L. Rosenthal and the other members of the Committee are Alfred J. Novak and Francesco Bianchi, all of whom are non-
executive directors that the Company’s considers to be independent for the purposes of the NASDAQ Rules and all of whom
have served on the Committee since 19 October 2015. The Committee’s terms of reference (Compensation Committee
Charter) are available on the Company’s website.

The Committee met twice in 2015 after completion of the Mergers on 19 October 2015, once in person and once
telephonically, and since year end there have been a further three meetings, twice in person and once telephonically. Each
Committee member has attended all meetings to date. Daniel J. Moore, Chairman of the Board, attended the three in-
person meetings. In addition, exclusive of executive sessions, the following members of senior management attended the in-
person meetings by invitation of the Committee: André-Michel Ballester, executive director and CEO; Brian Sheridan, General
Counsel and Company Secretary; and David Wise, Senior Vice President, Human Resources & Information Technology.

Prior to the completion of the Mergers, the three Committee members met in person, then as director-designees, met
and discussed committee governance, including a draft of the Committee’s charter, the appointment of an independent
compensation consultant, the independence of the director-designees, and priorities for the Committee’s business after
the Merger closed, including the compensation package for André-Michel Ballester. In attendance at the Committee’s pre-
Merger meeting were other non-executive director-designees including Francesco Bianchi, Rosario Bifulco, Daniel J. Moore,
Hugh Morrison, Alfred J. Novak, and Dr. Arthur L. Rosenthal. Other attendees included executive director and CEO, André-
Michel Ballester and members of senior management, Brian Sheridan and David Wise.

The Committee’s main responsibilities are to:

• Review, evaluate, and approve the agreements, plans, policies, and programmes of the Company to
compensate the officers and directors of the Company, any major subsidiary undertakings and LivaNova
as a whole, as appropriate.

• Review, evaluate, and approve all awards by the Company of equity securities or derivatives of equity securities,
including, but not limited to, restricted stock, stock option, and phantom stock awards, to executive officers,
non-executive employees, and others as permitted under the Company’s equity award plans.

• Review and discuss with the Company’s management the Compensation Discussion and Analysis (“CD&A”)
to be included in the Company’s proxy statement for its annual meeting of shareholders and to determine
whether to recommend to the Board that the CD&A be included in the proxy statement, in accordance with
applicable rules and regulations.

•

Produce the Committee report for inclusion in the Company’s proxy statement, in accordance with applicable
rules and regulations.

• Approve the Directors’ Remuneration Report to be included in the Company’s UK Annual Report.

• Otherwise discharge the Board’s responsibilities relating to compensation of the Company’s officers

and directors.

In June 2015, acting in anticipation of the Mergers closing, the Cyberonics Compensation Committee engaged Pearl Meyer
to recommend a peer group of companies for benchmarking the compensation of the Company’s directors and executive
officers. Pearl Meyer had acted as the independent compensation consultant for the Cyberonics Compensation Committee
since 2007. In July 2015, and again, in September 2015, the Cyberonics Compensation Committee engaged Pearl Meyer
to generate benchmarking reports for the compensation of the Company’s Chairman, non-executive directors, CEO and

CFO. The Committee director-designees considered the Pearl Meyer benchmarking reports in evaluating the compensation
for the non-executive directors, the CEO and the CFO. Cyberonics paid Pearl Meyer a total of $88,277 computed on the
basis of Pearl Meyer’s hourly rates for services rendered, multiplied by the number of hours required to generate the reports.

On the date that the Mergers closed, the Committee met telephonically and confirmed the independence of Pearl Meyer
according to the standard of independence required under the NASDAQ Rules and approved the engagement of Pearl
Meyer as its compensation consultant. NASDAQ rules require that the Committee evaluate a consultant’s independence by
considering the consultant’s provision of other services to the Company, the amount of fees received from the Company as
a percentage of total revenue of the consultant, the consultant’s policies and procedures designed to prevent conflicts of
interest, any business or personal relationship of the consultant with a Committee member or an officer of the Company
and any Company shares owned by the consultant. The Committee evaluated each of these considerations, finding that
Pearl Meyer has no other business or personal relationship with the Company, its officers, or the Committee members, and
determined that Pearl Meyer is independent. At that time, the Committee also approved a service contract for our CEO.
Later in October, the Committee engaged Pearl Meyer to generate a benchmarking report regarding the compensation for
each of our executive officers, other than for André-Michel Ballester.

The Committee met in person in November 2015, approving an award of RSUs for André-Michel Ballester, as contemplated
in the negotiation of his remuneration package at closing of the Mergers. The Committee also considered and discussed the
Company’s plan for a cycle of annual equity awards for employees early in 2016 and discussed its overarching philosophy
on executive officer compensation.

In December, the Committee received Pearl Meyer’s report on executive officer compensation and began to discuss with
David Wise, Senior Vice President, Human Resources & Information Technology, proposed executive officer compensation
adjustments. The Company paid Pearl Meyer a total of £32,297, computed on the basis of Pearl Meyer’s hourly rates for
services rendered, multiplied by the number of hours required to generate the reports.

In February 2016, the Committee met in person and considered and approved adjustments to the compensation of some
of our executive officers and approved the plan and objectives for the Company’s annual bonus for the executive officers.
The Committee also discussed management’s proposal for its initial cycle of annual equity awards for Company employees,
including our executive officers.

In March 2016, the Committee met telephonically and approved equity awards for our employees, including our
executive officers.

Remuneration details for the period ended 31 December 2015

Single total figure on remuneration – executive director – audited information

The table below sets out for the Company’s sole executive director, André-Michel Ballester, the single figure of his
remuneration for the period ended 31 December 2015.

This comprises the total remuneration received over the full year from 1 January 2015 to 31 December 2015, including
remuneration received from Sorin prior to completion of the Mergers on 19 October 2015.

As the Company was a newly incorporated and listed company during 2015, there is no disclosure in this report of
prior-year information.

Basic
salary
and fees
($’000)

Pension
contribution
($’000)s

Taxable
benefits
($’000)

Annual
bonus
($’000)

Change
in control
($’000)

Total
emoluments
($’000)

Service
based
awards
($’000)

Long-term
incentive
awards
($’000)

Total(1)
($’000)

André-Michel Ballester -

Pre-Mergers. . . . . . . .

631

André-Michel Ballester -

Post-Mergers. . . . . . .

179

168

180

1,004

0 1,004

189

2,250

2,701 5,000

2,318 10,019

(1)

The currency conversion rates used are: average currency rate for the period 1 January 2015 to 18 October 2015: EUR/USD = 1.11477; CHF/USD =
1.04985; average currency rate for the period 19 October 2015 to 31 December 2015: GBP/USD = 1.51425.

Salary and benefits – executive director – audited information

With effect from 19 October 2015, André-Michel Ballester was paid a base salary of £575,000 per annum. Prior to
19 October 2015 as chief executive officer of Sorin, Mr Ballester was paid an annual fee of $601,530 (€539,600) and
received annual remuneration as an employee in Switzerland of $188,973 (CHF180,000), which includes a representation
allowance.

The taxable benefits column in the “Pre-Mergers” line for André-Michel Ballester include: (i) an indemnity for expenses
in the role as CEO ($24,079); (ii) the value of the use of the car as benefit in kind ($3,763); (iii) the value of the life and
health insurance ($47,843); (iv) the cost of the CEO’s housing ($55,738); and (v) the value of the CEO’s paid holiday
allowance ($44,080).

The taxable benefits column included in the “Post-Mergers” line for André-Michel Ballester include: (i) the value of the
car as benefit in kind ($6,208); and (ii) the cost of the CEO’s housing ($50,273).

Pension contributions – executive director – audited information

With effect from 19 October 2015, the Company has accrued an amount equal to 15 per cent. of André-Michel Ballester’s
compensation (base salary and bonus) for the purpose of his pension. Prior to 19 October 2015, André-Michel Ballester
received a pension contribution in connection with his Swiss employment, but he received no additional pension contribution
in connection with his role as chief executive officer of Sorin.

Bonus payments – executive director – audited information

As André-Michel Ballester executed a new U.K.-based service contract on 19 October 2015, his pay-out under the 2015
Sorin Group Plan was prorated for the period between 1 January 2015 and 19 October 2015. For the period between 19
October 2015 and 31 December 2015, André-Michel Ballester received a prorated bonus under his U.K. service contract,
which provides for a target incentive in the amount of 100 per cent. of his base salary. The Committee awarded an
overachievement of 107 per cent. to André-Michel Ballester for this period, based on his leadership during the first 75 days
of the Company since closing of the Mergers.

Change in Control payments – executive director – audited information

In connection with the Mergers, the Sorin board approved a resolution stating that the Mergers constituted a condition
under André-Michel Ballester’s Italian collaboration agreement that triggered the right to change in control indemnity
payments, pursuant to which André-Michel Ballester was paid a cash payment in an amount equal to two times the sum of
his fixed compensation earned in the year before termination and the annual average of the variable compensation earned
by him in the most recent three years prior to the date of the Mergers. In addition, pursuant to his Swiss employment
agreement, André-Michel Ballester was paid an additional cash payment equal to two times his base salary.

Service-based awards – executive director – audited information

On 18 November 2015, the Committee approved an award of RSUs to André-Michel Ballester under the Incentive Award
Plan having a date of grant value of $5 million, which could result in him receiving up to 89,174 Ordinary Shares. 20 per
cent. of the RSUs will vest on each of the first three anniversaries of the grant date, and the remaining 40 per cent. of the
RSUs will vest on the fourth anniversary of the grant date. The RSUs will be satisfied in cash or shares (based on the fair
market value as of the vesting date), or a combination of both, as determined by the Company.

Long-term incentive awards – executive director – audited information

As of the closing of the Mergers, all outstanding equity awards under the Legacy Sorin Plans were assumed by the Company.
Accordingly, all then-outstanding equity awards granted to André-Michel Ballester under the Legacy Sorin Plans converted
into awards under the Incentive Award Plan at the applicable conversion rate (one Sorin ordinary share converted to 0.0472
of an Ordinary Share).

For our executive directors, the Company uses a net-shares settlement process on vesting of RSUs, pursuant to which a
number of shares that would otherwise be distributed to the executive director are withheld to meet the executive director’s
tax obligations. Accordingly, the Company actually delivers to the executive director the net number of shares remaining
after satisfaction of the tax obligation. The table above reflects the value of the gross number of shares issued at the vesting
of RSUs under the Legacy Sorin Plans, prior to net shares settlement of the tax obligation.

On 19 October 2015, André-Michel Ballester was issued 10,808 Ordinary Shares following the net-shares settlement of
15,436 vested performance-based RSUs granted under the Legacy Sorin Plans.

In addition, on closing of the Mergers, André-Michel Ballester became entitled to receive up to 6,432 Ordinary Shares prior
to net-share settlement of his tax obligation, on each of 26 February 2016 and 27 February 2017 in respect of performance-
based RSUs granted under the Legacy Sorin Plans.

Finally, André-Michel Ballester holds SARs in connection with which a maximum number of 18,806 Ordinary Shares could
be received by him. As of the end of the reporting period, these SARs have not been exercised.

Additional information not included in the executive director remuneration table

In May 2015, André-Michel Ballester received 105,099 Sorin ordinary shares based on the vesting of performance-based
RSUs at a 30.57 per cent. achievement level under the terms of the Sorin 2012-2014 Long-Term Incentive Plan.

On 19 October 2015, in addition to the number indicated in the table, André-Michel Ballester was issued 17,085 Ordinary
Shares on net-shares settlement of 24,406 deferred bonus shares granted under the Legacy Sorin Plans.

Stock Appreciation Rights – executive director – audited information

On 19 October 2015, André-Michel Ballester was granted SARs with an exercise price of $69.39 under the Incentive Award
Plan in connection with which a maximum number of 166,703 Ordinary Shares could be received by him. These SARs will
vest in equal instalments of 50 per cent. on each of the first two anniversaries of 19 October 2015, and André-Michel
Ballester shall have three years from the relevant vesting date to exercise his SARs. Payment of the SARs shall be in cash or
shares (based on the fair market value as of the date the SARs are exercised), or a combination of both, as determined by
the Committee. No value has been assigned to the SARs in the single-figure reported above as the exercise price applicable
to the SARs is higher than the Company’s share price as at 31 December 2015.

Single total figure on remuneration – Chairman and non-executive directors – audited information

The table below sets out for the Company’s non-executive Chairman and each of the Company’s non-executive directors
the single figure of his or her remuneration for the period ended 31 December 2015. This comprises the total remuneration
received by them since the effective date of their appointment to the Board.

As the Company was a newly incorporated and listed company during 2015, there is no disclosure in respect of prior
year information.

Remuneration received by the Company’s non-executive directors since the effective date of appointment to the Board:

Additional
fee for
acting as
chairman,
Chair of
committee or
member of
committee
($’000)

Basic
annual fee
($’000)

Taxable
benefits(2)
($’000)

Total
emoluments
($’000)

Service
based share
awards
($’000)

Total ($’000)

Current directors
Daniel J. Moore(1) . . . . . . . . . . . . . . . . . . .
Hugh Morrison . . . . . . . . . . . . . . . . . . . .
Alfred J. Novak . . . . . . . . . . . . . . . . . . . .
Dr. Arthur L. Rosenthal. . . . . . . . . . . . . . .
Francesco Bianchi. . . . . . . . . . . . . . . . . . .
Stefano Gianotti . . . . . . . . . . . . . . . . . . .
Dr. Sharon O’Kane . . . . . . . . . . . . . . . . . .
Former directors
Rosario Bifulco . . . . . . . . . . . . . . . . . . . . .

18
12
12
12
12
12
12

18
12
5
4
5
1
1

39
24
17
20
17
16
13

156
85
85
85
85
85
85

192
109
102
105
102
101
98

(1) Daniel J. Moore’s remuneration relates to the period 14 September 2015 to 31 December 2015.
(2)

This corresponds to the gross expenses incurred by directors for attending Board and committee meetings in the UK.

On 19 October 2015, the non-executive directors listed above received RSU awards pursuant to the Incentive Award Plan.
The RSUs are subject to time-based vesting and will vest on the earlier of: (i) the first anniversary of the date of grant; (ii) the
day immediately preceding the first annual meeting of the Company’s shareholders; and (iii) the date of a change in control
of the Company.

The following table reflects remuneration received by the Company’s non-executive directors in the period from 1 January
2015 through 18 October 2015, including remuneration received from Cyberonics or Sorin prior to or as a consequence of
the completion of the Mergers, as applicable. This information has not been audited.

Additional
fee for
acting as
chairman,
Chair of
committee or
member of
committee
(US$’000)

Other
(US$’000)

Change
in Control
(US$’000)

Total
emoluments
(US$’000)

Service based
share awards
(US$’000)

Total
(US$’000)

0
0
0
0
0
0
0

0
10
11
11
0
0
0

0
0
0
0
0
0
0

0
113
54
66
6
0
0

0
0
0
0
0
0
0

0
113
54
66
6
0
0

Basic
annual fee
(US$’000)

0
103
43
55
6
0
0

459

136

3,632

4,241

1,390

5,631

Current directors
Daniel J. Moore(1) . . . . . . . . . . . . . . . . .
Hugh Morrison(2) . . . . . . . . . . . . . . . . .
Alfred J. Novak . . . . . . . . . . . . . . . . . .
Dr. Arthur L. Rosenthal. . . . . . . . . . . . .
Francesco Bianchi. . . . . . . . . . . . . . . . .
Stefano Gianotti . . . . . . . . . . . . . . . . .
Dr. Sharon O’Kane . . . . . . . . . . . . . . . .
Former directors
Rosario Bifulco . . . . . . . . . . . . . . . . . . .

The Company made no payments to former directors Demetrio Mauro and Brian Sheridan in respect of their appointments
as directors of the Company.

(1) Daniel J. Moore’s remuneration relates to the period 14 September 2015 to 31 December 2015.
(2)

4,315 Ordinary Shares owned by Hugh Morrison have been pledged as collateral in connection with a margin account.

Scheme interests awarded during the financial year - audited information

The following table sets out details of scheme interests awarded to André-Michel Ballester and the Company’s non-executive
directors since 19 October 2015 pursuant to the Incentive Award Plan.

Director
André-Michel Ballester . .

Award
type
SARs

André-Michel Ballester . .

RSUs

Daniel J. Moore . . . . . . .

RSUs

Hugh Morrison . . . . . . .

RSUs

Alfred J. Novak . . . . . . .

RSUs

Dr. Arthur L. Rosenthal. .

RSUs

Francesco Bianchi. . . . . .

RSUs

Stefano Gianotti . . . . . .

RSUs

Dr. Sharon O’Kane . . . . .

RSUs

Rosario Bifulco(2). . . . . . .

RSUs

Basis of
Award
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan
2015 Incentive
Award Plan

Face value of
award ($)(1)

No. of shares
subject to
the award

Exercise
price ($)

2,001,481

166,703

69.39

4,999,986

89,174

156,164

84,603

2,233

1,209

N/A

Share price on
date of award
(for face value
calculation) ($)

% of scheme
interests
achievable
on minimum
performance

N/A

56.07

69.93

100

Expiry of
performance
period

19/10/2017

18/11/2019

14 June 2016

Performance
criteria
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting
Time based
vesting

(1)
(2)

Face value of SARs award calculated using Black-Scholes model on date of award.
Rosario Bifulco forfeited his RSUs effective with his resignation from the Board on 16 November 2015.

How the remuneration policy will be applied in the year ending 31 December 2016

Salary and benefits - executive director

The base salary of the Company’s sole executive director, André-Michel Ballester, of £575,000 per annum was set in 2015
as part of the Mergers. The Company proposes no changes to the base salary, pension, or other benefits to André-Michel
Ballester in 2016.

Bonus payments – executive director

The target annual bonus for André-Michel Ballester for 2016 will be 100 per cent. of his base salary. The amount of his
bonus will be determined by multiplying the percentage achievement under the 2016 performance objectives, as described
below, by such target amount. The performance objectives selected by the Committee for 2016 are as follows:

Adjusted net sales objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net profit objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Achievement of both performance objectives: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage of
target bonus

50%
50%
100%

The performance objectives for the bonus program include an adjusted net sales objective, which will be the adjusted
net sales as reported by the Company at the Company’s budgeted currency exchange rates, and an adjusted net income
objective, which will be the adjusted non-GAAP (U.S. generally accepted accounting principles) net income as reported
by the Company at the actual currency exchange rates. Given that 2016 adjusted net sales and adjusted net profit are
key measures of company value, the Board considers the actual target amounts of both objectives to be too commercially
sensitive for disclosure at this time. The Committee will disclose the target amounts after the publication of the Company’s
2016 financial results.

The percentage achievement of the performance objectives will be scaled down or up by 2 per cent. for each 1 per cent.,
or portion thereof, of underachievement or overachievement, respectively, between an underachievement of at least
80 per cent. and an overachievement of up to 125 per cent. Applying this scaling factor to the performance objectives,
individual bonuses can range from a low of 0 per cent. to a high of 150 per cent. of an executive officer’s target
bonus amount.

Incentive award plan – executive director

The Committee approved awards of SARs which could entitle him to up to 56,682 Ordinary Shares and RSUs which could
entitle him to up to 52,083 Ordinary Shares to André-Michel Ballester on 11 March 2016. Twenty-five per cent. of the
SARs will vest on each of the first four anniversaries of the grant date. The award of RSUs includes the entitlement of up
to 34,722 Ordinary Shares subject to performance-based forfeiture restrictions and RSUs which could entitle André-Michel
Ballester to up to 17,316 Ordinary Shares subject to a market-based forfeiture restriction. Twenty-five per cent. of the RSUs
(a “tranche”) subject to the performance-based forfeiture restrictions will vest or lapse following the end of each of the
four financial years commencing with financial year 2016. Fewer than all units in each tranche (50 per cent. or 75 per cent.
thereof) may vest, and the balance of units will lapse, if the principal performance objective is missed, but a subsidiary
performance objective is achieved. All units subject to the market-based forfeiture restriction will vest if and only if the
market objective is achieved during the period between 1 May 2019 and 30 April 2020.

Chairman and non-executive directors’ fees

The fees for the Chairman and the non-executive directors are based on the Company’s non-employee director compensation
policy. Each non-executive director will receive the following fees and awards for 2016:

•

a cash retainer of $60,000, plus an additional $60,000 for the Chairman;

an additional cash retainer of $5,000 for each member of the Audit & Compliance Committee, plus an additional
$15,000 for the chairperson of the committee;

an additional cash retainer of $8,000 for each member of the Committee, plus an additional $12,000 for the
chairperson of the Committee;

an additional cash retainer of $6,000 for each member of the Nominating & Governance Committee, plus an
additional $9,000 for the chairperson of the Committee; and

an annual award of RSUs, granted on the date of the annual meeting of shareholders and vesting on the date
of the next succeeding annual meeting of shareholders, having a value of $160,000, plus an additional value
of $90,000 for the Chairman.

Percentage change in remuneration of the Chief Executive Officer

As the closing of the Mergers occurred on 19 October 2015 and the Company was newly incorporated and listed in 2015,
it is not possible to provide this information this year.

Payments made to past directors – audited information

The Company made no payments to past directors in the period under review.

Payments made for loss of office – audited information

The Company made no payments for loss of office in the period under review.

Summary of share ownership guidelines – audited information

The Company has a voluntary share ownership guideline in place for its officers and the directors. The directors believe
that meaningful ownership of equity in the Company is an essential element in demonstrating the commitment of its
leadership to its primary task of creating value for its shareholders. To further this belief, equity award programs have been
established as part of the overall compensation plans for both officers and directors. Awards under these plans are made at
levels which not only compensate such individuals at a competitive level in the marketplace, but also present an opportunity

to accumulate equity in the Company. The following guidelines represent minimum amounts of equity ownership in the
Company expected to be achieved by the later of (i) 31 December 2018 (approximately three years after the date of approval
of this policy), or (ii) five years after the date an individual becomes a corporate officer or director. Although attainment
of these ownership guidelines is voluntary, lack of attainment may be a factor considered by the Committee in approving
future awards.

At the end of the three-year phase in period and on the last day of each financial year thereafter (the “Measurement
Dates”), the market value of equity holdings in the Company is encouraged to be at least:

• Chief executive officer: five times base salary

• Officers holding the role of vice president or senior vice president: three times base salary

• Non-executive directors five times a director’s annual cash retainer

Qualifying equity ownership includes:

•

common stock owned by the individual or held individually by or jointly with the individual’s spouse or children
(valued at the closing price of the Company’s stock on the Measurement Date);

all unvested RSUs or shares of restricted stock owned by the individual (valued at the closing price of the
Company’s shares on the Measurement Date on NASDAQ, minus an estimated tax expense of 40 per cent.); and

all in-the-money, vested, unexercised SARs or stock options (valued at the closing price of the Company’s
Ordinary Shares on the Measurement Date, minus the exercise price, and minus an estimated tax expense of
40 per cent.).

Directors’ interests in Ordinary Shares and options/awards in respect of Ordinary Shares– audited information

Ordinary
Shares
underlying
Stock Options

Ordinary
Shares

Ordinary
Shares
underlying
SARs
following
conversion of
Sorin SARs

Maximum
number of
Ordinary
Shares to
be awarded
under Sorin
LTI Awards
in Feb 2017

Ordinary Shares
underlying SARs

André-Michel Ballester . . . . . . . . 80,959
Daniel J. Moore(1) . . . . . . . . . . . . 64,437
Hugh Morrison . . . . . . . . . . . . .
8,815
Alfred J. Novak . . . . . . . . . . . . . 17,020
Dr. Arthur L. Rosenthal. . . . . . . . 15,265
—
Francesco Bianchi. . . . . . . . . . . .
—
Stefano Gianotti . . . . . . . . . . . .
Dr. Sharon O’Kane . . . . . . . . . . .
—
Former directors
Rosario Bifulco . . . . . . . . . . . . . . 127,396
Demetrio Mauro . . . . . . . . . . . . 18,759
Brian Sheridan . . . . . . . . . . . . . . 13,051

—
103,249
—
—
—
—
—
—

18,806
—
—
—
—
—
—
—

6,432
—
—
—
—
—
—
—

Ordinary Shares
underlying RSUs
141,257
2,233
1,209
1,209
1,209
1,209
1,209
1,209

223,385
—
—
—
—
—
—
—

—

10,539
8,742
6,262

—
—
2,069

—
0(3)
59,435

0(2)

26,041

(1) An additional 2,586 Ordinary Shares are held by the DJM Family Partnership Ltd in which Daniel J. Moore has an indirect interest. During the period,

Daniel J. Moore also received cash of $ 2,169,265 in relation to the settlement of Ordinary Shares.
The award of RSUs in respect of 1,209 Ordinary Shares were forfeited on 16 November 2015 due to Rosario Bifulco’s resignation.
The award of 23,585 SARs was cancelled on 31 December 2015.

(2)
(3)

Relative importance of spend on pay

As the closing of the Mergers occurred on 19 October 2015 and the Company was newly incorporated and listed in 2015,
this section is not applicable to the Company this year.

Total shareholder return

Performance graph

The graph below shows the Company’s performance measured through total shareholder return on a holding of $100 in
the Company’s shares between 19 October 2015 (when the Company first listed) and 31 December 2015, compared to the
S&P 500 Index and the S&P Healthcare Equipment Index.

COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN*
Among LivaNova Plc, the S&P 500 Index
and the S&P Health Care Equipment Index

$120

$100

$80

$60

$40

$20

$0
51/91/01

51/01

51/11

51/21

LivaNova Plc

S&P 500

S&P Health Care Equipment

*$100 invested on 10/19/15 in stock or 9/30/15 in index, including reinvestment of dividends.
Fiscal year ending December 31.

CEO Total Compensation

Total single-figure remuneration ($) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual bonus award (as a % of maximum) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vesting of long term performance awards (as a % of maximum) . . . . . . . . . . . . . . . . . .

Pre-Mergers

1,027,314
47
N/A

Post-Mergers
10,019,036
107
100

By order of the Board, on 27 April 2016

Dr. Arthur L. Rosenthal
Chairman of the Compensation Committee
27 April 2016

Independent Auditor’s Report to the Members of LivaNova PLC

Report on the group financial statements

Our opinion

In our opinion, LivaNova PLC’s group financial statements (the “financial statements”):

•

give a true and fair view of the state of the group’s affairs as at 31 December 2015 and of its loss and cash flows for the
8 month period (the “period”) then ended;

have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union; and

have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS
Regulation.

What we have audited

The financial statements, included within the Annual Report, comprise:

•

the consolidated balance sheets as at 31 December 2015;

the consolidated statements of income (loss) and consolidated statements of comprehensive income (loss) for the
period then ended;

the consolidated statements of cash flows for the period then ended;

the consolidated statements of changes in equity for the period then ended; and

the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by
the European Union, and applicable law. Certain disclosures required by the financial reporting framework have been presented
elsewhere in the LivaNova PLC Annual Report 2015 (the “Annual Report”), rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are identified as audited.

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect
of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial period for which the
financial statements are prepared is consistent with the financial statements.

Other matters on which we are required to report by exception

Adequacy of information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and
explanations we require for our audit. We have no exceptions to report arising from this responsibility.

Directors’ remuneration

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Directors’ Responsibilities Statement set out on pages 53 and 54, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of:

• whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and

adequately disclosed;

•

the reasonableness of significant accounting estimates made by the directors; and

the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.

Other matter

We have reported separately on the company financial statements of LivaNova PLC for the 10 month period ended 31 December
2015 and on the information in the Directors’ Remuneration Report that is described as having been audited.

Jonathan Lambert (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
29 April 2016

•

The maintenance and integrity of the LivaNova plc website is the responsibility of the directors; the work carried out
by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

Independent Auditor’s Report to the Members of LivaNova PLC

Report on the company financial statements

Our opinion

In our opinion, LivaNova PLC’s company financial statements (the “financial statements”):

•

give a true and fair view of the state of the company’s affairs as at 31 December 2015 and of its loss and cash flows for
the 10 month period (the “period”) then ended;

have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union; and

•

have been prepared in accordance with the requirements of the Companies Act 2006.

What we have audited

The financial statements, included within the Annual Report, comprise:

•

the balance sheet as at 31 December 2015;

the statement of income (loss) and comprehensive income (loss) for the period then ended;

the statement of cash flows for the period then ended;

the statement of changes in equity for the period then ended; and

the notes to the financial statements, which include a summary of significant accounting policies and other explanatory
information.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by
the European Union, and applicable law. Certain disclosures required by the financial reporting framework have been presented
elsewhere in the LivaNova PLC Annual Report 2015 (the “Annual Report”), rather than in the notes to the financial statements. These
are cross-referenced from the financial statements and are identified as audited.

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of
significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion:

•

the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial
statements are prepared is consistent with the financial statements.

the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.

Other matters on which we are required to report by exception

Adequacy of accounting records and information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

•

adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or

the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.

What an audit of financial statements involves

• whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied

and adequately disclosed;

•

the reasonableness of significant accounting estimates made by the directors; and

the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.

Other matter

We have reported separately on the group financial statements of LivaNova PLC for the 8 month period ended 31 December 2015.

Jonathan Lambert (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
29 April 2016

•

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Note 1. Nature of Operations
Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies
Note 3. First-time Adoption of IFRS
Note 4. Financial Risk Management
Note 5. Fair Value Measurements
Note 6. Financial Instruments
Note 7. Business Combinations
Note 8. 2015 Restructuring Plans
Note 9. Property, Plant and Equipment
Note 10. Goodwill and Intangible Assets
Note 11. Investments in Associates, Joint Ventures and Subsidiaries
Note 12. Financial Assets
Note 13. Inventories
Note 14. Trade Receivables and Allowance for Bad Debt
Note 15. Derivative Financial Instruments
Note 16. Shareholders' Equity
Note 17. Financial Liabilities
Note 18. Other Non-Current Liabilities
Note 19. Provisions
Note 20. Other payables
Note 21. Share-Based Incentive Plans
Note 22. Employee Retirement Plans
Note 23. Income Taxes
Note 24. Commitments and Contingencies
Note 25. Earnings Per Share
Note 26. Geographic and Segment Information
Note 27. Related Parties
Note 28. Consolidated Statements of Income (Loss) - Expenses by Nature
Note 29. Employee and Key Management Compensation Costs
Note 30. Exceptional Items
Note 31. Auditors' Remuneration
Note 32. New Accounting Pronouncements
Note 33. Events after the Reporting Period

90
91
92
94
95
97
97
115
120
127
130
133
138
139
140
141
144
145
146
148
151
153
156
156
158
158
164
169
172
180
181
184
185
185
186
187
187
188

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

Transitional Period 25
April 2015 to 31
December 2015

Notes

Fiscal Year Ended 24
April 2015

Revenue
Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative
Research and development

Operating profit before exceptional items

Exceptional items

Operating (loss)/profit

Interest income
Interest expense
Foreign exchange
Share of (loss)/profit from equity method
investments

(Loss)/profit before tax

Income tax (benefit)/expense

26 $
28

28
28

(Loss)/profit attributable to owners of the parent

Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Shares used in computing basic (loss)/earnings
per share
Shares used in computing diluted (loss)/earnings
per share

25 $
25 $

415,707 $
(148,849)
266,858 $

(167,655)
(50,740)
48,463
(72,172)

(23,709)
392
(1,509)
(7,522)

(3,308)

(35,656) $
(6,540)

(29,116) $

(0.89) $
(0.89) $

291,558
(27,340)
264,218

(123,331)
(43,449)
97,438
(8,692)
88,746
184
(21)
479

—

89,388
32,385
57,003

2.16
2.14

32,741,357

26,391,064

26,625,721

See accompanying notes to the consolidated financial statements

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

Transitional Period 25

April 2015 to 31

December 2015

Notes

Fiscal Year Ended 24

April 2015

Revenue

Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative

Research and development

Operating profit before exceptional items

Exceptional items

Operating (loss)/profit

Interest income

Interest expense

Foreign exchange

Share of (loss)/profit from equity method

investments

(Loss)/profit before tax

Income tax (benefit)/expense

(Loss)/profit attributable to owners of the parent

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

Shares used in computing basic (loss)/earnings

Shares used in computing diluted (loss)/earnings

per share

26 $

25 $

415,707 $

(148,849)

266,858 $

(167,655)

(50,740)

48,463

(72,172)

(23,709)

392

(1,509)

(7,522)

(3,308)

(35,656) $

(6,540)

(29,116) $

(0.89) $

291,558

(27,340)

264,218

(123,331)

(43,449)

97,438

(8,692)

88,746

184

(21)

479

—

89,388

32,385

57,003

2.16

2.14

32,741,357

26,391,064

26,625,721

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

Transitional Period 25
April 2015 to 31
December 2015

Notes

Fiscal Year Ended 24
April 2015

(Loss)/profit attributable to owners of the parent

(29,116) $

57,003

Items of other comprehensive income that will subsequently
be reclassified to profit or loss
Cash flow hedges for interest rate fluctuations
Tax impact
Cash flow hedges for exchange rate fluctuations
Tax impact
Foreign currency translation differences

124
(38)
1,150
(348)
(51,716)

—
—
—
—
(3,856)

Total items of other comprehensive income that will
subsequently be reclassified to profit or loss

(50,828)

(3,856)

Items of other comprehensive income that will not
subsequently be reclassified to profit or loss:
Remeasurements of net (asset) for defined benefits

Tax impact
Total items of other comprehensive income that will not
subsequently be reclassified to profit or loss
Total other comprehensive (loss), net of taxes

Total comprehensive (loss)/income for the period, net of
taxes attributable to owners of the parent

(180)
50

(130)

(50,958)

(80,074) $

—
—

—

(3,856)

53,147

See accompanying notes to the consolidated financial statements

See accompanying notes to the consolidated financial statements
91

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)

Notes 31 December 2015

24 April 2015

26 April 2014

ASSETS
Non-current assets

Property, plant and equipment
Intangible assets
Goodwill
Equity investments in associates and joint
ventures measured at equity
Financial assets
Deferred tax assets
Other assets

Total non-current assets

Inventories
Trade receivables
Other receivables
Other financial assets
Tax assets
Cash and cash equivalents

Total current assets
Total assets

LIABILITIES AND EQUITY

Equity

Share capital
Group reconstruction reserve
Additional paid-in capital/Share premium
Treasury shares
Accumulated other comprehensive income
(loss)
Retained earnings

Total equity

Non-current liabilities

Financial derivative liabilities
Financial liabilities
Other liabilities
Provisions
Provision for employee severance indemnities
and other employee benefit provisions

Public grants
Deferred income taxes liability

Total non-current liabilities

9 $
10
10

12
23

13
14
14
12
23

16
16
16
16
16

15 $
17
18
19

228,991 $
674,538
746,860

61,639
19,829
165,729
1,463
1,899,049 $

212,448
249,075
24,305
9,271
28,418
112,613
636,130
2,535,179 $

75,444
1,729,764
1,673
—

(54,359)
57,340
1,809,862 $

1,793 $
91,791
7,047
16,985

32,597
3,918
235,342
389,473 $

38,376 $
12,079
—

—
17,127
20,662
1,563
89,807
$

23,963
50,569
4,812
27,020
2,971
124,187
233,522
323,329 $

321
—
456,434
(243,535)

(3,401)
71,591
281,410 $

— $
—
—
6,610

3,860

—
—
10,470 $

37,528
13,662
—

—
15,944
34,184
856
102,174

17,630
50,674
3,690
25,029
2,900
103,299
203,222
305,396

318
—
440,203
(188,519)

455
14,588
267,045

—
—
—
4,711

3,742
—
—
8,453

See accompanying notes to the consolidated financial statements

Current liabilities
Trade payables
Other payables
Financial derivative liabilities
Other financial liabilities
Provisions
Tax payable

Total current liabilities
Total liabilities and equity

20
15
17
19

$
$

106,258 $
105,679
1,815
82,513
12,880
26,699
335,844 $
2,535,179 $

7,251 $
13,781
—
—
8,334
2,083
31,449 $
323,329 $

7,570
16,957
—
—
4,769
602
29,898
305,396

The financial statements were approved by the Board of Directors and were signed on its behalf on 29 April 2016 by:

André-Michel Ballester

Chief Executive Officer & Director

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

Notes 31 December 2015

24 April 2015

26 April 2014

ASSETS

Non-current assets

Property, plant and equipment

Intangible assets

Goodwill

Equity investments in associates and joint

ventures measured at equity

Financial assets

Deferred tax assets

Other assets

Total non-current assets

Inventories

Trade receivables

Other receivables

Other financial assets

Tax assets

Cash and cash equivalents

Total current assets

Total assets

LIABILITIES AND EQUITY

Equity

Share capital

Group reconstruction reserve

Additional paid-in capital/Share premium

Accumulated other comprehensive income

Treasury shares

(loss)

Retained earnings

Total equity

Non-current liabilities

Financial derivative liabilities

Financial liabilities

Other liabilities

Provisions

Provision for employee severance indemnities

and other employee benefit provisions

Public grants

Deferred income taxes liability

Total non-current liabilities

9 $

15 $

1,899,049 $

2,535,179 $

228,991 $

674,538

746,860

61,639

19,829

165,729

1,463

212,448

249,075

24,305

9,271

28,418

112,613

636,130

75,444

1,729,764

1,673

—

(54,359)

57,340

1,793 $

91,791

7,047

16,985

32,597

3,918

235,342

389,473 $

1,809,862 $

38,376 $

12,079

—

17,127

20,662

1,563

89,807

23,963

50,569

4,812

27,020

2,971

124,187

233,522

323,329 $

321

—

456,434

(243,535)

(3,401)

71,591

281,410 $

— $

—

6,610

3,860

—

10,470 $

37,528

13,662

—

15,944

34,184

856

102,174

17,630

50,674

3,690

25,029

2,900

103,299

203,222

305,396

318

—

440,203

(188,519)

455

14,588

267,045

—

4,711

3,742

—

8,453

See accompanying notes to the consolidated financial statements

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—

)

(

—

)

(

)

(

)

(

LIVANOVA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Transitional Period 25
April 2015 to 31
December 2015

Notes

Fiscal Year Ended 24
April 2015

—

Deferred income tax expense (benefit)

Cash Flows From Operating Activities:

(Loss)/profit for the period

Non-cash items included in net income (loss):

Depreciation and amortization

Share-based compensation

Impairment of intangible assets

Loss on disposal of assets

Impairment of available-for-sale

Loss from equity method investments

Unrealised (gain) loss in foreign currency transactions

Other non-cash items

Changes in operating assets and liabilities:

Accounts receivable, net

Inventories

Other current and non-current assets

Current and non-current liabilities

Net cash provided by (used in) operating activities

Cash Flow From Investing Activities:

Purchase of short-term investments

Maturities of short-term investments

Purchase of property, plant and equipment

Intangible assets purchases

Proceeds from asset sales

Cash obtained in the Merger

Investment in cost method equity securities

Net cash provided by (used in) investing activities

Cash Flows From Financing Activities:

Short-term borrowing

Short-term repayment

Repayment of long-term debt obligations

Purchase of treasury shares

Proceeds from exercise of options for shares

Cash settlement of compensation-based share units

Realised excess tax benefits - share-based compensation

Other financial assets and liabilities

(29,116) $

26
21

20,500
27,387

(35,021)
1,689
102
5,127
3,308
2,576
2,835

(15,850)
36,326
4,020

(33,171)

(9,288)

(13,990)
34,013

(16,057)

(1,229)
950
12,495
—
16,182

56,956

(45,844)

(31,968)

(7,350)
6,480

(708)
3,050
1,257

57,003

6,807
12,557
10,339
448
—
—
—

(434)
—
—

(2,654)

(7,113)

(2,112)
4,835
79,676

(31,985)
30,089

(6,687)
—
—
—

(1,182)

(9,765)

—
—
—

(55,015)
3,184

(1,171)
4,746
—

See accompanying notes to the consolidated financial statements

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 period

Cash and cash equivalents at end of period

Supplementary Disclosures of Cash Flow Information:

Cash paid for interest

Cash paid for income taxes

Supplementary disclosure of non-cash financing activity:

Acquisition financed by ordinary shares of LivaNova

(18,127)

(341)

(11,574)
124,187
112,613 $

815
22,738

1,589,083

(48,256)

(767)
20,888
103,299
124,187

1
15,577

—

See accompanying notes to the consolidated financial statements

Note 1. Nature of Operations

Company information. LivaNova PLC is a public limited company incorporated in the United Kingdom under the

Companies Act 2006 (Registration number 09451374). The Company is domiciled in the United Kingdom and its
registered address is 5 Merchant Square, North Wharf Road, London, W2 1AY, United Kingdom.

Background. LivaNova PLC and its subsidiaries (collectively, the “Company”, “LivaNova”, “we”, or “our”), the
successor registrant to Cyberonics, Inc., was incorporated in England and Wales on 20 February 2015 for the purpose of
facilitating the business combination of Cyberonics, Inc., a Delaware corporation (“Cyberonics”) and Sorin S.p.A., a joint
stock company organized under the laws of Italy (“Sorin”). As a result of the business combination, LivaNova became the
holding company of the combined businesses of Cyberonics and Sorin. This business combination became effective on 19
October 2015, at which time LivaNova’s ordinary shares were listed for trading on the NASDAQ Global Market
(“NASDAQ”) and on the London Stock Exchange (the “LSE”) as a standard listing under the trading symbol “LIVN”.

The principal legislation under which LivaNova operates is the Companies Act 2006, and regulations made thereunder.
The LivaNova Shares are admitted to listing on the Official List pursuant to Chapter 14 of the Listing Rules, which sets out
the requirements for standard listings. LivaNova complies with Listing Principles 1 and 2 as set out in Chapter 7 of the
Listing Rules, as required by the Financial Conduct Authority.

Description of the business. Headquartered in London, United Kingdom (“U.K.”), LivaNova, is a global medical

device company focused on the development and delivery of important therapeutic solutions for the benefit of patients,
healthcare professionals, and healthcare systems throughout the world. Working closely with medical professionals
throughout the world in the field of Cardiac Surgery, Neuromodulation and Cardiac Rhythm Management, we design,
develop, manufacture and sell innovative therapeutic solutions. These solutions are consistent with our mission to improve
our patients’ quality of life, increase the skills and capabilities of healthcare professionals and minimize healthcare costs.

Description of the Mergers. On 19 October 2015, pursuant to the terms of a definitive Transaction Agreement entered

into by LivaNova, Cyberonics, Sorin and Cypher Merger Sub (the “Merger Sub”), dated 23 March 2015, Sorin merged
with and into LivaNova, with LivaNova continuing as the surviving company, immediately followed by the merger of
Merger Sub with and into Cyberonics, with Cyberonics continuing as the surviving company and as a wholly owned
subsidiary of LivaNova (the “Mergers”). Upon the consummation of the Mergers, the historical financial statements of
Cyberonics became the Company’s historical financial statements, as it was considered the accounting acquirer under IFRS
3 Business Combinations. Accordingly, the historical financial statements of Cyberonics are included in the comparative
prior periods.

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Basis of Preparation. The consolidated financial statements of LivaNova have been prepared on a going

concern basis, in accordance with the Companies Act 2006 as applicable to companies using International
Financial Reporting Standards (IFRS) as adopted by the European Union and interpretations issued by the IFRS
Interpretations Committee (IFRIC).

For all periods up to and including the transitional period ended 31 December 2015, LivaNova prepared its

financial statements in accordance with U.S. generally accepted accounting principles (Local GAAP). These
financial statements for the transitional period ended 31 December 2015 are the first LivaNova has prepared in
accordance with IFRS. Refer to Note 3 First-time adoption of IFRS for information on how LivaNova adopted
IFRS.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative

financial instruments and share awards that have been measured at fair value. The consolidated financial
statements are presented in United States (U.S.) dollars and all values are rounded to the nearest thousand,
except where otherwise indicated.

Fiscal Year-End. Prior to the Mergers, Cyberonics utilized a 52/53-week fiscal year that ended on the last

Friday in April. The fiscal years ended 24 April 2015 and 26 April 2014 in the accompanying consolidated
statements of income, are 52-week years. As a result of the merger, Cyberonics changed to a calendar year
ending the 31st of December each year. The change of fiscal year, effective as of 19 October 2015, resulted in a
transitional period which began 25 April 2015 and ended 31 December 2015. Therefore, the comparative
amounts for the fiscal year ended 24 April 2015 are not entirely comparable.

Reporting Period. LivaNova, as the successor company to Cyberonics, is reporting the results of operations

for Cyberonics for the period 25 April 2015 to 31 December 2015 and the results of operations for Sorin and
Cyberonics from 19 October 2015 to 31 December 2015.

Consolidation. The accompanying consolidated financial statements include LivaNova, our wholly owned

subsidiaries and the LivaNova PLC Employee Benefit Trust (“the Trust”).

Subsidiaries are all entities (including structured entities) over which we have control. The Company
controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are
deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for
business combinations by the Company.

Intercompany transactions, balances and unrealised gains on transactions between LivaNova companies are

eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of
the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Company.

Investments in Associates. Associates are all entities over which the group has significant influence but not
control or joint control. This is generally where the Company holds between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method of accounting, after initially being
recognised at cost.

Joint Arrangements. Under IFRS 11 Joint Arrangements investments in joint arrangements are classified as

either joint operations or joint ventures. The classification depends on the contractual rights and obligations of
each investor, rather than the legal structure of the joint arrangement. In joint operations the Company
recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any
jointly held or incurred assets, liabilities, revenues and expenses. Interests in joint ventures are accounted for
using the equity method of accounting, after initially being recognised at cost in the consolidated balance sheet.
LivaNova has joint ventures.

Equity method. Under the equity method of accounting, the investments are initially recognised at cost and
adjusted thereafter to recognise the Company’s share of the post-acquisition profits or losses of the investee in
profit or loss, and the Company’s share of movements in other comprehensive income of the investee in other
comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the
carrying amount of the investment.

When the Company’s share of losses in an equity-accounted investment equals or exceeds its interest in the

entity, including any other unsecured long-term receivables, the Company does not recognise further losses,
unless it has incurred obligations or made payments on behalf of the other entity.

Fiscal Year-End. Prior to the Mergers, Cyberonics utilized a 52/53-week fiscal year that ended on the last

Unrealised gains on transactions between the Company and its associates and joint ventures are eliminated

Friday in April. The fiscal years ended 24 April 2015 and 26 April 2014 in the accompanying consolidated

statements of income, are 52-week years. As a result of the merger, Cyberonics changed to a calendar year

ending the 31st of December each year. The change of fiscal year, effective as of 19 October 2015, resulted in a

transitional period which began 25 April 2015 and ended 31 December 2015. Therefore, the comparative

amounts for the fiscal year ended 24 April 2015 are not entirely comparable.

Reporting Period. LivaNova, as the successor company to Cyberonics, is reporting the results of operations

for Cyberonics for the period 25 April 2015 to 31 December 2015 and the results of operations for Sorin and

Cyberonics from 19 October 2015 to 31 December 2015.

Consolidation. The accompanying consolidated financial statements include LivaNova, our wholly owned

subsidiaries and the LivaNova PLC Employee Benefit Trust (“the Trust”).

Subsidiaries are all entities (including structured entities) over which we have control. The Company

controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with

the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are

deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for

business combinations by the Company.

Intercompany transactions, balances and unrealised gains on transactions between LivaNova companies are

eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of

the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure

consistency with the policies adopted by the Company.

Investments in Associates. Associates are all entities over which the group has significant influence but not

control or joint control. This is generally where the Company holds between 20% and 50% of the voting rights.

Investments in associates are accounted for using the equity method of accounting, after initially being

recognised at cost.

Joint Arrangements. Under IFRS 11 Joint Arrangements investments in joint arrangements are classified as

either joint operations or joint ventures. The classification depends on the contractual rights and obligations of

each investor, rather than the legal structure of the joint arrangement. In joint operations the Company

recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any

jointly held or incurred assets, liabilities, revenues and expenses. Interests in joint ventures are accounted for

using the equity method of accounting, after initially being recognised at cost in the consolidated balance sheet.

LivaNova has joint ventures.

Equity method. Under the equity method of accounting, the investments are initially recognised at cost and

adjusted thereafter to recognise the Company’s share of the post-acquisition profits or losses of the investee in

profit or loss, and the Company’s share of movements in other comprehensive income of the investee in other

comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the

carrying amount of the investment.

When the Company’s share of losses in an equity-accounted investment equals or exceeds its interest in the

entity, including any other unsecured long-term receivables, the Company does not recognise further losses,

unless it has incurred obligations or made payments on behalf of the other entity.

to the extent of the Company’s interest in these entities. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted
investees have been changed where necessary to ensure consistency with the policies adopted by the Company.

Business Combinations. We allocate the amounts we pay for on acquisition to the assets we acquire and

liabilities we assume based on their fair values at the date of acquisition, including property, plant and
equipment, inventories, accounts receivable, long-term debt, and identifiable intangible assets which either arise
from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible
assets acquired in a business combination, including in-process research and development, on detailed
valuations that use information and assumptions provided by management, which consider management’s best
estimates of inputs and assumptions that a market participant would use. We allocate any excess purchase price
over the fair value of the net tangible and identifiable intangible assets acquired to goodwill. Transaction costs
associated with these acquisitions are expensed as incurred and are reported as operating expenses.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the

acquisition date. All contingent consideration (except that which is classified as equity) is measured at fair value
with the changes in fair value going through profit or loss. Contingent consideration that is classified as equity
is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred
and the amount recognised for non-controlling interests) and any previous interest held, over the net identifiable
assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired
and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at
the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the

purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Company’s cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that
unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the
operation when determining the gain or loss on disposal of the operation. Goodwill disposed in these
circumstances is measured based on the relative values of the disposed operation and the portion of the cash
generating unit retained.

Foreign currencies. The financial statements of all LivaNova entities are measured using the currency of

the primary economic environment in which the entity operates (functional currency). The U.S. dollar (US$) is
the functional currency of the Company and presentation currency of LivaNova financial statements. Foreign
currency transactions are translated into functional currency using the exchange rates prevailing at the dates of
the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the Consolidated Statements of Income (Loss),
except when deferred in other comprehensive income as qualifying cash flow hedges.

Foreign currency differences arising from translation are recognised in the income statement, except for
available-for-sale equity investments which are recognised in other comprehensive income, unless regarding an
impairment, in which case foreign currency differences that have been recognised in other comprehensive
income are reclassified to the income statement.

All exchange differences are presented as part of Foreign exchange on the Consolidated Statements of

Income (Loss).

The British pound (GBP) exchange rate to the US dollar used in preparing the Company financial

statements was as follows.

Transitional period 25 April 2015 to 31 December 2015
Fiscal year ended 24 April 2015

Weighted average
rate GBP

Closing rate GBP

0.650364
0.625882

0.678578
0.661401

Foreign operations. The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisitions are translated to U.S. dollars at exchange rates at the reporting date. The
income and expenses of foreign operations are translated to U.S. dollars at exchange rates at the dates of
transactions. Foreign currency differences arising on translation of foreign operations into U.S. dollars are
recognised in other comprehensive income (loss).

Current versus non-current classification. The Company presents assets and liabilities in the statement of

financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the reporting period, or
• A Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

It is expected to be settled in the normal operating cycle
It is held primarily for the purpose of trading
It is due to be settled within twelve months after the reporting period, or

•
•
•
• There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period

The Company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

Financial Instruments

100

Foreign currency differences arising from translation are recognised in the income statement, except for

available-for-sale equity investments which are recognised in other comprehensive income, unless regarding an

impairment, in which case foreign currency differences that have been recognised in other comprehensive

income are reclassified to the income statement.

All exchange differences are presented as part of Foreign exchange on the Consolidated Statements of

Income (Loss).

statements was as follows.

The British pound (GBP) exchange rate to the US dollar used in preparing the Company financial

Transitional period 25 April 2015 to 31 December 2015

Fiscal year ended 24 April 2015

Weighted average

rate GBP

Closing rate GBP

0.650364

0.625882

0.678578

0.661401

Foreign operations. The assets and liabilities of foreign operations, including goodwill and fair value

adjustments arising on acquisitions are translated to U.S. dollars at exchange rates at the reporting date. The

income and expenses of foreign operations are translated to U.S. dollars at exchange rates at the dates of

transactions. Foreign currency differences arising on translation of foreign operations into U.S. dollars are

recognised in other comprehensive income (loss).

Current versus non-current classification. The Company presents assets and liabilities in the statement of

financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months after the reporting period, or

• A Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

It is expected to be settled in the normal operating cycle

It is held primarily for the purpose of trading

•

It is due to be settled within twelve months after the reporting period, or

• There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period

The Company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. Financial assets and financial liabilities are offset with the net
amount reported in the consolidated statement of financial position only if there is a current enforceable legal
right to offset the recognised amounts and intent to settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.

(a) Financial assets

Initial recognition and measurement. Financial assets are classified, at initial recognition, as financial assets
at fair value through profit or loss, loans and receivables, held-to-maturity investments, AFS financial assets, or
as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company
determines the classification of its financial assets at initial recognition. All financial assets are recognised
initially at fair value plus, in the case of assets not at fair value through profit or loss, transaction costs that are
attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention in the marketplace (regular way trades) are
recognised on the trade date, i.e., the date on which the Company commits to purchase or sell the asset.

Impairment of financial assets. The Company assesses, at each reporting date, whether there is any
objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one
or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’), has an
impact on the estimated future cash flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial reorganisation. Evidence of impairment may also
include cases where observable data indicate that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.

The subsequent measurement and impairment of financial assets depends on their classification as

described below:

Financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss
include financial assets held for trading and financial assets designated upon initial recognition at fair value
through profit or loss. Financial assets are classified as held-for trading if they are acquired for the purpose of
selling or repurchasing in the near term. This category includes derivative financial instruments entered into by
the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. We
use freestanding derivative forward contracts to offset exposure to the variability of the value associated with
assets and liabilities denominated in a foreign currency. These derivatives are not designated as hedges, and
therefore changes in the value of these forward contracts are recognised in income statement, thereby offsetting
the current net income (loss) effect of the related change in value of foreign currency denominated assets and
liabilities. The Company has not designated any financial assets as at fair value through profit or loss.

101

Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit
or loss. The receivable balance consists of trade receivables from direct customers and distributors and loans
issued. We maintain an allowance for doubtful accounts for potential credit losses based on our estimates of the
ability of customers to make required payments, historical credit experience, existing economic conditions and
expected future trends. We write off uncollectible accounts against the allowance when all reasonable collection
efforts have been exhausted. Loans, together with the associated allowance are written off when there is no
realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company.
The losses arising from impairment are recognised in the statement of profit or loss in cost of sales or other
operating expenses for receivables. Refer to “Note 14 Trade Receivables and Allowance for Bad Debt" for
further information.

Available-for-sale (AFS) financial investments. The Company has certain investments in equity and other

securities of unquoted companies that are in varied stages of development. The investments in these companies
are classified as available-for-sale and are valued based on non-market observable information. The valuation
requires management to make certain assumptions about the model inputs, including forecast cash flows, the
discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be
reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.
After initial measurement, available-for-sale financial investments are subsequently measured at fair value with
unrealised gains or losses recognised as other comprehensive income (loss) in the available-for-sale reserve
until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other operating
income, or the investment is determined to be impaired, at which time, the cumulative loss is reclassified to the
statement of profit or loss and removed from the available-for-sale reserve. If it is not possible to determine the
fair value in the absence of a market value or company plans from which the value in use can be determined
using valuation techniques, they are carried at cost and written down for any impairment. These investments are
included in non-current “Financial assets” on the consolidated balance sheet.

For available-for-sale financial investments, the Company assesses at each reporting date whether there is
objective evidence that an investment or a group of investments is impaired. In the case of equity investments
classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair
value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and
‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence
of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair
value, less any impairment loss on that investment previously recognised in the statement of profit or loss is
removed from other comprehensive income and recognised in the Consolidated Statements of Income (Loss).
Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value
after impairments are recognised in other comprehensive income. The determination of what is ‘significant’ or
‘prolonged’ requires judgement. In making this judgement, the Company evaluates, among other factors, the
duration or extent to which the fair value of an investment is less than its cost.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of

similar financial assets) is derecognised when:

102

Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable

• The rights to receive cash flows from the asset have expired, or

payments that are not quoted in an active market. After initial measurement, such financial assets are

subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs

that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit

or loss. The receivable balance consists of trade receivables from direct customers and distributors and loans

issued. We maintain an allowance for doubtful accounts for potential credit losses based on our estimates of the

ability of customers to make required payments, historical credit experience, existing economic conditions and

expected future trends. We write off uncollectible accounts against the allowance when all reasonable collection

efforts have been exhausted. Loans, together with the associated allowance are written off when there is no

realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company.

The losses arising from impairment are recognised in the statement of profit or loss in cost of sales or other

operating expenses for receivables. Refer to “Note 14 Trade Receivables and Allowance for Bad Debt" for

further information.

Available-for-sale (AFS) financial investments. The Company has certain investments in equity and other

securities of unquoted companies that are in varied stages of development. The investments in these companies

are classified as available-for-sale and are valued based on non-market observable information. The valuation

requires management to make certain assumptions about the model inputs, including forecast cash flows, the

discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be

reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with

unrealised gains or losses recognised as other comprehensive income (loss) in the available-for-sale reserve

until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other operating

income, or the investment is determined to be impaired, at which time, the cumulative loss is reclassified to the

statement of profit or loss and removed from the available-for-sale reserve. If it is not possible to determine the

fair value in the absence of a market value or company plans from which the value in use can be determined

using valuation techniques, they are carried at cost and written down for any impairment. These investments are

included in non-current “Financial assets” on the consolidated balance sheet.

For available-for-sale financial investments, the Company assesses at each reporting date whether there is

objective evidence that an investment or a group of investments is impaired. In the case of equity investments

classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair

value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and

‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence

of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair

value, less any impairment loss on that investment previously recognised in the statement of profit or loss is

removed from other comprehensive income and recognised in the Consolidated Statements of Income (Loss).

Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value

after impairments are recognised in other comprehensive income. The determination of what is ‘significant’ or

‘prolonged’ requires judgement. In making this judgement, the Company evaluates, among other factors, the

duration or extent to which the fair value of an investment is less than its cost.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of

similar financial assets) is derecognised when:

• The Company has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through arrangement, and either (a) the Company has transferred substantially all the risks
and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-

through arrangement, it evaluates if and, to what extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred
control of it, the asset is recognised to the extent of its continuing involvement in it. In that case, the Company
also recognises an associated liability. The transferred asset and the associated liability are measured on a basis
that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the Company
could be required to repay.

The Company enters into sale of trade receivables through factoring transactions. The trade receivables that

are sold without recourse are derecognised only if such sale transfers substantially all risks and rewards
associated with owning the receivables, as required by IAS 39. In other cases of non-recourse sales or with-
recourse sales, the receivables continue to be recognised within current assets in the consolidated balance sheet,
and the advances received for such receivables are recorded as a financial liability. Refer to "Note 14. Trade
Receivables and Allowance for Bad Debt" for a detailed description.

(b) Financial liabilities

Initial recognition and measurement. Financial liabilities are classified, at initial recognition, as financial

liabilities at fair value through profit or loss, loans and borrowings (bank debt), payables, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised
initially at fair value and, in the case of loans, borrowings and payables, net of directly attributable transaction
costs. The Company’s financial liabilities include trade and other payables, loans and bank debt including bank
overdrafts, and derivative financial instruments.

The measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss. Financial liabilities at fair value through profit or
loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at
fair value through profit or loss. Financial liabilities are classified as held-for-trading if they are acquired for the
purpose of selling in the near term. This category includes derivative financial instruments entered into by the
Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Gains or
losses on liabilities held-for-trading are recognised in the Consolidated Statements of Income (Loss). Financial
liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date
of recognition, and only if the criteria in IAS 39 are satisfied. The Company has not designated any financial
liabilities as at fair value through profit or loss.

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Loans and borrowings (bank debt). After initial recognition, interest bearing loans and borrowings are

subsequently measured at amortised cost using the effective interest rate method. Gains and losses are
recognised in the statement of income (loss) when the liabilities are derecognised, as well as through the
effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included in finance costs in the Consolidated Statements of Income (Loss).

Financial guarantee contracts. Financial guarantee contracts issued by the Company are those contracts
that require a payment to be made to reimburse the holder for a loss it incurs, because the specified debtor fails
to make a payment when due, in accordance with the terms of a debt instrument. Financial guarantee contracts
are recognised initially as a liability at fair value, and then adjusted for transaction costs that are directly
attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best
estimate of the expenditure required to settle the present obligation at the reporting date and the amount
recognised less cumulative amortisation.

Derecognition. A financial liability is derecognised when the obligation under the liability is discharged,

canceled or expires. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability. The
difference in the respective carrying amounts is recognised in the statement of income (loss).

Derivative financial instruments and hedge accounting. We use currency exchange rate derivative contracts
and interest rate derivative instruments to manage the impact of currency exchange and interest rate changes on
the statement of income (loss) and the statement of cash flows. Derivatives are initially recognised at fair value
on the date a derivative contract is entered into and are subsequently re-measured at fair value. The method of
recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged. We evaluate hedge effectiveness at inception and on an ongoing
basis. If a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge
ineffectiveness, if any, is recorded in the statement of income (loss). Cash flows from derivative contracts are
reported as operating activities in the consolidated statements of cash flows.

When a hedging instrument expires, is sold or is terminated, or when a hedge no longer meets the criteria

for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in the Consolidated Statements of Income
(Loss). When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately reclassified to profit or loss.

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Loans and borrowings (bank debt). After initial recognition, interest bearing loans and borrowings are

subsequently measured at amortised cost using the effective interest rate method. Gains and losses are

recognised in the statement of income (loss) when the liabilities are derecognised, as well as through the

effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account

any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR

amortisation is included in finance costs in the Consolidated Statements of Income (Loss).

Financial guarantee contracts. Financial guarantee contracts issued by the Company are those contracts

that require a payment to be made to reimburse the holder for a loss it incurs, because the specified debtor fails

to make a payment when due, in accordance with the terms of a debt instrument. Financial guarantee contracts

are recognised initially as a liability at fair value, and then adjusted for transaction costs that are directly

attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best

estimate of the expenditure required to settle the present obligation at the reporting date and the amount

recognised less cumulative amortisation.

Derecognition. A financial liability is derecognised when the obligation under the liability is discharged,

canceled or expires. When an existing financial liability is replaced by another from the same lender on

substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or

modification is treated as a derecognition of the original liability and the recognition of a new liability. The

difference in the respective carrying amounts is recognised in the statement of income (loss).

Derivative financial instruments and hedge accounting. We use currency exchange rate derivative contracts

and interest rate derivative instruments to manage the impact of currency exchange and interest rate changes on

the statement of income (loss) and the statement of cash flows. Derivatives are initially recognised at fair value

on the date a derivative contract is entered into and are subsequently re-measured at fair value. The method of

recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument,

and if so, the nature of the item being hedged. We evaluate hedge effectiveness at inception and on an ongoing

basis. If a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge

ineffectiveness, if any, is recorded in the statement of income (loss). Cash flows from derivative contracts are

reported as operating activities in the consolidated statements of cash flows.

When a hedging instrument expires, is sold or is terminated, or when a hedge no longer meets the criteria

for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is

recognised when the forecast transaction is ultimately recognised in the Consolidated Statements of Income

(Loss). When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported

in equity is immediately reclassified to profit or loss.

In order to minimize income statement and cash flow volatility resulting from currency exchange rate
changes, we enter into derivative instruments, principally forward currency exchange rate contracts. These
contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific
assets and liabilities and of some revenue. At inception of the forward contract, the derivative is designated as
either a freestanding derivative or a cash flow hedge. For derivative instruments that are designated and qualify
as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a
component of accumulated other comprehensive income (loss) and reclassed into the Consolidated Statements
of Income (Loss) to offset exchange differences originated by the hedged item or to adjust the value of
operating income (expense). We do not enter into currency exchange rate derivative contracts for speculative
purposes.

We use interest rate derivative instruments designated as cash flow hedges to manage the exposure to
interest rate movements and to reduce the risk of the increase of borrowing costs, by converting floating-rate
debt into fixed-rate debt. Under these agreements, we agree to exchange, at specified intervals, the difference
between fixed and floating interest amounts, calculated by reference to agreed-upon notional principal amounts.
The interest rate swaps are structured to mirror the payment terms of the underlying loan. The fair value of the
interest rate swaps is reported in the consolidated balance sheets financial assets or liabilities (current or non-
current) depending upon the gain or loss position of the contract and the maturity of the future cash flows of the
fair value of each contract. The effective portion of the gain or loss on these derivatives is reported as a
component of accumulated other comprehensive income (loss). The non-effective portion is reported in interest
expense in the consolidated statements of income loss.

Cash and Cash Equivalents. Cash and cash equivalents include all cash balances and highly liquid

investments with an original maturity of three months or less, consisting of demand deposit accounts and money
market mutual funds, and are carried on the consolidated balance sheets at cost, which approximate their fair
value. We carried $41.1 million, $28.3 million and $30.2 million in money market mutual funds at 31 December
2015, 24 April 2015 and 26 April 2014, respectively.

Borrowing costs. General and specific borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised during the period of time that is required to
complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on qualifying assets, is deducted from the
borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are
incurred.

Non-monetary assets

Property, Plant and Equipment (“PP&E”). PP&E is carried at cost, less accumulated depreciation and any

accumulated impairment losses. Maintenance and repairs, and minor replacements are charged to expense as
incurred, while significant renewals and improvements are capitalized. We compute depreciation using the
straight-line method over estimated useful lives. Where an item of PP&E comprises several parts with different
useful lives, each part is recognised as a separate item and depreciated over its useful life. Useful life and
residual value of PP&E are reviewed at each period-end. As necessary, the occurrence of changes to the useful
life or residual value is recognised prospectively as a change in accounting estimates.

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Leasehold improvements are depreciated over the shorter of the useful life of an asset or the lease term.
Capital improvements to the building are added as building components and depreciated over the useful life of
the improvement or the building, whichever is less.

The estimated useful lives for all classes of depreciable PP&E except for land and capital investment in

process as of 31 December 2015 are as follow:

Building and building improvements
Equipment, furniture, fixtures
Other

Lives in years
up to 45
up to 16
up to 10

Where there are any internal or external indications that the value of an item of PP&E may be impaired, the

recoverable amount of the group of cash generating units (CGUs) to which it belongs is calculated. If the
recoverable amount is less than the carrying amount of the group of CGUs, a provision for impairment is
recorded. PP&E is reviewed for impairment annually on 1st of October.

Intangible Assets. Intangible assets shown on the consolidated balance sheet are finite-lived assets.
Developed technology rights consist primarily of existing technology and technical capabilities acquired from
Sorin in the Mergers, that were recorded at their respective fair values as of the acquisition date. These include
patents, related know-how and licensed patent rights, that represent assets expected to generate future economic
benefits. Trademarks and trade names include Sorin trade names acquired as part of the Mergers. Customer
relationships consist of relationships with hospitals and cardiac surgeons in the countries where we operate.
Other intangible assets consist of favorable leases acquired from Sorin in the Mergers. We amortize our
intangible assets over their useful lives using the straight-line method.

Amortization expense for developed technology is recorded in cost of sales and research and development
costs over the period the product is expected to be marketed. Amortization expense for trade names, customer
relationships and other is recorded in Selling, general and administrative expense on the Consolidated
Statements of Income (Loss). Amortization expense for software is recorded in Cost of sales, Research and
development and Selling, general and administrative expense on the Consolidated Statements of Income (Loss).
We evaluate our intangible assets each reporting period to determine whether events and circumstances indicate
either a different useful life or impairment. If we change our estimate of the useful life of an asset, we amortize
the carrying amount over the revised remaining useful life.

The Company does not have internally generated intangible assets.

Impairment of Intangible Assets and Goodwill. The Company assesses at each reporting date whether there
is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an
asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s CGU’s fair value less costs of disposal and its value in use. It is determined for an individual
asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.

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Leasehold improvements are depreciated over the shorter of the useful life of an asset or the lease term.

Usually, the Company applies the fair value less costs of disposal method for its impairment assessment. In

Capital improvements to the building are added as building components and depreciated over the useful life of

the improvement or the building, whichever is less.

The estimated useful lives for all classes of depreciable PP&E except for land and capital investment in

process as of 31 December 2015 are as follow:

Building and building improvements

Equipment, furniture, fixtures

Other

Lives in years

up to 45

up to 16

up to 10

Where there are any internal or external indications that the value of an item of PP&E may be impaired, the

recoverable amount of the group of cash generating units (CGUs) to which it belongs is calculated. If the

recoverable amount is less than the carrying amount of the group of CGUs, a provision for impairment is

recorded. PP&E is reviewed for impairment annually on 1st of October.

Intangible Assets. Intangible assets shown on the consolidated balance sheet are finite-lived assets.

Developed technology rights consist primarily of existing technology and technical capabilities acquired from

Sorin in the Mergers, that were recorded at their respective fair values as of the acquisition date. These include

patents, related know-how and licensed patent rights, that represent assets expected to generate future economic

benefits. Trademarks and trade names include Sorin trade names acquired as part of the Mergers. Customer

relationships consist of relationships with hospitals and cardiac surgeons in the countries where we operate.

Other intangible assets consist of favorable leases acquired from Sorin in the Mergers. We amortize our

intangible assets over their useful lives using the straight-line method.

Amortization expense for developed technology is recorded in cost of sales and research and development

costs over the period the product is expected to be marketed. Amortization expense for trade names, customer

relationships and other is recorded in Selling, general and administrative expense on the Consolidated

Statements of Income (Loss). Amortization expense for software is recorded in Cost of sales, Research and

development and Selling, general and administrative expense on the Consolidated Statements of Income (Loss).

We evaluate our intangible assets each reporting period to determine whether events and circumstances indicate

either a different useful life or impairment. If we change our estimate of the useful life of an asset, we amortize

the carrying amount over the revised remaining useful life.

The Company does not have internally generated intangible assets.

Impairment of Intangible Assets and Goodwill. The Company assesses at each reporting date whether there

is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an

asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the

higher of an asset’s CGU’s fair value less costs of disposal and its value in use. It is determined for an individual

asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or

groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is

considered impaired and is written down to its recoverable amount.

most cases no directly observable market inputs are available to measure the fair value less costs of disposal.
Therefore, an estimate is derived indirectly and is based on net present value techniques, utilizing post-tax cash
flows and discount rates. Fair value less costs of disposal reflects estimates of assumptions that market
participants would be expected to use when pricing the asset or CGU, and for this purpose management
considers the range of economic conditions that are expected to exist over the remaining useful life of the asset.
The estimates used in calculating the net present values are highly sensitive and depend on assumptions specific
to the nature of the Company’s activities with regard to:

•

amount and timing of projected future cash flows;

• outcome of R&D activities (compound efficacy, results of clinical trials, etc.);

•

amount and timing of projected costs to develop R&D into commercially viable products;

• probability of obtaining regulatory approval;

•

long-term sales forecasts;

timing of the entry of generic competition;

selected tax rate;

• behavior of competitors (launch of competing products, marketing initiatives, etc.); and

•

selected discount rate.

Generally, for intangible assets with a definite useful life, the Company uses cash flow projections for the

whole useful life of these assets with a terminal value based on cash flow projections usually in line with or
lower than inflation rates for later periods. Probability-weighted scenarios are typically used.

Discount rates used are based on the Company’s estimated weighted average cost of capital adjusted for

specific country and currency risks associated with cash flow projections as an approximation of the weighted
average cost of capital of a comparable market participant. Due to the above factors, actual cash flows and
values could vary significantly from forecasted future cash flows and related values derived using discounting
techniques.

Goodwill is tested for impairment annually as at 1 October and when circumstances indicate that the
carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of
each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the cash-
generating unit is less than their carrying amount, an impairment loss is recognised. Impairment losses relating
to goodwill cannot be reversed in future periods.

Research and Development (“R&D”).

Research costs are recognised as an expense for the period in which they are incurred. Development costs

are recognised as an intangible asset if the following can be demonstrated:

•

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

the Company’s intention to complete the intangible asset and use or sell it;

107

•

the Company's ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

•

the availability of technical, financial and other resources to complete the intangible asset; and

the reliable measurement of development expenditures.

Due to the risks and uncertainties concerning whether the products will be commercially successful, the

above criteria are considered as not being fulfilled for LivaNova development projects. Consequently,
development costs are recognised as an expense. In case of projects where the confidence of management to
respect all the conditions required by the development capitalisation criteria is high, costs will be capitalized as
required by the standard.

R&D includes costs of basic research activities as well as engineering and technical effort required to
develop a new product or make significant improvement to an existing product or manufacturing process. R&D
costs also include regulatory and clinical study expenses, including post-market clinical studies. Amortization of
intangible assets not associated with a marketable product is recorded in R&D.

Inventories. We state our inventories at the lower of cost and net realizable value. Cost is determined using
the first-in first-out (“FIFO”) method. Our calculation of cost includes the acquisition cost of raw materials and
components, direct labor and overhead. We reduce the carrying value of inventories for those items that are
potentially excess, obsolete or slow moving based on changes in customer demand, technology developments or
other economic factors.

Revenue Recognition

Product Revenue. We sell our products through a direct sales force and independent distributors. We
recognise revenue when significant risks and benefits associated with the products’ ownership are transferred,
and the amount of revenues can be reliably determined. We estimate expected sales returns based on historical
data and record a reduction of sales with a return reserve. We record state and local sales taxes net, that is, we
exclude sales tax from revenue.

Service Revenue. Services largely consist of technical assistance services provided to hospitals for the
installation maintenance and support in the operation of heart lung machines, and autotransfusion systems.
Service related revenue is recognised on the basis of progress of the services, when services are rendered, when
collectability is probable and when the revenue amount can be reliably measured.

License Revenue. We record upfront payments received under license agreements as deferred revenue on

the consolidated balance sheet and recognise license revenue over the period of the license agreement.

U.S. Medical Device Excise Tax (“MDET”). Section 4191 of the Internal Revenue Code enacted by the

Health Care and Education Reconciliation Act of 2010, in conjunction with the Patient Protection and
Affordable Care Act, established a 2.3% excise tax on medical devices sold domestically beginning on 1
January 2013 and is suspended from 1 January 2016 through 31 December 2017. We include the cost of MDET
in cost of sales on the Consolidated Statements of Income (Loss).

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•

the Company's ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

the availability of technical, financial and other resources to complete the intangible asset; and

•

the reliable measurement of development expenditures.

Due to the risks and uncertainties concerning whether the products will be commercially successful, the

above criteria are considered as not being fulfilled for LivaNova development projects. Consequently,

development costs are recognised as an expense. In case of projects where the confidence of management to

respect all the conditions required by the development capitalisation criteria is high, costs will be capitalized as

required by the standard.

R&D includes costs of basic research activities as well as engineering and technical effort required to

develop a new product or make significant improvement to an existing product or manufacturing process. R&D

costs also include regulatory and clinical study expenses, including post-market clinical studies. Amortization of

intangible assets not associated with a marketable product is recorded in R&D.

Inventories. We state our inventories at the lower of cost and net realizable value. Cost is determined using

the first-in first-out (“FIFO”) method. Our calculation of cost includes the acquisition cost of raw materials and

components, direct labor and overhead. We reduce the carrying value of inventories for those items that are

potentially excess, obsolete or slow moving based on changes in customer demand, technology developments or

other economic factors.

Revenue Recognition

Product Revenue. We sell our products through a direct sales force and independent distributors. We

recognise revenue when significant risks and benefits associated with the products’ ownership are transferred,

and the amount of revenues can be reliably determined. We estimate expected sales returns based on historical

data and record a reduction of sales with a return reserve. We record state and local sales taxes net, that is, we

exclude sales tax from revenue.

Service Revenue. Services largely consist of technical assistance services provided to hospitals for the

installation maintenance and support in the operation of heart lung machines, and autotransfusion systems.

Service related revenue is recognised on the basis of progress of the services, when services are rendered, when

collectability is probable and when the revenue amount can be reliably measured.

License Revenue. We record upfront payments received under license agreements as deferred revenue on

the consolidated balance sheet and recognise license revenue over the period of the license agreement.

U.S. Medical Device Excise Tax (“MDET”). Section 4191 of the Internal Revenue Code enacted by the

Health Care and Education Reconciliation Act of 2010, in conjunction with the Patient Protection and

Affordable Care Act, established a 2.3% excise tax on medical devices sold domestically beginning on 1

January 2013 and is suspended from 1 January 2016 through 31 December 2017. We include the cost of MDET

in cost of sales on the Consolidated Statements of Income (Loss).

Italian Medical Device Payback. The Italian Parliament introduced new rules for entities that supply goods

and services to the Italian National Healthcare System. The new healthcare law is expected to impact the
business and financial reporting of companies operating in the medical technology sector that sell medical
devices in Italy. A key provision of the law is a ‘payback’ measure, requiring companies selling medical devices
in Italy to make payments to the Italian state if medical device expenditures exceed regional maximum ceilings.
Companies are required to make payments equal to a percentage of expenditures exceeding maximum regional
caps. There is considerable uncertainty about how the law will operate and what the exact timeline is for
finalization. Our current assessment of the Italian Medical Device Payback involves significant judgement
regarding the expected scope and actual implementation terms of the measure as the latter have not been
clarified to date by Italian authorities. We account for the estimated cost of the Italian Medical Device Payback
as a deduction from revenue.

Defined Benefit Pension Plans and Other Post-Employment Benefits. The Company sponsors various
retirement benefit plans, including defined benefit pension plans (pension benefits), defined contribution
savings plans and termination indemnity plans, covering substantially all U.S. employees and employees
outside the United States. The cost of providing benefits under the defined benefit plans is determined
separately for each plan using the projected unit credit method.

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding
amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding
amounts included in net interest on the net defined benefit liability), are recognised immediately in the
consolidated balance sheet with a corresponding debit or credit to retained earnings through OCI in the period
in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognised in profit or loss on the earlier of:

• The date of the plan amendment or curtailment, and

• The date on which the Company recognises related restructuring costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The
Company recognises the following changes in the net defined benefit obligation under ‘Cost of sales’ and
‘Selling, general and administrative’ expenses in the Consolidated Statements of Income (Loss) (by function):

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and

nonroutine settlements

• Net interest expense or income

Provision for severance indemnity (TFR) is mandatory for Italian companies and is considered:

•

a defined benefit plan with respect to amounts vested up to 31 December 2006 and amounts vesting
from 1 January 2007 for employees who have chosen to maintain the TFR at the company, for
companies with 50 or fewer employees;

a defined contribution plan with respect to amounts vesting as from 1 January 2007 for employees who
have opted for supplementary pensions or who have chosen to maintain the TFR at the company, for
companies with more than 50 employees.

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As a defined benefit plan, the TFR is measured using the unit credit projection method based on actuarial
assumptions (demographic assumptions: mortality, turnover, disability of the population included in the above
plan; financial assumptions: discount rate, benefit growth rate, capitalization rate). The increase in the present
value of the TFR is included in personnel expense, with the exception of the revaluation of the net liability,
which is recorded among items of other comprehensive income. The cost of TFR accrued through 31 December
2006 no longer includes the component related to future salary increases. Payments of TFR, as a defined
contribution plan, are also included in personnel expense, and until they are settled financially, they have a
balancing entry in the statement of financial position in the form of current payables.

Share-Based Compensation

We grant share-based incentive awards to directors, officers, key employees and consultants during each

fiscal year. We measure the cost of employee services received in exchange for an award of equity instruments
based on the grant date fair market value of the award. The cost of equity-settled transactions is recognised in
employee benefits expense, together with a corresponding increase in equity (in “Additional paid-in-capital”
prior to the Mergers and after the Mergers expense in "Retained earnings") over the period in which the service
and the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-
settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period
has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. We
issue new shares upon share option exercise, share appreciation right (“SAR”) exercise, the award of restricted
share and at our election, on vesting of a restricted share unit. The social security contributions on employee
share-based payment awards is accrued over the service period.

The following share-based incentive awards are offered by the Company:

• Share Appreciation Rights. A share appreciation right (“SAR”) confers upon an employee the
contractual right to receive an amount of cash, share, or a combination of both that equals the
appreciation in the Company’s common share from an award’s grant date to the exercise date. SARs
may be exercised at the employee’s discretion during the exercise period and do not give the employee
an ownership right in the underlying share. The SARs may be settled in LivaNova shares and/or cash,
as determined by LivaNova and as set forth in the individual award agreements. SARs do not involve
payment of an exercise price. We use the Black-Scholes option pricing methodology to calculate the
grant date fair market value of SARs. We determine the expected volatility on historical volatility.

• Share Options. Options granted under the Share Plans are service-based and typically vest annually

over four years, or cliff-vest in one year, following their date of grant, as required under the applicable
agreement establishing the award, and have maximum terms of 10 years. Share option grant prices are
set equal to the closing price of our ordinary shares on the day of the grant. When the share options are
exercised, LivaNova issues new shares. There are no post-vesting restrictions on the shares issued. We
use the Black-Scholes option pricing methodology to calculate the grant date fair market value of share
option awards. We determine expected volatility based on the historic volatility of our share price over
a period equal to the expected term of the option.

110

As a defined benefit plan, the TFR is measured using the unit credit projection method based on actuarial

assumptions (demographic assumptions: mortality, turnover, disability of the population included in the above

plan; financial assumptions: discount rate, benefit growth rate, capitalization rate). The increase in the present

value of the TFR is included in personnel expense, with the exception of the revaluation of the net liability,

which is recorded among items of other comprehensive income. The cost of TFR accrued through 31 December

2006 no longer includes the component related to future salary increases. Payments of TFR, as a defined

contribution plan, are also included in personnel expense, and until they are settled financially, they have a

balancing entry in the statement of financial position in the form of current payables.

Share-Based Compensation

We grant share-based incentive awards to directors, officers, key employees and consultants during each

fiscal year. We measure the cost of employee services received in exchange for an award of equity instruments

based on the grant date fair market value of the award. The cost of equity-settled transactions is recognised in

employee benefits expense, together with a corresponding increase in equity (in “Additional paid-in-capital”

and the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-

settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period

has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. We

issue new shares upon share option exercise, share appreciation right (“SAR”) exercise, the award of restricted

share and at our election, on vesting of a restricted share unit. The social security contributions on employee

share-based payment awards is accrued over the service period.

The following share-based incentive awards are offered by the Company:

• Share Appreciation Rights. A share appreciation right (“SAR”) confers upon an employee the

contractual right to receive an amount of cash, share, or a combination of both that equals the

appreciation in the Company’s common share from an award’s grant date to the exercise date. SARs

may be exercised at the employee’s discretion during the exercise period and do not give the employee

an ownership right in the underlying share. The SARs may be settled in LivaNova shares and/or cash,

as determined by LivaNova and as set forth in the individual award agreements. SARs do not involve

• Restricted Share and Restricted Share Units. We grant restricted share and restricted share units at no
purchase cost to the grantee, which typically vest over four years or cliff-vest in one or three years.
Unvested restricted share entitles the grantees to dividends, if any, and voting rights for their respective
shares. Sale or transfer of the share and share units are restricted until they are vested. We issue new
shares for our restricted share and restricted share unit awards. We have the right to elect to pay the
cash value of vested restricted share units in lieu of the issuance of new shares. Under our share-based
compensation plans we repurchase a portion of these shares from our employees to permit our
employees to meet their minimum statutory tax withholding requirements on vesting of their restricted
share.

• Service-Based Restricted Share and Restricted Share Units. The fair market value of service-based
restricted share and restricted share units are determined using the market closing price on the grant
date, and compensation is expensed ratably over the vesting period. Calculation of compensation for
restricted share awards requires estimation of employee turnover and forfeiture rates.

prior to the Mergers and after the Mergers expense in "Retained earnings") over the period in which the service

• Market and Performance-Based Restricted Share and Performance-Based Restricted Share

Units. We may grant restricted share and restricted share units subject to market or performance
conditions that vest based on the satisfaction of the conditions of the award. The fair market values of
market condition-based awards are determined using the Monte Carlo simulation method. The Monte
Carlo simulation method is subject to variability as several factors utilized must be estimated,
including the derived service period, which is estimated based on our judgement of likely future
performance and our share price volatility. The fair value of performance-based awards is determined
using the market closing price on the grant date. Derived service periods and the periods charged with
compensation expense for performance-based awards are estimated based on our judgement of likely
future performance and may be adjusted in future periods depending on actual performance.

Income Taxes. The tax expense for the period comprises current and deferred tax. Current and deferred tax

is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.

payment of an exercise price. We use the Black-Scholes option pricing methodology to calculate the

The income tax expense or credit for the period is the tax payable on the current period’s taxable income

grant date fair market value of SARs. We determine the expected volatility on historical volatility.

• Share Options. Options granted under the Share Plans are service-based and typically vest annually

based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.

over four years, or cliff-vest in one year, following their date of grant, as required under the applicable

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at

agreement establishing the award, and have maximum terms of 10 years. Share option grant prices are

set equal to the closing price of our ordinary shares on the day of the grant. When the share options are

exercised, LivaNova issues new shares. There are no post-vesting restrictions on the shares issued. We

use the Black-Scholes option pricing methodology to calculate the grant date fair market value of share

option awards. We determine expected volatility based on the historic volatility of our share price over

a period equal to the expected term of the option.

the end of the reporting period in the countries where the company’s subsidiaries and associates operate and
generate taxable income. The Company is subject to taxation on earnings in several countries under various tax
regulations. Calculation of taxes on a global scale requires the use of estimates and assumptions developed
based on the information available at the balance sheet date. Management establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.

111

Deferred taxes are recognised by the liability method for temporary differences between the carrying
amount of assets and liabilities in the consolidated balance sheet and their tax base. They are measured at the
tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Adjustments to
deferred taxes resulting from changes in tax rates are recognised in profit or loss. However, when the deferred
tax relates to items recognised in equity, the adjustment is also recognised in equity. A deferred tax asset is
recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be
available against which the deductible temporary difference can be utilized. At each period-end, the Company
reviews the recoverable value of deferred tax assets of tax entities holding significant loss carryforwards. This
value is based, by tax entity, on the strategy for recoverability of the tax loss carryforwards. Deferred taxes are
charged or credited directly to equity when the tax relates to items that are recognised directly in equity, such as
gains and losses on cash flow hedges and actuarial gains and losses on defined benefit plan obligations.
Deferred tax assets and liabilities are set off when they are levied on the same taxable entity (legal entity or tax
group) by the same taxation authority and the entity has a legally enforceable right of set off. Deferred taxes are
recognised for all temporary differences associated with investments in subsidiaries and associates, except to the
extent that the Company is able to control the timing of the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future. Deferred tax balances are not
discounted.

Leases. We account for leases that transfer substantially all risks and rewards incident to the ownership of
property as an acquisition of an asset and the incurrence of an obligation, and we account for all other leases as
operating leases. Certain of our leases provide for tenant improvement allowances that have been recorded as
deferred rent and amortized, using the straight-line method, over the life of the lease as a reduction to rent
expense. In addition, scheduled rent increases and rent holidays are recognised on a straight-line basis over the
term of the lease.

Equity. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any group company purchases the Company’s equity instruments, for example as the result of a

share buy-back or a share-based payment plan, the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable to the owners of LivaNova as
treasury share until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued,
any consideration received, net of any directly attributable incremental transaction costs and the related income
tax effects, is included in equity attributable to the owners of LivaNova.

Provisions and warranties. Provisions for legal claims, service warranties and make good obligations are

recognised when the Company has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount can be reliably
estimated. Provisions are not recognised for future operating losses. Where there are a number of similar
obligations, the likelihood that an outflow will be required in settlement is determined by considering the class
of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one
item included in the same class of obligations may be small.

112

Deferred taxes are recognised by the liability method for temporary differences between the carrying

amount of assets and liabilities in the consolidated balance sheet and their tax base. They are measured at the

tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax

rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Adjustments to

deferred taxes resulting from changes in tax rates are recognised in profit or loss. However, when the deferred

tax relates to items recognised in equity, the adjustment is also recognised in equity. A deferred tax asset is

recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be

available against which the deductible temporary difference can be utilized. At each period-end, the Company

reviews the recoverable value of deferred tax assets of tax entities holding significant loss carryforwards. This

value is based, by tax entity, on the strategy for recoverability of the tax loss carryforwards. Deferred taxes are

charged or credited directly to equity when the tax relates to items that are recognised directly in equity, such as

gains and losses on cash flow hedges and actuarial gains and losses on defined benefit plan obligations.

Deferred tax assets and liabilities are set off when they are levied on the same taxable entity (legal entity or tax

group) by the same taxation authority and the entity has a legally enforceable right of set off. Deferred taxes are

recognised for all temporary differences associated with investments in subsidiaries and associates, except to the

extent that the Company is able to control the timing of the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in the foreseeable future. Deferred tax balances are not

discounted.

Leases. We account for leases that transfer substantially all risks and rewards incident to the ownership of

property as an acquisition of an asset and the incurrence of an obligation, and we account for all other leases as

operating leases. Certain of our leases provide for tenant improvement allowances that have been recorded as

deferred rent and amortized, using the straight-line method, over the life of the lease as a reduction to rent

expense. In addition, scheduled rent increases and rent holidays are recognised on a straight-line basis over the

term of the lease.

Equity. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any group company purchases the Company’s equity instruments, for example as the result of a

share buy-back or a share-based payment plan, the consideration paid, including any directly attributable

incremental costs (net of income taxes) is deducted from equity attributable to the owners of LivaNova as

treasury share until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued,

any consideration received, net of any directly attributable incremental transaction costs and the related income

tax effects, is included in equity attributable to the owners of LivaNova.

Provisions and warranties. Provisions for legal claims, service warranties and make good obligations are

recognised when the Company has a present legal or constructive obligation as a result of past events, it is

probable that an outflow of resources will be required to settle the obligation and the amount can be reliably

estimated. Provisions are not recognised for future operating losses. Where there are a number of similar

obligations, the likelihood that an outflow will be required in settlement is determined by considering the class

of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one

item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the present obligation at the end of the reporting period. The discount rate used to determine the present
value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

The Company offers a warranty on various products. The Company estimates the costs that may be

incurred under warranties and records a liability in the amount of such costs at the time the product is sold. The
amount of the reserve recorded is equal to the net costs to repair or otherwise satisfy the claim. The warranty
obligation is included in accrued liabilities on the consolidated balance sheet. Warranty expense is recorded to
Cost of sales in the Consolidated Statements of Income (Loss).

Contingencies. The Company is subject to product liability claims, government investigations and other

legal proceedings in the ordinary course of business. Legal fees and other expenses related to litigation are
expensed as incurred and included in Selling, general and administrative expenses in the Consolidated
Statements of Income (Loss). Contingent accruals are recorded when the Company determines that a loss is
both probable and reasonably estimable. Due to the fact that legal proceedings and other contingencies are
inherently unpredictable, our assessments involve significant judgement regarding future events.

Earnings Per Share. Basic earnings (loss) per share (EPS) is calculated by dividing the profit (loss) for the

year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares
outstanding during the year. Diluted EPS is calculated by dividing the net profit attributable to ordinary equity
holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential
ordinary shares into ordinary shares. Refer to “Note 25. Earnings per Share” for additional information.

Segments. Prior to the Mergers we had one operating and reportable segment. Upon completion of the
Mergers, we reorganized our reporting structure and aligned our segments and the underlying divisions and
businesses. We currently function in three operating segments; the historical Cyberonics operations are included
in the Neuromodulation segment, and the historical Sorin businesses are included in the Cardiac Surgery and the
Cardiac Rhythm Management segments.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer (“CEO”)
supported as necessary by the remaining members of the executive leadership team which includes the Chief
Finance Officer, Presidents, and Senior Vice Presidents of the Company. The CODM assesses performance and
allocates resources at the business unit level which includes Neuromodulation, Cardiac Rhythm Management,
and Cardiac Surgery. Refer to “Note 26. Geographic and Segment Information” for additional information.

Critical Estimates and Judgements. The preparation of our consolidated financial statements in conformity

with IFRS requires management to make estimates and judgements that affect the amounts reported in such
financial statements and accompanying notes. These estimates and judgements are based on management’s best
knowledge of current events and actions we may undertake in the future. Actual results could differ materially
from those estimates. Application of the following accounting policies requires certain judgements and
estimates that have the potential for the most significant impact on our consolidated financial statements:

113

•

Impairment of non-financial assets. An impairment exists when the carrying value of an asset or cash
generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of
disposal and its value in use. The fair value less costs of disposal calculation is based on available data
from binding sales transactions, conducted at arm’s length for similar assets or observable market
prices less incremental costs for disposing of the asset. The value in use calculation is based on a
discounted cash flow (DCF) model. The cash flows are derived from the budgets and do not include
restructuring activities that the Company is not yet committed to or significant future investments that
will enhance the asset’s performance of the CGU being tested. The recoverable amount is most
sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and
the growth rate used for extrapolation purposes.

• Commitments and Contingencies. A number of LivaNova subsidiaries are involved in various
government investigations and legal proceedings (product liability, commercial, employment,
environmental claims, etc.) arising out of the normal conduct of their businesses. For more
information, see ‘‘Note 24. Commitments and Contingencies.’’ We record accruals for contingencies
when it is probable that a liability has been incurred and the amount can be reliably estimated. These
accruals are adjusted periodically as assessments change or additional information becomes available.
Expected legal defense costs are accrued when the amount can be reliably estimated. Provisions
relating to estimated future expenditure for liabilities do not usually reflect any insurance or other
claims or recoveries, since these are only recognized as assets when the amount is reasonably
estimable and collection is virtually certain.

• Retirement and Other Post-Employment Benefit Plans. We sponsor pension and other post-

employment benefit plans in various forms that cover a significant portion of our current and former
associates. For post-employment plans with defined benefit obligations, we are required to make
significant assumptions and estimates about future events in calculating the expense and the present
value of the liability related to these plans. These include assumptions about the interest rates we apply
to estimate future defined benefit obligations and net periodic pension expense as well as rates of
future pension increases. In addition, our actuarial consultants provide our management with historical
statistical information, such as withdrawal and mortality rates in connection with these estimates.
Assumptions and estimates used by the Company may differ materially from the actual results we
experience due to changing market and economic conditions, higher or lower withdrawal rates, and
longer or shorter life spans of participants among other factors. For more information on obligations
under retirement and other post-employment benefit plans and underlying actuarial assumptions, see
‘‘Note 22. Employee Retirement Plans.’’

• Research & Development. Internal Research & Development costs are fully charged to the

consolidated income statement in the period in which they are incurred. We consider that regulatory
and other uncertainties inherent in the development of new products preclude the capitalization of
internal development expenses as an intangible asset usually until marketing approval from the
regulatory authority is obtained in a relevant market.

114

•

Impairment of non-financial assets. An impairment exists when the carrying value of an asset or cash

• Taxes. We prepare and file our tax returns based on an interpretation of tax laws and regulations, and

generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of

disposal and its value in use. The fair value less costs of disposal calculation is based on available data

from binding sales transactions, conducted at arm’s length for similar assets or observable market

prices less incremental costs for disposing of the asset. The value in use calculation is based on a

discounted cash flow (DCF) model. The cash flows are derived from the budgets and do not include

restructuring activities that the Company is not yet committed to or significant future investments that

will enhance the asset’s performance of the CGU being tested. The recoverable amount is most

sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and

the growth rate used for extrapolation purposes.

• Commitments and Contingencies. A number of LivaNova subsidiaries are involved in various

government investigations and legal proceedings (product liability, commercial, employment,

environmental claims, etc.) arising out of the normal conduct of their businesses. For more

information, see ‘‘Note 24. Commitments and Contingencies.’’ We record accruals for contingencies

when it is probable that a liability has been incurred and the amount can be reliably estimated. These

accruals are adjusted periodically as assessments change or additional information becomes available.

Expected legal defense costs are accrued when the amount can be reliably estimated. Provisions

relating to estimated future expenditure for liabilities do not usually reflect any insurance or other

claims or recoveries, since these are only recognized as assets when the amount is reasonably

estimable and collection is virtually certain.

• Retirement and Other Post-Employment Benefit Plans. We sponsor pension and other post-

employment benefit plans in various forms that cover a significant portion of our current and former

associates. For post-employment plans with defined benefit obligations, we are required to make

significant assumptions and estimates about future events in calculating the expense and the present

value of the liability related to these plans. These include assumptions about the interest rates we apply

to estimate future defined benefit obligations and net periodic pension expense as well as rates of

future pension increases. In addition, our actuarial consultants provide our management with historical

statistical information, such as withdrawal and mortality rates in connection with these estimates.

Assumptions and estimates used by the Company may differ materially from the actual results we

experience due to changing market and economic conditions, higher or lower withdrawal rates, and

longer or shorter life spans of participants among other factors. For more information on obligations

under retirement and other post-employment benefit plans and underlying actuarial assumptions, see

‘‘Note 22. Employee Retirement Plans.’’

• Research & Development. Internal Research & Development costs are fully charged to the

consolidated income statement in the period in which they are incurred. We consider that regulatory

and other uncertainties inherent in the development of new products preclude the capitalization of

internal development expenses as an intangible asset usually until marketing approval from the

regulatory authority is obtained in a relevant market.

record estimates based on these judgements and interpretations. Our tax returns are subject to
examination by the competent taxing authorities, which may result in an assessment being made
requiring payments of additional tax, interest or penalties. Inherent uncertainties exist in our estimates
of our tax positions. We believe that our estimated amounts for current and deferred tax assets or
liabilities, including any amounts related to any uncertain tax positions, are appropriate based on
currently known facts and circumstances.

•

Impairment of available-for-sale financial (AFS). The fair value of financial instruments classified as
available-for-sale that are not traded in an active market is determined using valuation techniques. The
Company uses its judgement to select a variety of methods and make assumptions that are mainly
based on market conditions existing at the end of each reporting period. During the transitional period
25 April 2015 to 31 December 2015 the Company made a significant judgement about the impairment
of an investment in Cerbomed GmbH, see "Note 12. Financial Assets." To determine if an available-
for-sale financial asset is impaired, the Company evaluates the duration and extent to which the fair
value of the asset is less than its cost, and the financial health of and short-term business outlook for
the investee (including factors such as industry performance, changes in technology and operational
and financing cash flows).

• Share-based payments. Estimating fair value for share-based payment transactions requires

determination of the most appropriate valuation model, which depends on the terms and conditions of
the grant. This estimate also requires determination of the most appropriate inputs to the valuation
model including the expected life of the share option or appreciation right, volatility and dividend yield
and making assumptions about them.

• Exceptional items. Exceptional items are expense or income items recorded in a period which have
been determined by management as being material by their size or incidence and are presented
separately within the results of the group. The determination of which items are disclosed as
exceptional items will affect the presentation of profit measures and requires a degree of judgement.
Details relating to exceptional items reported during the period are set out in "Note 30. Exceptional
items".

Note 3. First-time Adoption of IFRS

These financial statements, for the transitional period ended 31 December 2015, are the first the Company has

prepared in accordance with IFRS. For periods up to the transitional period ended 31 December 2015, the Company
prepared its financial statements in accordance with U.S. generally accepted accounting principles (Local GAAP).

Accordingly, the Company has prepared financial statements that comply with IFRS applicable as at 31 December

2015, together with the comparative period data for the year ended 24 April 2015, as described in the summary of
significant accounting policies. In preparing the financial statements, the Company’s opening balance sheet was prepared
as at 26 April 2014, the Company’s date of transition to IFRS. This note explains the principal adjustments made by the
Company in restating its Local GAAP financial statements, including the consolidated balance sheet as at 26 April 2014
and 24 April 2015.

115

Exemptions applied. IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain

requirements under IFRS. The Company has applied the following exemptions:

•

IFRS 2 Share-based Payment has not been applied to equity instruments in share-based compensation transactions
that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7
November 2002 that vested before 26 April 2014.

• Property, plant and equipment were carried in the balance sheet prepared in accordance with Local GAAP on the
basis of carrying value on 26 April 2014. The Company has elected to regard those values as deemed cost at the
date of transition to IFRS since they were broadly comparable to fair value.

• The Company has applied the transitional provision in IFRIC 4 Determining whether an Arrangement Contains a

Lease and has assessed all arrangements based upon the conditions in place as at the date of transition.

•

IFRS 3 Business combinations has not been applied to either acquisitions of subsidiaries that are considered
businesses under IFRS, or acquisitions of interest in associates and joint ventures that occurred before 26 April
2014. Use of this exemption means that the local GAAP carrying amounts of assets and liabilities, that are
required to be recognised under IFRS, is their deemed cost at the date of acquisition. After the date of the
acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition
under IFRS are excluded from the opening IFRS balance sheet. The Company did not recognise or exclude any
previously recognised amounts as a result of IFRS recognition requirements.

Estimates. The estimates at 26 April 2014 and at 24 April 2015 are consistent with those made for the same dates in

accordance with Local GAAP (after adjustments to reflect any differences in accounting policies).

116

Exemptions applied. IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain

Group reconciliation of equity as at 26 April 2014 (date of transition to IFRS)

requirements under IFRS. The Company has applied the following exemptions:

•

IFRS 2 Share-based Payment has not been applied to equity instruments in share-based compensation transactions

that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7

November 2002 that vested before 26 April 2014.

• Property, plant and equipment were carried in the balance sheet prepared in accordance with Local GAAP on the

basis of carrying value on 26 April 2014. The Company has elected to regard those values as deemed cost at the

date of transition to IFRS since they were broadly comparable to fair value.

• The Company has applied the transitional provision in IFRIC 4 Determining whether an Arrangement Contains a

Lease and has assessed all arrangements based upon the conditions in place as at the date of transition.

•

IFRS 3 Business combinations has not been applied to either acquisitions of subsidiaries that are considered

businesses under IFRS, or acquisitions of interest in associates and joint ventures that occurred before 26 April

2014. Use of this exemption means that the local GAAP carrying amounts of assets and liabilities, that are

required to be recognised under IFRS, is their deemed cost at the date of acquisition. After the date of the

acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition

under IFRS are excluded from the opening IFRS balance sheet. The Company did not recognise or exclude any

previously recognised amounts as a result of IFRS recognition requirements.

Estimates. The estimates at 26 April 2014 and at 24 April 2015 are consistent with those made for the same dates in

accordance with Local GAAP (after adjustments to reflect any differences in accounting policies).

(in thousands)

ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Financial assets
Deferred tax assets
Other assets

Total non-current assets
Current assets
Inventories
Trade receivables
Other receivables
Other financial assets
Deferred tax assets, net
Tax assets
Cash and cash equivalents

Total current assets
Total assets

LIABILITIES AND EQUITY
Equity
Share capital
APIC/Share premium
Treasury shares
Accumulated other comprehensive income (loss)
Retained earnings

Total equity
Non-current liabilities
Other liabilities
Provision for employee severance indemnities and
other employee benefit provisions
Total non-current liabilities
Current liabilities
Trade payables
Other payables
Provisions
Tax payable

Total current liabilities
Total liabilities
Total liabilities and equity

Notes

Local GAAP

Adjustments

IFRS as at
26 April 2014

39,535 $
11,655
15,944
5,771
856
73,761

17,630
50,674
3,690
25,029
17,208
2,900
103,299
220,430
294,191 $

318
426,867
(188,519 )
455
19,979
259,100 $

4,711

482
5,193

7,570
16,957
4,769
602
29,898
35,091
294,191 $

(2,007) $
2,007
—
28,413
—
28,413

—
—
—
—
(17,208)
—
—
(17,208)
11,205 $

—
13,336
—
—
(5,391)
7,945 $

—

3,260
3,260

—
—
—
—
—
3,260
11,205 $

37,528
13,662
15,944
34,184
856
102,174

17,630
50,674
3,690
25,029
—
2,900
103,299
203,222
305,396

318
440,203
(188,519)
455
14,588
267,045

4,711

3,742
8,453

7,570
16,957
4,769
602
29,898
38,351
305,396

A
A

B,C

C,D,E

117

Group reconciliation of equity as at 24 April 2015

(in thousands)

ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Financial assets
Deferred tax assets
Other assets

Total non-current assets
Current assets
Inventories
Trade receivables
Other receivables
Other financial assets
Deferred tax assets, net
Tax assets
Cash and cash equivalents

Total current assets
Total assets

LIABILITIES AND EQUITY
Equity
Share capital
APIC/Share premium
Treasury shares
Accumulated other comprehensive income (loss)
Retained earnings

Total equity
Non-current liabilities
Other liabilities
Provision for employee severance indemnities and
other employee benefit provisions
Total non-current liabilities
Current liabilities

Trade payables

Other payables

Provisions

Tax payable

Total current liabilities

Total liabilities

Total liabilities and equity

Notes

Local GAAP

Adjustments

IFRS as at 24
April 2015

A
A

B,C

C,D,E

118

40,287 $
10,168
17,127
6,078
1,563
75,223

23,963
50,569
4,812
27,020
7,199
2,971
124,187
240,721
315,944 $

321
445,362
(243,535 )
(3,401 )
77,827
276,574 $

6,610

1,311
7,921

7,251
13,781
8,334
2,083
31,449
39,370
315,944 $

(1,911) $
1,911
—
14,584
—
14,584

—
—
—
—
(7,199)
—
—
(7,199)
7,385 $

—
11,072
—
—
(6,236)
4,836 $

—

2,549
2,549

—
—
—
—
—
2,549
7,385 $

38,376
12,079
17,127
20,662
1,563
89,807

23,963
50,569
4,812
27,020
—
2,971
124,187
233,522
323,329

321
456,434
(243,535)
(3,401)
71,591
281,410

6,610

3,860
10,470

7,251
13,781
8,334
2,083
31,449
41,919
323,329

Group reconciliation of equity as at 24 April 2015

Notes

Local GAAP

Adjustments

IFRS as at 24

April 2015

Property, plant and equipment

40,287 $

(1,911) $

(in thousands)

ASSETS

Non-current assets

Intangible assets

Financial assets

Deferred tax assets

Other assets

Current assets

Inventories

Trade receivables

Other receivables

Total non-current assets

Other financial assets

Deferred tax assets, net

Tax assets

Cash and cash equivalents

Total current assets

Total assets

LIABILITIES AND EQUITY

Equity

Share capital

APIC/Share premium

Treasury shares

Retained earnings

Total equity

Non-current liabilities

Other liabilities

Trade payables

Other payables

Provisions

Tax payable

Total current liabilities

Total liabilities

Total liabilities and equity

B,C

124,187

240,721

315,944 $

10,168

17,127

6,078

1,563

75,223

23,963

50,569

4,812

27,020

7,199

2,971

321

445,362

(243,535 )

(3,401 )

77,827

6,610

1,311

7,921

7,251

13,781

8,334

2,083

31,449

39,370

315,944 $

1,911

—

14,584

—

14,584

—

(7,199)

7,385 $

11,072

—

(6,236)

4,836 $

—

2,549

—

2,549

7,385 $

38,376

12,079

17,127

20,662

1,563

89,807

23,963

50,569

4,812

27,020

—

2,971

124,187

233,522

323,329

321

456,434

(243,535)

(3,401)

71,591

281,410

6,610

3,860

10,470

7,251

13,781

8,334

2,083

31,449

41,919

323,329

Accumulated other comprehensive income (loss)

C,D,E

276,574 $

Provision for employee severance indemnities and

other employee benefit provisions

Total non-current liabilities

Current liabilities

Group reconciliation of total comprehensive income for the fiscal year ended 24 April 2015

(in thousands)

Revenue
Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative
Research and development
Merger related expenses

Total operating expenses

Operating profit

Interest income
Interest expense
Foreign exchange

Profit before tax
Income tax expense

Profit attributable to owners of the parent

Other comprehensive income

Notes

Local GAAP

Adjustments

26 April 2014 to
24 April 2015

D,E
D

C,E

291,558 $
27,311
264,247 $

123,619
43,284
8,692
175,595 $
88,652
184
(21 )
479
89,294 $
31,446
57,848 $

—
29
(29) $

(288)
165
—
(123) $
94
—
—
—
94 $
939
(845) $

291,558
27,340
264,218

123,331
43,449
8,692
175,472
88,746
184
(21)
479
89,388
32,385
57,003

(in thousands)

Notes

Local GAAP

Adjustments

26 April 2014 to
24 April 2015

Profit attributable to the owners of the parent

Items of other comprehensive income that will
subsequently be reclassified to profit or loss
Foreign currency translation differences

Total items of other comprehensive income that
will subsequently be reclassified to profit or loss
Total other comprehensive (loss), net of taxes

Total comprehensive income for the period, net of
taxes attributable to the owners of the parent

C, D,
E

57,848

(845)

57,003

(3,856 )

—

—
—

(3,856)

53,992

(845)

53,147

Notes to the reconciliation of equity as at 26 April 2014 and 24 April 2015 and total comprehensive income for the

fiscal year ended 24 April 2015:

A: Under Local GAAP, the Company classified the software development costs within “Property, plant and
equipment”. Under IFRS the software costs meet the definition of an intangible asset. Accordingly, the Company’s
capitalized software development costs have been reclassified from “Property, plant and equipment” to “Intangible assets”
at the transition date to IFRS and as at 24 April 2015, respectively.

B: Under Local GAAP, the Company classified deferred taxes as current or noncurrent based on the nature of the
related asset or liability giving rise to the temporary difference, except for tax losses and credit carryforwards, which are
based on the expected timing of realization. Accordingly, the Company reclassified deferred income tax assets included in
current “Deferred tax assets” to “Non-current Deferred tax assets” at the transition date to IFRS and as at 24 April 2015 to
conform with the requirements of IFRS.

119

C: Under Local GAAP, deferred tax assets for share-based payment awards that will result in a deduction are
calculated based on the cumulative costs recognised and trued up or down upon realization of the tax benefit. If the tax
benefit exceeds the deferred tax asset, the excess (“windfall benefit”) is credited directly to equity. Any shortfall of the tax
benefit below the deferred tax asset is charged to equity to the extent of prior windfall benefits, and to tax expense
thereafter. Under IFRS, deferred tax assets are calculated based on the estimated tax deduction determined at each
reporting date under applicable tax law (e.g., intrinsic value). If the tax deduction exceeds cumulative compensation cost,
deferred tax based on the excess is credited to equity. If the tax deduction is less than or equal to cumulative compensation
cost, deferred taxes are recorded in income. Therefore, the Company recorded the adjustments relating to the tax effect
recognised on the share-based payment arrangements as a deferred tax asset with an offsetting entry to equity at the
transition date to IFRS and as at 24 April 2015.

D: Under Local GAAP, the Company attributed compensation costs over the vesting period by utilizing the “straight-

line” method to account for share-based payment awards subject to graded vesting based on a service condition. The use of
the “straight-line” method resulted in less compensation cost being recognised in earlier years. Accordingly, the Company
recorded an adjustment to “Additional paid-in capital/Share premium” with an offsetting entry to retained earnings at the
transition date to IFRS and as at 24 April 2015.

E: Under Local GAAP, a liability for social security contributions on employee share-based payment awards is
recognised on the date of the event triggering the measurement and payment of the tax to the taxing authority (generally
the exercise date). Under IFRS, the Company follows the method to accrue the liability based on the consumption of
services received from employees. The Company recorded an adjustment to current “Provision for employee severance
indemnities” and non-current “Other employee benefit provisions” with an offsetting entry to retained earnings at
the transition date to IFRS and as at 24 April 2015.

The transition from Local GAAP to IFRS has not had a material impact on the statement of cash flows.

Note 4. Financial Risk Management

Management of financial risk

Increasing market fluctuations may result in significant earnings and cash flow volatility risk for LivaNova. The

Company’s operating business as well as its investment and financing activities are affected particularly by changes in
foreign exchange rates, interest rates and concentration of procurement suppliers. In order to optimize the allocation of the
financial resources across the LivaNova segments and entities, as well as to achieve its aims, LivaNova identifies, analyzes
and manages the associated market risks. The Company seeks to manage and control these risks primarily through its
regular operating and financing activities, and uses derivative financial instruments when deemed appropriate.

The Company’s CFO oversees the management of these risks. The CFO is supported by a senior financial
management team that advises on financial risks and the appropriate financial risk governance framework for the
Company. The senior financial management team provides assurance to the Company’s senior management that the
Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are
identified, measured and managed in accordance with group policies and group risk appetite. All derivative activities for
risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision.
It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken. Intercompany
financing or investments of operating units are preferably carried out in their functional currency or on a hedged basis. The
Board of Directors reviews and agrees policies for managing each of these risks.

Liquidity risk

Liquidity risk results from the Company’s inability to meet its financial liabilities. LivaNova follows a deliberated
financing policy that is aimed towards a balanced financing portfolio, a diversified maturity profile and a comfortable
liquidity cushion. LivaNova mitigates liquidity risk by the implementation of an effective working capital and centralized

120

C: Under Local GAAP, deferred tax assets for share-based payment awards that will result in a deduction are

calculated based on the cumulative costs recognised and trued up or down upon realization of the tax benefit. If the tax

benefit exceeds the deferred tax asset, the excess (“windfall benefit”) is credited directly to equity. Any shortfall of the tax

thereafter. Under IFRS, deferred tax assets are calculated based on the estimated tax deduction determined at each

reporting date under applicable tax law (e.g., intrinsic value). If the tax deduction exceeds cumulative compensation cost,

deferred tax based on the excess is credited to equity. If the tax deduction is less than or equal to cumulative compensation

cost, deferred taxes are recorded in income. Therefore, the Company recorded the adjustments relating to the tax effect

recognised on the share-based payment arrangements as a deferred tax asset with an offsetting entry to equity at the

transition date to IFRS and as at 24 April 2015.

D: Under Local GAAP, the Company attributed compensation costs over the vesting period by utilizing the “straight-

line” method to account for share-based payment awards subject to graded vesting based on a service condition. The use of

the “straight-line” method resulted in less compensation cost being recognised in earlier years. Accordingly, the Company

recorded an adjustment to “Additional paid-in capital/Share premium” with an offsetting entry to retained earnings at the

transition date to IFRS and as at 24 April 2015.

E: Under Local GAAP, a liability for social security contributions on employee share-based payment awards is

recognised on the date of the event triggering the measurement and payment of the tax to the taxing authority (generally

the exercise date). Under IFRS, the Company follows the method to accrue the liability based on the consumption of

services received from employees. The Company recorded an adjustment to current “Provision for employee severance

indemnities” and non-current “Other employee benefit provisions” with an offsetting entry to retained earnings at

the transition date to IFRS and as at 24 April 2015.

The transition from Local GAAP to IFRS has not had a material impact on the statement of cash flows.

Note 4. Financial Risk Management

Management of financial risk

Increasing market fluctuations may result in significant earnings and cash flow volatility risk for LivaNova. The

Company’s operating business as well as its investment and financing activities are affected particularly by changes in

foreign exchange rates, interest rates and concentration of procurement suppliers. In order to optimize the allocation of the

financial resources across the LivaNova segments and entities, as well as to achieve its aims, LivaNova identifies, analyzes

and manages the associated market risks. The Company seeks to manage and control these risks primarily through its

regular operating and financing activities, and uses derivative financial instruments when deemed appropriate.

The Company’s CFO oversees the management of these risks. The CFO is supported by a senior financial

management team that advises on financial risks and the appropriate financial risk governance framework for the

Company. The senior financial management team provides assurance to the Company’s senior management that the

Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are

identified, measured and managed in accordance with group policies and group risk appetite. All derivative activities for

risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision.

It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken. Intercompany

financing or investments of operating units are preferably carried out in their functional currency or on a hedged basis. The

Board of Directors reviews and agrees policies for managing each of these risks.

Liquidity risk

Liquidity risk results from the Company’s inability to meet its financial liabilities. LivaNova follows a deliberated

financing policy that is aimed towards a balanced financing portfolio, a diversified maturity profile and a comfortable

liquidity cushion. LivaNova mitigates liquidity risk by the implementation of an effective working capital and centralized

benefit below the deferred tax asset is charged to equity to the extent of prior windfall benefits, and to tax expense

The following tables reflect the undiscounted cash outflows related to settlement and repayments, of the Company's

cash management and arranged credit facilities with highly rated financial institutions. In addition, LivaNova constantly
monitors funding options available in the capital markets, as well as trends in the availability and costs of such funding,
with a view to maintaining financial flexibility and limiting repayment risks.

financial liabilities at a balance sheet date. The disclosed expected undiscounted net cash outflows from derivative
financial liabilities are determined based on each particular settlement date of an instrument and based on the earliest date
on which LivaNova could be required to pay. Cash outflows for financial liabilities (including interest) without fixed
amount or timing are based on the conditions existing at respective balance sheet date.

Contractual undiscounted cash outflows was as follows (in thousands):

31 December 2015

DUE
WITHIN 1
YEAR

1-2 YEARS

2-5 YEARS

OVER 5
YEARS

TOTAL

Non-derivative financial
instruments

Trade payables
Public grants
Financial liabilities
Other liabilities

Total
Financial derivative
liabilities
- on exchange risk
- on rate risk

Total

Non-derivative financial
instruments

106,258 $

— $

—
21,243
—
127,501

3,918
20,853
—
24,771

— $
—
60,908
—
60,908

— $
—
10,030
—
10,030

1,107
708
1,815 $

—
865
865 $

—
918
918 $

—
10
10 $

106,258
3,918
113,034
—
223,210

1,107
2,501
3,608

24 April 2015

DUE
WITHIN 1
YEAR

1-2 YEARS

2-5 YEARS

OVER 5
YEARS

TOTAL

Trade payables

Total

7,251 $
7,251 $

— $
— $

7,251
7,251

26 April 2014

DUE
WITHIN 1
YEAR

1-2 YEARS

2-5 YEARS

OVER 5
YEARS

TOTAL

Non-derivative financial
instruments

Trade payables

Total

7,570 $
7,570 $

— $
— $

121

— $
— $

7,570
7,570

Foreign Currency Exchange Rate Risk

Foreign exchange risk is the risk that reported financial performance of the fair value of future cash flows of a

financial instrument will fluctuate because of changes in foreign exchange rates. LivaNova operates in many countries and
currencies and therefore currency fluctuations may impact LivaNova’s financial results. In the ordinary course of business
LivaNova is exposed to foreign currency exchange rate fluctuations, particularly between the U. S. dollar, Euro, Pound
Sterling and Japanese Yen. LivaNova is exposed to currency risk in the following areas:

• Transaction exposures, related to anticipated sales and purchases and on-balance-sheet receivables/ payables

resulting from such transactions

• Translation exposure of foreign-currency intercompany and external debt

• Translation exposure of net income in foreign entities

• Translation exposure of foreign-currency denominated equity invested in consolidated companies

It is LivaNova’s policy to reduce the potential year on year volatility caused by foreign-currency movements on its net
earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases.
Intercompany financing or investments of operating units are preferably carried out in their functional currency or on a
hedged basis. Additionally, foreign currency exchange rate exposure is partly balanced by purchasing of goods,
commodities and services in the respective currencies, as well as production activities in the local markets. LivaNova’s
operating units are prohibited from borrowing or investing in foreign currencies on a speculative basis. The target is to
keep up to 15 months of consolidated EBITDA, denominated in material currencies, hedged against USD, LivaNova’s
reporting currency. At 31 December 2015, cash flow hedge is carried out for FX net risk positions denominated in Japanese
Yen and in Pound Sterling.

Based on our exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the U.S. dollar had

uniformly weakened or strengthened by 10% against the Pound Sterling and the Japanese Yen, in the transitional period
ended at 31 December 2015, the effect on our unrealised income or expense for our derivatives outstanding at 31
December 2015 would have been approximately $2.3 million. We did not engage in derivative contracts prior to the
Mergers.

Any gains and losses on the fair value of derivative contracts would generally be offset by gains and losses on the

underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

With regard to financial instruments denominated in currencies other than the currency of account of the companies
holding them, the currencies involving the greatest exposure are the U. S. dollar, Euro, Pound Sterling and Japanese Yen as
indicated below (in thousands):

122

Foreign Currency Exchange Rate Risk

Foreign exchange risk is the risk that reported financial performance of the fair value of future cash flows of a

financial instrument will fluctuate because of changes in foreign exchange rates. LivaNova operates in many countries and

currencies and therefore currency fluctuations may impact LivaNova’s financial results. In the ordinary course of business

LivaNova is exposed to foreign currency exchange rate fluctuations, particularly between the U. S. dollar, Euro, Pound

Sterling and Japanese Yen. LivaNova is exposed to currency risk in the following areas:

• Transaction exposures, related to anticipated sales and purchases and on-balance-sheet receivables/ payables

resulting from such transactions

• Translation exposure of foreign-currency intercompany and external debt

• Translation exposure of net income in foreign entities

• Translation exposure of foreign-currency denominated equity invested in consolidated companies

It is LivaNova’s policy to reduce the potential year on year volatility caused by foreign-currency movements on its net

earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases.

Intercompany financing or investments of operating units are preferably carried out in their functional currency or on a

hedged basis. Additionally, foreign currency exchange rate exposure is partly balanced by purchasing of goods,

commodities and services in the respective currencies, as well as production activities in the local markets. LivaNova’s

operating units are prohibited from borrowing or investing in foreign currencies on a speculative basis. The target is to

keep up to 15 months of consolidated EBITDA, denominated in material currencies, hedged against USD, LivaNova’s

reporting currency. At 31 December 2015, cash flow hedge is carried out for FX net risk positions denominated in Japanese

Yen and in Pound Sterling.

Based on our exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the U.S. dollar had

uniformly weakened or strengthened by 10% against the Pound Sterling and the Japanese Yen, in the transitional period

ended at 31 December 2015, the effect on our unrealised income or expense for our derivatives outstanding at 31

December 2015 would have been approximately $2.3 million. We did not engage in derivative contracts prior to the

Mergers.

Any gains and losses on the fair value of derivative contracts would generally be offset by gains and losses on the

underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

With regard to financial instruments denominated in currencies other than the currency of account of the companies

holding them, the currencies involving the greatest exposure are the U. S. dollar, Euro, Pound Sterling and Japanese Yen as

indicated below (in thousands):

Assets
Cash and cash equivalents denominated in
foreign currency
Trade receivables and other assets
denominated in foreign currency
Financial assets denominated in foreign
currency
Other assets denominated in foreign currency

Total assets

Liabilities
Trade payables denominated in foreign
currency
Financial liabilities denominated in foreign
currency
Other liabilities denominated in foreign
currency
Total liabilities

Net exposure

Financial derivative liabilities
- not for hedging (1)
- for hedging

Total

EUR

USD

31 December 2015
GBP
JPY

OTHER

TOTAL

4,264

806

3,247

809

9,211

372

31,450

1,182

1,027

8,537

42,568

—
—
457

—
—
35,714

—
—
1,988

—
—
4,274

—
—
9,346

—
—
51,779

128

36,175

1,097

4,522

1,108

43,030

—

—
128

329

—
—
—

213

—

241

—
36,388

—
1,097

—
4,522

—
1,136

—
43,271

(674)

891

(248)

8,210

8,508

—
—
—

(147)
—

(147)

(567)
—

(567)

603
—
603

(111)
—

(111)

Total net exposure

— $

147 $

567 $

(603) $

111

(1) for hedging transactions that do not meet the requirements for hedge accounting

EUR

USD

24 April 2015
JPY

GBP

OTHER

TOTAL

Assets
Cash and cash equivalents
denominated in foreign currency
Trade receivables and other assets
denominated in foreign currency
Total assets

Liabilities
Trade payables denominated in
foreign currency
Total liabilities

—

1,958

—

634

1,054

3,646

5,370
5,370

3,603
5,561

—
—

40
40

—
—

1,914
2,548

1,279
2,333

12,166
15,812

105
105

84
84

229
229

Total net exposure

5,370 $

5,521 $

— $

2,443 $

2,249 $

15,583

123

EUR

USD

26 April 2014
JPY

GBP

OTHER

TOTAL

Assets
Cash and cash equivalents
denominated in foreign currency
Trade receivables and other assets
denominated in foreign currency
Total assets

Liabilities
Trade payables denominated in
foreign currency
Total liabilities

—

1,710

—

774

1,248

3,732

3,335
3,335

6,496
8,206

—
—

137
137

—
—

1,480
2,254

1,379
2,627

12,690
16,422

111
111

130
130

378
378

Total net exposure

3,335 $

8,069 $

— $

2,143 $

2,497 $

16,044

Interest Rate Risk

The Company’s main interest rate risk arises from long-term debt with variable rates, which expose the Company to
cash flow interest rate risk. LivaNova’s policy is to hedge, case by case, medium-long term loans from a floating to a fixed
rate, to avoid the impact on net earnings of any potential increase of interest rates. During the transitional period ended 31
December 2015, the Company’s debt at variable rates was mainly denominated in Euro and in U.S. dollar.

As at 31 December 2015, as a consequence of the pre-payment of the $20 million Term Loan with Unicredit New

York, LivaNova Group has no outstanding financing denominated in USD.

We manage a portion of our interest rate risk with contracts that swap floating-rate interest payments for fixed rate

interest payments.

As at 31 December 2015, the Company had outstanding derivative contracts to hedge against the risk of interest rate

fluctuations in a notional amount of $99.6 million, equal to about 57% of consolidated financial liabilities at 31 December
2015. There were no hedging activities prior to the Mergers.

At 31 December 2015, if interest rates on Euro-denominated debt had been 10 basis points higher or lower with all
other variables held constant, the calculated post-tax profit for the period would have been approximately $85 thousand
lower or higher, mainly as a result of higher or lower interest expense on floating rate debt; other components of equity
would have been $219 thousand lower or $223 thousand higher mainly as a result of a decrease or increase in the fair value
of fixed rate interest rate swaps (derivatives designated for hedge accounting).

The following assumptions were used for the sensitivity analysis as at 31 December 2015:

Interest-bearing assets: change of +0.25% - 0.05% in short-term rates at 31 December;

•
• Unhedged financial liabilities: change of +0.50% - 0.05% in the rate curve at 31 December relative to euro

rates;

• Hedged financial liabilities: change of +0.50% - 0.05% in the rate curve at 31 December relative to euro and

US dollar rates.

Credit Risk

Our trade receivables represent potential concentrations of credit risk. This risk is limited due to the large number of
customers and their dispersion across a number of geographic areas, as well as our efforts to control our exposure to credit
risk by monitoring our receivables, the use of credit approvals and credit limits and entering into the factoring agreements.
Refer to "Note 14. Trade Receivables and Allowance for Bad Debt" for more details. In addition, we have historically had

124

—

Assets

Cash and cash equivalents

denominated in foreign currency

Trade receivables and other assets

denominated in foreign currency

Total assets

Liabilities

Trade payables denominated in

foreign currency

Total liabilities

Interest Rate Risk

—

137

111

130

378

Total net exposure

3,335 $

8,069 $

— $

2,143 $

2,497 $

16,044

The Company’s main interest rate risk arises from long-term debt with variable rates, which expose the Company to

cash flow interest rate risk. LivaNova’s policy is to hedge, case by case, medium-long term loans from a floating to a fixed

rate, to avoid the impact on net earnings of any potential increase of interest rates. During the transitional period ended 31

December 2015, the Company’s debt at variable rates was mainly denominated in Euro and in U.S. dollar.

As at 31 December 2015, as a consequence of the pre-payment of the $20 million Term Loan with Unicredit New

York, LivaNova Group has no outstanding financing denominated in USD.

We manage a portion of our interest rate risk with contracts that swap floating-rate interest payments for fixed rate

interest payments.

As at 31 December 2015, the Company had outstanding derivative contracts to hedge against the risk of interest rate

fluctuations in a notional amount of $99.6 million, equal to about 57% of consolidated financial liabilities at 31 December

2015. There were no hedging activities prior to the Mergers.

At 31 December 2015, if interest rates on Euro-denominated debt had been 10 basis points higher or lower with all

other variables held constant, the calculated post-tax profit for the period would have been approximately $85 thousand

lower or higher, mainly as a result of higher or lower interest expense on floating rate debt; other components of equity

would have been $219 thousand lower or $223 thousand higher mainly as a result of a decrease or increase in the fair value

of fixed rate interest rate swaps (derivatives designated for hedge accounting).

The following assumptions were used for the sensitivity analysis as at 31 December 2015:

•

Interest-bearing assets: change of +0.25% - 0.05% in short-term rates at 31 December;

• Unhedged financial liabilities: change of +0.50% - 0.05% in the rate curve at 31 December relative to euro

• Hedged financial liabilities: change of +0.50% - 0.05% in the rate curve at 31 December relative to euro and

rates;

US dollar rates.

Credit Risk

Our trade receivables represent potential concentrations of credit risk. This risk is limited due to the large number of

customers and their dispersion across a number of geographic areas, as well as our efforts to control our exposure to credit

risk by monitoring our receivables, the use of credit approvals and credit limits and entering into the factoring agreements.

Refer to "Note 14. Trade Receivables and Allowance for Bad Debt" for more details. In addition, we have historically had

EUR

USD

JPY

GBP

OTHER

TOTAL

26 April 2014

—

1,710

—

774

1,248

3,732

3,335

6,496

8,206

1,480

2,254

1,379

2,627

12,690

16,422

strong collections and minimal write-offs. While we believe that our reserves for credit losses are adequate, essentially all
of our trade receivables are concentrated in the hospital and healthcare sectors worldwide, and accordingly, we are exposed
to their respective business, economic and country-specific variables. Although we do not currently foresee a concentrated
credit risk associated with these receivables, repayment is dependent on the financial stability of these industry sectors and
the respective countries’ national economies and healthcare systems.

The maximum theoretical credit risk exposure for LivaNova is an aggregate carrying amount of financial assets at

each reporting period date (in thousands):

Financial assets
Other assets
Trade receivables
Other receivables
Other financial assets
Cash and cash equivalents
Guarantees

Total

31 December 2015

24 April 2015

26 April 2014

19,829 $
1,381
249,075
15,230
8,533
112,613
42,051
448,712 $

17,127 $
—
50,569
248
27,020
124,187
—

219,151 $

15,944
—
50,674
248
25,029
103,299
—
195,194

The risk related to bank accounts, financial assets and assets for financial derivatives is limited since all bank and

financial counterparties have a high rating.

The guarantees issued by LivaNova are primarily due to regulatory requirements (security issued to credit institutions
to back guarantees issued by them for competitive bidding procedures and guarantees to the tax administration for the VAT
tax consolidation scheme), and thus, the related risk is remote as also seen on a historical basis.

Since LivaNova operates in the medical technology sector, there is not a significant risk of customer insolvency, a
significant portion of which is related to government agencies, but they are subject to the risk related to cash requirements
due to the high level of trade receivables owing to average collection periods (D.S.O. - days of sales outstanding) and the
ageing of these receivables.

Credit risk is managed on a group basis. For banks and financial institutions, only independently rated parties with a

minimum rating of ‘A’ (or equivalent) are accepted.

For customers, if there is no independent rating, risk control assesses the credit quality of the customer, taking into
account its financial position, past experience and other factors. Individual risk limits are set based on internal or external
information in accordance with limits set by the Company’s Treasury Group. The compliance with and authorization of
credit limits by customers is regularly monitored by line management. Additionally, the Company established a Bad Debt
Policy, which provides the methodology to be used to calculate an addition to the provision for uncollectible receivables
for past-due receivables for each LivaNova company and the ageing of each receivable.

Changes in provisions for uncollectible receivables are explained in "Note 14. Trade Receivables and Allowance for

Bad Debt."

For the purposes of disclosing the credit risk to which LivaNova is exposed, below is a breakdown of trade receivables

by due dates (ageing).

125

(in thousands)

Trade receivables

Performing
Less than 30 days past due
31-120 days past due
121-365 days past due
366-730 days past due
Over 730 days past due

Total

31 December 2015

24 April 2015

26 April 2014

184,022 $
24,282
19,429
12,656
6,600
2,086
249,075 $

44,091 $
3,920
1,273
13
1,272
—
50,569 $

44,545
5,375
506
173
75
—
50,674

Trade receivables that are past due were $65.1 million, $6.5 million and $6.1 million at 31 December 2015, 24 April
2015 and 26 April 2014, respectively. Of this amount 24.6%, 29.9% and 19.0%, at 31 December 2015, 24 April 2015 and
26 April 2014, respectively, are receivables from certain government hospitals that pay their suppliers in 1-2 years on
average, and the remaining are receivables from private customers, clinics and distributors, most of which have agreed to
repayment plans through the renegotiation of payment terms.

Trade receivables that are not past due and not written down were $184.0 million, $44.1 million and $45.5 million at

31 December 2015, 24 April 2015 and 26 April 2014, respectively. Of this amount, 13.1%, 23.2% and 29.1%, at 31
December 2015, 24 April 2015 and 26 April 2014, respectively, were the receivables from government as indicated in the
following table:

31 December 2015

TOTAL PERFORMING

PAST DUE

24 April 2015
TOTAL PERFORMING

PAST DUE

26 April 2014
TOTAL PERFORMING

PAST DUE

BY
SECTOR

Public

Private

Total

39,484 $
209,591
249,075 $

24,106 $
159,916
184,022 $

15,378 $ 12,155 $
49,675
65,053 $ 50,569 $

38,414

10,219 $
33,872
44,091 $

1,936 $ 14,143 $
4,542
6,478 $ 50,674 $

36,531

12,978 $
31,567
44,545 $

1,165
4,964
6,129

Concentrations of risk by region are provided below in order to further assess the risk related to the LivaNova’s trade

receivables:

BY REGION

Italy

Spain

France

Germany

Rest of Europe

31 December 2015

24 April 2015

26 April 2014

D.S.O. TOTAL PERFORMING

PAST
DUE

D.S.O. TOTAL PERFORMING

PAST
DUE D.S.O. TOTAL PERFORMING

PAST
DUE

118 $ 25,536 $
165
62
17
70

16,996
22,645
3,927
23,039

15,875 $ 9,661
8,044
8,952
2,564
20,081
3,336
591
7,047
15,992

99 $
134
64
27
39

780 $

1,153
805
731
5,282

462 $
568
568
616
5,017

318 $ 105 $
585
237
115
265

153
52
37
31

679 $

1,200
870
624
4,495

431 $
561
725
476
4,020

248
639
145
148
475

North America

65,347

54,548

10,799

55 35,511

31,753

3,758

33,687

30,038

3,649

Japan

Rest of world

Total

10,891
80,694

61
143
73 $ 249,075 $

—
10,891
54,347
26,347
184,022 $ 65,053

942
5,365

135
112
61 $ 50,569 $

—
942
4,165
1,200
44,091 $ 6,478

811
8,308

128
91
57 $ 50,674 $

—
811
7,483
825
44,545 $ 6,129

Revenues are derived from a large number of customers with no customers being individually material.

The average collection period increased from 61 days at 24 April 2015 to 73 days at 31 December 2015.

126

(in thousands)

Trade receivables

Performing

Less than 30 days past due

31-120 days past due

121-365 days past due

366-730 days past due

Over 730 days past due

Total

31 December 2015

24 April 2015

26 April 2014

184,022 $

44,091 $

24,282

19,429

12,656

6,600

2,086

3,920

1,273

1,272

—

44,545

5,375

506

173

—

249,075 $

50,569 $

50,674

Trade receivables that are past due were $65.1 million, $6.5 million and $6.1 million at 31 December 2015, 24 April

2015 and 26 April 2014, respectively. Of this amount 24.6%, 29.9% and 19.0%, at 31 December 2015, 24 April 2015 and

26 April 2014, respectively, are receivables from certain government hospitals that pay their suppliers in 1-2 years on

average, and the remaining are receivables from private customers, clinics and distributors, most of which have agreed to

repayment plans through the renegotiation of payment terms.

Trade receivables that are not past due and not written down were $184.0 million, $44.1 million and $45.5 million at

31 December 2015, 24 April 2015 and 26 April 2014, respectively. Of this amount, 13.1%, 23.2% and 29.1%, at 31

December 2015, 24 April 2015 and 26 April 2014, respectively, were the receivables from government as indicated in the

following table:

SECTOR

receivables:

31 December 2015

24 April 2015

26 April 2014

TOTAL PERFORMING

PAST DUE

TOTAL PERFORMING

PAST DUE

TOTAL PERFORMING

PAST DUE

Public

Private

Total

39,484 $

24,106 $

15,378 $ 12,155 $

209,591

159,916

49,675

38,414

249,075 $

184,022 $

65,053 $ 50,569 $

10,219 $

33,872

44,091 $

1,936 $ 14,143 $

4,542

36,531

6,478 $ 50,674 $

12,978 $

31,567

44,545 $

1,165

4,964

6,129

Concentrations of risk by region are provided below in order to further assess the risk related to the LivaNova’s trade

31 December 2015

24 April 2015

26 April 2014

D.S.O. TOTAL PERFORMING

DUE D.S.O. TOTAL PERFORMING

PAST

DUE

PAST

DUE

248

639

145

148

475

561

725

476

4,020

BY REGION

Italy

Spain

France

Germany

Rest of Europe

North America

Rest of world

Japan

Total

165

143

16,996

22,645

3,927

23,039

65,347

10,891

80,694

The D.S.O. (days of sales outstanding), or average collection period, is calculated as the ratio of total receivables at the

end of the period to revenues generated in the 12 preceding months.

D.S.O. = (Trade receivables/Revenues) * 365

For comparability the revenue amounts include VAT.

For the purposes of the disclosure of credit risk, there were no past-due balances of a significant amount related to

other assets, other receivables and financial assets.

Capital management

LivaNova maintains a sufficient amount of capital to meet its development needs, fund the business units' operations

and ensure the Company continues to be a going concern. The equilibrium of sources of funding, which is also aimed at
minimising overall capital costs, is achieved by balancing risk capital contributed on a permanent basis by shareholders,
and debt capital, which is in turn diversified and structured with several due dates and in many currencies. To this end,
changes in debt levels in relation to both equity and operating profit, and the generation of cash by the business units are
constantly kept under control.

Note 5. Fair Value Measurements

We follow the guidance on fair value measurements and disclosures with respect to assets and liabilities
that are measured at fair value on both a recurring and non-recurring basis. Under this guidance, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market
participants would use in valuing the asset or liability, based on market data obtained from sources independent
of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would
use in valuing the asset or liability developed based upon the best information available in the circumstances.
The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three
levels defined as follows:

• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities

• Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted
prices) that are observable for the asset or liability, either directly or indirectly

118 $ 25,536 $

15,875 $ 9,661

99 $

780 $

462 $

318 $ 105 $

679 $

431 $

• Level 3 - Inputs are unobservable for the asset or liability

8,952

20,081

3,336

15,992

8,044

2,564

591

7,047

134

1,153

805

731

5,282

568

616

5,017

585

237

115

265

153

1,200

870

624

4,495

No assets or liabilities are classified as Level 1. Financial assets and liabilities that are classified as Level 2
include derivative instruments, primarily forward and option currency contracts and interest rate swaps contracts,
which are valued using standard calculations and models that use readily observable market data as their basis.

54,548

10,799

55 35,511

31,753

3,758

33,687

30,038

3,649

Level 3 includes a contingent payment recognised as a result of acquisition of Cellplex Pty Ltd. and

10,891

54,347

—

26,347

135

112

942

5,365

942

—

4,165

1,200

128

811

8,308

811

7,483

—

825

73 $ 249,075 $

184,022 $ 65,053

61 $ 50,569 $

44,091 $ 6,478

57 $ 50,674 $

44,545 $ 6,129

investments in non-listed companies classified as AFS.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table provides information by level for assets and liabilities that are measured at fair value on

Revenues are derived from a large number of customers with no customers being individually material.

a recurring basis for the transitional period 25 April 2015 to 31 December 2015 (in thousands):

The average collection period increased from 61 days at 24 April 2015 to 73 days at 31 December 2015.

127

Fair Value as at Fair Value Measurements Using Inputs Considered as:

31 December
2015

Level 1

Level 2

Level 3

Assets:
Available-for-sale investments
Derivative Assets - for hedging
(exchange rates)
Total assets

Liabilities:
Derivative Liabilities - for hedging
(interest rates)
Derivative Liabilities - not for
hedging (interest rates)
Derivative Liabilities - not for
hedging (exchange rates)
Earnout for contingent payments(1)

Total Liabilities

15,847 $

839
16,686 $

— $

—
— $

— $

839
839 $

2,876

—

2,876

1,547
3,457
7,904 $

—

—
—
— $

1,547

—
4,447 $

15,487

—
15,487

—

—
3,457
3,457

(1) This contingent payment arose as a result of the acquisition of Cellplex Pty Ltd. in September 2015 and was valued using
the Black Scholes method at the date of the Mergers.

Fair Value as at Fair Value Measurements Using Inputs Considered as:

24 April 2015

Level 1

Level 2

Level 3

Assets:
Available-for-sale investments

Total assets

17,127 $
17,127 $

— $
— $

17,127
17,127

Fair Value as at Fair Value Measurements Using Inputs Considered as:

26 April 2014

Level 1

Level 2

Level 3

15,944 $
15,944 $

— $
— $

15,944
15,944

Assets:
Available-for-sale investments

Total assets

Level 2

To measure the fair value of its derivative transactions (transactions to hedge exchange risk and interest rate

risk), we calculate the mark-to-market of each transaction using prices quoted in active markets (e.g. the spot
exchange rate of a currency for forward exchange transactions) and observable market inputs processed for the
measurement (e.g. the fair value of an interest rate swap using the interest rate curve), or the measurement of an
exchange rate option (with the processing of listed prices and observable variables such as volatility).

For all level 2 valuations, we use the information provided by a third-party as a source for obtaining quoted
observable prices and to process market variables. In particular, we use the following techniques to calculate the
fair value of derivatives:

128

Fair Value as at Fair Value Measurements Using Inputs Considered as:

31 December

2015

Level 1

Level 2

Level 3

Available-for-sale investments

15,847 $

Derivative Assets - for hedging

839

16,686 $

Assets:

(exchange rates)

Total assets

Liabilities:

Derivative Liabilities - for hedging

(interest rates)

Derivative Liabilities - not for

hedging (interest rates)

Derivative Liabilities - not for

hedging (exchange rates)

Earnout for contingent payments(1)

Total Liabilities

1,547

3,457

7,904 $

— $

—

— $

—

— $

839

839 $

1,547

—

4,447 $

15,487

—

15,487

—

3,457

2,876

—

2,876

(1) This contingent payment arose as a result of the acquisition of Cellplex Pty Ltd. in September 2015 and was valued using

the Black Scholes method at the date of the Mergers.

Fair Value as at Fair Value Measurements Using Inputs Considered as:

24 April 2015

Level 1

Level 2

Level 3

Available-for-sale investments

Assets:

Total assets

17,127 $

— $

17,127

Fair Value as at Fair Value Measurements Using Inputs Considered as:

26 April 2014

Level 1

Level 2

Level 3

Available-for-sale investments

15,944 $

— $

15,944

Assets:

Total assets

Level 2

To measure the fair value of its derivative transactions (transactions to hedge exchange risk and interest rate

risk), we calculate the mark-to-market of each transaction using prices quoted in active markets (e.g. the spot

exchange rate of a currency for forward exchange transactions) and observable market inputs processed for the

measurement (e.g. the fair value of an interest rate swap using the interest rate curve), or the measurement of an

exchange rate option (with the processing of listed prices and observable variables such as volatility).

For all level 2 valuations, we use the information provided by a third-party as a source for obtaining quoted

observable prices and to process market variables. In particular, we use the following techniques to calculate the

fair value of derivatives:

• For forward exchange rate transactions, fair value is calculated using the forward market exchange rate

on the reporting date for each contract. The difference calculated between this amount and the
contractual forward rate is discounted (present value) to the same reporting date;

• For interest rate swaps, the fair value is calculated taking into account the present value of interest
flows calculated on the notional amount of each contract using the forward interest rate curve
applicable on the reporting date.

The derivative valuation models incorporate the credit quality of counterparties, adjustments for

counterparties’ credit risk and the Company’s own non-performance risk.

Level 3

AFS financial assets consist of investments in equity shares and convertible preferred shares of privately

held companies for which there are no quoted market prices. During the transitional period 25 April 2015 to 31
December 2015 it was determined that the fair value of the investment in Cerbomed GmbH was below its
carrying value and that the carrying values of this investment was not expected to be recoverable within a
reasonable period of time. As a result, an impairment charge of $5.1 million was recognised during the
transitional period ended 31 December 2015. No impairment was recorded in the fiscal year ended 24 April
2015. The fair value of the other investments in equity shares approximated their carrying value as at 31
December 2015, 24 April 2015 and 26 April 2014. These investments fall within Level 3 of the fair value
hierarchy due to the use of significant unobservable inputs to determine fair value as the investments are
privately held entities without quoted market prices. To determine the fair value of these investments
management used all pertinent financial information available related to the entities including valuation reports
prepared by third parties.

In September 2015 as a result of acquisition of Cellplex Pty Ltd., a contingent payment was recorded and

valued using the Black-Scholes model at the acquisition date.

Transfers

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe
valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
Our policy is to recognise transfers into and out of levels within the fair value hierarchy at the end of the fiscal
quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no
transfers between Level 1, Level 2 or Level 3 during the periods ended 31 December 2015, and 24 April 2015.
When a determination is made to classify an asset or liability within Level 3, the determination is based upon
the significance of the unobservable inputs to the overall fair value.

Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis

Non-financial assets such as investments in shares that are accounted for using the cost or equity method,

goodwill, intangible assets and property, plant and equipment are measured at fair value when there is an
indicator of impairment and recorded at fair value only when impairment is recognised. The fair values of these
non-financial assets are based on our own judgements about the assumptions that market participants would use
in pricing the asset and on observable market data, when available. We classify these measurements as Level 3
within the fair value hierarchy.

129

We recorded goodwill of $764.7 million on the date of the Mergers. Due to the proximity of the merger

date to the year end, we have not identified any indicators of impairment.

During the transitional period 25 April 2015 to 31 December 2015, we fully impaired finite-lived intangible

assets primarily related to R&D projects, such as our rechargeable battery technology, that no longer factored
into our future product plans, for a loss of $1.7 million. During the fiscal year ended 24 April 2015, we fully
impaired certain neurological signal feedback and processing technology that no longer factored into our
product plans and recognised an impairment loss of $0.4 million. We estimated the fair value of the intangible
assets utilizing a discounted future cash flow analysis, which we classified as a Level 3 within the fair value
hierarchy. Refer to “Note 10. Goodwill and Intangible Assets” for further details.

During the fiscal year ended 24 April 2015, we recognised an impairment loss of $0.8 million for certain

obsolete manufacturing equipment and software primarily related to the Centro project redesign. We estimated
the fair value of the property, plant and equipment utilizing a discounted future cash flow analysis, which we
classified as a Level 3 within the fair value hierarchy.

Financial Instruments Not Measured at Fair Value

The carrying values of our cash and cash equivalents, accounts receivable, accounts payable and accrued

liabilities approximate their fair values due to the short-term nature of these items.

The balance of our investments in short-term securities as at 31 December 2015 consisted of commercial
paper carried at amortized cost which approximates its fair value. The balances as at 24 April 2015 and 26 April
2014 consisted of a certificate of deposit and commercial paper that are considered held-to-maturity debt
securities and carried at amortized cost, which approximate fair value. Refer to “Note 12. Financial Assets” for
further details.

The carrying value of our long and short-term debt as at 31 December 2015 was $174.3 million which we
believe approximates fair value. We did not have any debt outstanding as at 24 April 2015 and 26 April 2014.

Note 6. Financial Instruments

The Company uses several instruments to fund its operating activities including short and long-term debt

from credit institutions and other lenders, short-term bank loans and advances against trade receivables sold
under factoring agreements. The Company’s other financial instruments consist of trade payables and
receivables resulting from operating activities, investments in other companies, assets and liabilities for
financial derivatives (primarily interest rate swaps and forward foreign currency contracts) and other
receivables and payables other than those related to staff, tax authorities and welfare agencies.

Classification of financial instruments

With regard to classification of financial instruments on the basis of the types as specified in IAS 39, the

following should be noted:

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate exchange

risk on imports and exports are classified under “Hedging derivatives” when they meet the
requirements for being recognised as hedge accounting instruments, and under “Financial
assets/liabilities at fair value through profit or loss” when these requirements are not met.

130

We recorded goodwill of $764.7 million on the date of the Mergers. Due to the proximity of the merger

date to the year end, we have not identified any indicators of impairment.

During the transitional period 25 April 2015 to 31 December 2015, we fully impaired finite-lived intangible

assets primarily related to R&D projects, such as our rechargeable battery technology, that no longer factored

into our future product plans, for a loss of $1.7 million. During the fiscal year ended 24 April 2015, we fully

impaired certain neurological signal feedback and processing technology that no longer factored into our

product plans and recognised an impairment loss of $0.4 million. We estimated the fair value of the intangible

assets utilizing a discounted future cash flow analysis, which we classified as a Level 3 within the fair value

hierarchy. Refer to “Note 10. Goodwill and Intangible Assets” for further details.

During the fiscal year ended 24 April 2015, we recognised an impairment loss of $0.8 million for certain

obsolete manufacturing equipment and software primarily related to the Centro project redesign. We estimated

the fair value of the property, plant and equipment utilizing a discounted future cash flow analysis, which we

classified as a Level 3 within the fair value hierarchy.

Financial Instruments Not Measured at Fair Value

The carrying values of our cash and cash equivalents, accounts receivable, accounts payable and accrued

liabilities approximate their fair values due to the short-term nature of these items.

The balance of our investments in short-term securities as at 31 December 2015 consisted of commercial

paper carried at amortized cost which approximates its fair value. The balances as at 24 April 2015 and 26 April

2014 consisted of a certificate of deposit and commercial paper that are considered held-to-maturity debt

securities and carried at amortized cost, which approximate fair value. Refer to “Note 12. Financial Assets” for

further details.

The carrying value of our long and short-term debt as at 31 December 2015 was $174.3 million which we

believe approximates fair value. We did not have any debt outstanding as at 24 April 2015 and 26 April 2014.

Note 6. Financial Instruments

The Company uses several instruments to fund its operating activities including short and long-term debt

from credit institutions and other lenders, short-term bank loans and advances against trade receivables sold

under factoring agreements. The Company’s other financial instruments consist of trade payables and

receivables resulting from operating activities, investments in other companies, assets and liabilities for

financial derivatives (primarily interest rate swaps and forward foreign currency contracts) and other

receivables and payables other than those related to staff, tax authorities and welfare agencies.

Classification of financial instruments

following should be noted:

With regard to classification of financial instruments on the basis of the types as specified in IAS 39, the

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate exchange

risk on imports and exports are classified under “Hedging derivatives” when they meet the

requirements for being recognised as hedge accounting instruments, and under “Financial

assets/liabilities at fair value through profit or loss” when these requirements are not met.

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate interest
rate risk are classified under “Hedging derivatives” when they meet the requirements for being
recognised as hedge accounting instruments, and under “Financial assets/liabilities at fair value
through profit or loss” when these requirements are not met.

• Trade receivables also include those sold to third parties under factoring agreements that do not meet
the conditions of IAS 39 for their derecognition from the financial statements. To reflect these sales,
payables are recorded for advances received that fall into the category of “Financial liabilities at
amortised cost”.

Classification of financial instruments at 31 December 2015

CLASSIFICATION

CARRYING AMOUNT

FINANCIAL
ASSETS/LIAB
ILITIES AT
FAIR VALUE
THROUGH
PROFIT OR
LOSS

RECEIVABLES
AND LOANS

FINANCIAL
ASSETS HELD
TO
MATURITY

AVAILABLE-
FOR-SALE
FINANCIAL
ASSETS

FINANCIAL
LIABILITIES
AT
AMORTISED
COST

HEDGING
DERIVATIVES

TOTAL

CURRENT
PORTION

NON-
CURRENT
PORTION

FAIR VALUE

Assets
Financial assets $

Other assets

Trade
receivables
Other
receivables
Other financial
assets
Cash and cash
equivalents

Total financial
assets

Liabilities

Financial
liabilities
Other liabilities

Trade payables

Other payables

Financial
derivative
liabilities
Other financial
liabilities

Total financial
liabilities

— $
—

2,205 $
1,463

1,777 $
—

15,847 $
—

— $
—

— $ 19,829 $
—

1,463

— $
—

19,829 $ 19,829
1,463
1,463

—

249,075

24,183

9,271

112,613

—

249,075

—

249,075

—

24,183

9,271

—

24,183

9,271

112,613

—

112,613

—

$ 398,810

1,777

15,847

—

$ 416,434

$ 395,142

21,292

$ 416,434

—
—

1,571

—

—
—

113,034
7,047

—
—

$ 113,034
7,047

21,243
—

91,791
7,047

$ 114,116
7,047

—
—

—

—
—

—

—
—

—

106,258
45,865

—
—

106,258
45,865

—
—

106,258
45,865

—

2,037

3,608

1,815

1,793

3,608

62,487

—

62,487

—

62,487

1,571

—

334,691

2,037

$ 338,299

$ 237,668

$ 100,631

$ 339,381

131

Classification of financial instruments at 24 April 2015

CLASSIFICATION

CARRYING AMOUNT

FINANCIAL
ASSETS/LIAB
ILITIES AT
FAIR VALUE
THROUGH
PROFIT OR
LOSS

RECEIVABLES
AND LOANS

FINANCIAL
ASSETS HELD
TO
MATURITY

AVAILABLE-
FOR-SALE
FINANCIAL
ASSETS

FINANCIAL
LIABILITIES
AT
AMORTISED
COST

HEDGING
DERIVATIVES

TOTAL

CURRENT
PORTION

NON-
CURRENT
PORTION

FAIR VALUE

Assets
Financial assets $

Other assets

Trade
receivables
Other
receivables
Other financial
assets
Cash and cash
equivalents

Total financial
assets

Liabilities

Trade payables $

Other payables

Total financial
liabilities

— $
—

— $

1,563

— $
—

17,127 $
—

— $
—

— $ 17,127 $
—

1,563

— $
—

17,127 $ 17,127
1,563
1,563

—

50,569

4,510

27,020

124,187

—

50,569

4,510

27,020

—

50,569

4,510

27,020

—

124,187

—

124,187

—

$ 207,849

—

17,127

—

$ 224,976

$ 206,286

18,690

$ 224,976

— $
—

7,251 $
13,331

— $
—

7,251 $
13,331

— $
—

7,251
13,331

—

20,582

—

$ 20,582

20,582

—

$ 20,582

132

Classification of financial instruments at 24 April 2015

CLASSIFICATION

CARRYING AMOUNT

FINANCIAL

ASSETS/LIAB

ILITIES AT

FAIR VALUE

THROUGH

PROFIT OR

RECEIVABLES

LOSS

AND LOANS

MATURITY

FINANCIAL

ASSETS HELD

AVAILABLE-

FOR-SALE

FINANCIAL

ASSETS

FINANCIAL

LIABILITIES

AMORTISED

HEDGING

COST

DERIVATIVES

TOTAL

CURRENT

PORTION

NON-

CURRENT

PORTION

FAIR VALUE

— $

17,127 $

— $

—

— $ 17,127 $

—

1,563

— $

17,127 $ 17,127

—

1,563

— $

—

1,563

50,569

4,510

27,020

124,187

—

50,569

4,510

27,020

—

50,569

4,510

27,020

124,187

—

124,187

—

$ 207,849

—

17,127

—

$ 224,976

$ 206,286

18,690

$ 224,976

— $

—

— $

—

— $

—

— $

—

7,251 $

13,331

— $

7,251 $

—

13,331

— $

7,251

—

13,331

—

20,582

—

$ 20,582

20,582

—

$ 20,582

Assets

Financial assets $

Other assets

Trade

receivables

Other

receivables

Other financial

assets

Cash and cash

equivalents

Total financial

assets

Liabilities

Trade payables $

Other payables

Total financial

liabilities

Classification of financial instruments at 26 April 2014

CLASSIFICATION

CARRYING AMOUNT

FINANCIAL
ASSETS/LIAB
ILITIES AT
FAIR VALUE
THROUGH
PROFIT OR
LOSS

RECEIVABLES
AND LOANS

FINANCIAL
ASSETS HELD
TO
MATURITY

AVAILABLE-
FOR-SALE
FINANCIAL
ASSETS

FINANCIAL
LIABILITIES
AT
AMORTISED
COST

HEDGING
DERIVATIVE
S

TOTAL

CURRENT
PORTION

NON-
CURRENT
PORTION

FAIR VALUE

Assets

Financial assets $

Other assets

Trade
receivables

Other
receivables
Other financial
assets
Cash and cash
equivalents

Total financial
assets

Liabilities

Trade payables $

Other payables

Total financial
liabilities

— $
—

— $
856

— $
—

15,944 $
—

— $
—

15,944 $
856

— $
—

15,944 $ 15,944
856

856

—

50,674

3,629

25,029

103,299

—

50,674

3,629

25,029

—

50,674

3,629

25,029

103,299

—

103,299

—

$ 183,487

—

15,944

—

$ 199,431

$ 182,631

16,800

$ 199,431

— $
—

7,570 $
11,460

— $
—

7,570 $
11,460

— $
—

7,570
11,460

—

19,030

—

19,030

—

$ 19,030

Note 7. Business Combinations

On 19 October 2015, and pursuant to the terms of the Merger Agreement, Sorin merged with and into
LivaNova, with LivaNova continuing as the surviving company, immediately followed by the merger of Merger
Sub with and into Cyberonics, with Cyberonics continuing as the surviving company and as a wholly owned
subsidiary of LivaNova. Following the completion of the Mergers, LivaNova became the holding company of
the combined businesses of Cyberonics and Sorin, and LivaNova’s ordinary shares were listed under the ticker
symbol “LIVN”, on NASDAQ and admitted for listing on the standard segment of the U.K. Financial
Authority’s Official List and to trading on the LSE. As a result of the Mergers on 19 October 2015, LivaNova
issued approximately 48.8 million ordinary shares.

On 19 October 2015, each ordinary share of Sorin was converted into the right to receive 0.0472 ordinary
shares of LivaNova, (“Sorin Exchange Ratio”), and each share of common shares of Cyberonics was converted
into the right to receive one ordinary share of LivaNova. The fair value of the shares issued as total
consideration of the Mergers is based on Cyberonics' closing share price of $69.95 per share on 16 October
2015, the last business day prior to the close of the Mergers. Based on the number of outstanding shares of
Sorin and Cyberonics as of 19 October 2015, former Sorin and Cyberonics shareholders held approximately 46
percent and 54 percent, respectively, of LivaNova's ordinary shares after giving effect to the Mergers.

133

Based on the relative voting rights of Cyberonics and Sorin shareholders immediately following completion

of the Mergers and the premium paid by Cyberonics for Sorin ordinary shares, and after taking into
consideration all relevant facts, Cyberonics was considered to be the acquirer for accounting purposes.
LivaNova accounted for the acquisition of Sorin as a business combination using the acquisition method of
accounting. Under the acquisition method of accounting, the tangible and identifiable intangible assets acquired
and liabilities assumed are recorded based on their fair values at the acquisition date with the excess over the
fair value of consideration recognised as goodwill.

The purchase price allocation presented below is based on a preliminary acquisition valuation and includes

the use of estimates based on information that was available to management at the time these audited
consolidated financial statements were prepared. Management is in the process of finalizing appraisals and
estimates that may result in a change in the valuation of assets acquired, liabilities assumed, goodwill
recognised and the related impact on deferred taxes and cumulative translation adjustments. These changes may
have a material impact on the results of operations and financial position. As management finalizes the
valuation of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded
during the measurement period. Fair value estimates are based on a complex series of judgements about future
events and uncertainties and rely heavily on estimates and assumptions. The judgements used to determine the
estimated fair value assigned to each class of assets acquired and liabilities assumed can materially impact the
results of operations.

The following table summarises the fair value of consideration transferred and preliminary fair values of

Sorin’s assets acquired and liabilities assumed:

134

Based on the relative voting rights of Cyberonics and Sorin shareholders immediately following completion

of the Mergers and the premium paid by Cyberonics for Sorin ordinary shares, and after taking into

consideration all relevant facts, Cyberonics was considered to be the acquirer for accounting purposes.

LivaNova accounted for the acquisition of Sorin as a business combination using the acquisition method of

accounting. Under the acquisition method of accounting, the tangible and identifiable intangible assets acquired

and liabilities assumed are recorded based on their fair values at the acquisition date with the excess over the

fair value of consideration recognised as goodwill.

The purchase price allocation presented below is based on a preliminary acquisition valuation and includes

the use of estimates based on information that was available to management at the time these audited

consolidated financial statements were prepared. Management is in the process of finalizing appraisals and

estimates that may result in a change in the valuation of assets acquired, liabilities assumed, goodwill

recognised and the related impact on deferred taxes and cumulative translation adjustments. These changes may

have a material impact on the results of operations and financial position. As management finalizes the

valuation of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded

during the measurement period. Fair value estimates are based on a complex series of judgements about future

events and uncertainties and rely heavily on estimates and assumptions. The judgements used to determine the

estimated fair value assigned to each class of assets acquired and liabilities assumed can materially impact the

results of operations.

The following table summarises the fair value of consideration transferred and preliminary fair values of

Sorin’s assets acquired and liabilities assumed:

(in thousands)
Consideration transferred:
Fair value of common shares issued to Sorin shareholders (1)
Fair value of common shares issued to Sorin share award holders (2)
Fair value of LivaNova share appreciation rights issued to Sorin share appreciation rights holders (3)

Total fair value of consideration transferred

Estimated fair value of assets acquired and liabilities assumed:
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Equity investments
Other assets
Deferred tax assets

Total assets acquired

Short-term debt
Other current liabilities
Long-term debt
Deferred tax liabilities
Other long-term liabilities

Total liabilities assumed
Goodwill

(1) To record the fair value of LivaNova ordinary shares issued to Sorin shareholders (in thousands except for ratio):

Total Sorin shares outstanding as of 16 October 2015
Sorin Exchange Ratio
Shares of LivaNova issued
Value per share of Cyberonics as of 16 October 2015
Fair value of ordinary shares transferred to Sorin shareholders

$
$

1,577,603
9,231
2,249
1,589,083

12,495
224,466
233,832
60,674
192,503
703,865
67,059
7,483
135,517
1,637,894

110,601
237,855
128,458
278,940
57,674
814,304
764,717

477,824
0.0472
22,553
69.95
1,577,603

$
$

(2) Each Sorin share award (other than a Sorin share appreciation right) granted prior to the Sorin merger was accelerated,

vested and was converted into the right to receive LivaNova ordinary shares based on the Sorin Exchange Ratio. The
total fair value of the replacement awards is $25.2 million, including $9.2 million attributable to pre-combination
services and allocated to consideration transferred to acquire Sorin. Of the remaining $16.0 million, $8.3 million was
recognised immediately in the post-combination period and $7.7 million will be recognised over the post-combination
service period to 28 February 2017 due to the service period requirements of the awards. Refer to “Note 21. Share-
Based Incentive Plans” for further discussion of treatment of equity awards.

The consideration transferred in the Mergers was measured using the fair-value-based measure of the share awards as
of the closing date. For purposes of calculating the consideration transferred, the fair-value-based measure of the Sorin
share awards was determined to be the opening market price of LivaNova’s ordinary shares of $69.39 on 19 October
2015.

135

(3) As of 16 October 2015 there were 3,815,824 Sorin share appreciation rights. Each Sorin share appreciation right

granted prior to the Sorin merger effective was accelerated, vested and was converted into the right to receive 0.0472
LivaNova share appreciation right based on the Sorin Exchange Ratio. The total fair value of the replacement share
appreciation rights is $3.8 million, including $2.2 million attributable to pre-combination services and allocated to
consideration transferred to acquire Sorin. The remaining $1.6 million was recognised immediately in the post-
combination period. Refer to “Note 21. Share-Based Incentive Plans” for further discussion of treatment of equity
awards.

Based upon a preliminary acquisition valuation, LivaNova acquired $464.0 million of customer-related

intangible assets, $211.1 million of developed technology intangible assets, $13.6 million related to the Sorin
trade name and $15.1 million related to software, with weighted average estimated useful lives of 17, 14, 4 and
3 years, respectively. Other long-term liabilities include $2.7 million of unfavorable leases with weighted
average remaining lives of 5 years.

Goodwill has been allocated to Cardiac Surgery, Cardiac Rhythm Management and Neuromodulation

operating segments. Goodwill is calculated as the excess of the consideration transferred over the net assets
recognised and represents growth opportunities and expected cost synergies of the combined company. The
Mergers are expected to provide both short-term and long-term revenue enhancements and cost savings and
synergy opportunities, increase the diversity of LivaNova’s business mix, and accelerate the entry into three
emerging market opportunities in the areas of heart failure, sleep apnea and less invasive mitral valves. The
Mergers are also expected to allow LivaNova to utilize and integrate certain Sorin technologies into its existing
and future product lines for epilepsy. LivaNova expects all of its operating segments to benefit, directly or
indirectly, from the synergies arising from the business combination. As a result, as at 31 December 2015, the
Company has provisionally assigned the goodwill arising from the Sorin acquisition to all three operating
segments. This assignment was made by taking into consideration market participant rates of return for each
acquired operating segment (Cardiac Surgery and Cardiac Rhythm Management) in order to assess the
respective fair values. The remaining goodwill, allocated to Neuromodulation, which is the accounting
acquirer’s existing business unit, is supported by the synergies deriving from the Mergers. Goodwill recognised
as a result of the acquisition is not deductible for tax purposes.

The fair value of accounts receivable and other current assets is $285.1 million and includes trade

receivables with a fair value of $224.5 million. The gross amount of trade receivables is $243.9 million.
However, none of the trade receivables have been impaired and it is expected that the contractual amounts can
be collected.

Contingent liabilities assumed includes $9.2 million related to uncertain tax positions. Contingent liabilities

also include $3.4 million for contingent payments at fair value related to two acquisitions completed by Sorin
prior to the closing of the Mergers. The contingent payments for one acquisition are based on achievement of
sales targets by the acquiree through 30 June 2018 and the contingent payments for the second acquisition are
based on sales of cardiopulmonary disposable products and heart lung machines through 2019 of the acquiree.

136

(3) As of 16 October 2015 there were 3,815,824 Sorin share appreciation rights. Each Sorin share appreciation right

granted prior to the Sorin merger effective was accelerated, vested and was converted into the right to receive 0.0472

LivaNova share appreciation right based on the Sorin Exchange Ratio. The total fair value of the replacement share

appreciation rights is $3.8 million, including $2.2 million attributable to pre-combination services and allocated to

consideration transferred to acquire Sorin. The remaining $1.6 million was recognised immediately in the post-

combination period. Refer to “Note 21. Share-Based Incentive Plans” for further discussion of treatment of equity

awards.

Based upon a preliminary acquisition valuation, LivaNova acquired $464.0 million of customer-related

intangible assets, $211.1 million of developed technology intangible assets, $13.6 million related to the Sorin

trade name and $15.1 million related to software, with weighted average estimated useful lives of 17, 14, 4 and

3 years, respectively. Other long-term liabilities include $2.7 million of unfavorable leases with weighted

average remaining lives of 5 years.

Goodwill has been allocated to Cardiac Surgery, Cardiac Rhythm Management and Neuromodulation

operating segments. Goodwill is calculated as the excess of the consideration transferred over the net assets

recognised and represents growth opportunities and expected cost synergies of the combined company. The

Mergers are expected to provide both short-term and long-term revenue enhancements and cost savings and

synergy opportunities, increase the diversity of LivaNova’s business mix, and accelerate the entry into three

emerging market opportunities in the areas of heart failure, sleep apnea and less invasive mitral valves. The

Mergers are also expected to allow LivaNova to utilize and integrate certain Sorin technologies into its existing

and future product lines for epilepsy. LivaNova expects all of its operating segments to benefit, directly or

indirectly, from the synergies arising from the business combination. As a result, as at 31 December 2015, the

Company has provisionally assigned the goodwill arising from the Sorin acquisition to all three operating

segments. This assignment was made by taking into consideration market participant rates of return for each

acquired operating segment (Cardiac Surgery and Cardiac Rhythm Management) in order to assess the

respective fair values. The remaining goodwill, allocated to Neuromodulation, which is the accounting

acquirer’s existing business unit, is supported by the synergies deriving from the Mergers. Goodwill recognised

as a result of the acquisition is not deductible for tax purposes.

The fair value of accounts receivable and other current assets is $285.1 million and includes trade

receivables with a fair value of $224.5 million. The gross amount of trade receivables is $243.9 million.

However, none of the trade receivables have been impaired and it is expected that the contractual amounts can

be collected.

Contingent liabilities assumed includes $9.2 million related to uncertain tax positions. Contingent liabilities

also include $3.4 million for contingent payments at fair value related to two acquisitions completed by Sorin

prior to the closing of the Mergers. The contingent payments for one acquisition are based on achievement of

sales targets by the acquiree through 30 June 2018 and the contingent payments for the second acquisition are

based on sales of cardiopulmonary disposable products and heart lung machines through 2019 of the acquiree.

LivaNova’s consolidated financial statements for the transitional period 25 April 2015 to 31 December
2015 include Sorin’s results of operations from the acquisition date through 31 December 2015. Revenue and
operating loss attributable to Sorin during this period were $200.1 million and $5.9 million, respectively. In
relation to the Mergers, we incurred $42.1 million of transaction costs and $13.7 million of integration costs
during the transitional period 25 April to 31 December 2015. The transaction costs primarily relate to advisory,
legal and accounting fees and are included in the merger-related expenses line item in the consolidated
statement of income (loss). The integration costs are included as a separate line item on the consolidated
statement of income (loss).

Pro forma results of operations (unaudited)

The following unaudited pro forma information presents the results of the Company as if the Mergers were
consummated on 26 April 2014, and had been included in our consolidated statements of income (loss) for the
transitional period 25 April 2015 to 31 December 2015 and the fiscal year ended 24 April 2015:

(in thousands, except per share data)

Revenue
Net Income
Basic and diluted net income per share

Transitional Period 25
April 2015 to

31 December 2015
(unaudited)

Fiscal Year Ended
24 April 2015

(unaudited)

837,241
(30,515)
(0.93)

1,236,477
11,947
0.45

The unaudited pro forma combined results of operations for the transitional period 25 April 2015 to 31
December 2015 and the fiscal year ended 24 April 2015 have been prepared by adjusting the historical results of
Cyberonics to include the historical results of Sorin. The unaudited pro forma information for the fiscal year
ended 24 April 2015 is based on the accounts of Cyberonics presented on the fiscal year ending 24 April 2015
and of Sorin presented on the twelve months ended 30 June 2015. There were no material intervening events
that occurred involving either company between 24 April 2015 and 30 June 2015. The unaudited pro forma
information for the transitional period from 25 April 2015 to 31 December 2015 is based on the accounts of
LivaNova from 25 April 2015 through 31 December 2015 (which consists of legacy Cyberonics operations
through 18 October 2015 and combined Cyberonics and Sorin operations thereafter) and the accounts of Sorin
from 25 April 2015 through the 18 October 2015.

The unaudited pro forma information reflects adjustments that are expected to have a continuing impact on
our results operations and are directly attributable to the Mergers. The unaudited pro forma results include, but
are not limited to, the incremental depreciation expense associated with the step-up fair value adjustments to
property, plant and equipment of $1.6 million for the transitional period 25 April 2015 to 31 December 2015,
$3.2 million for the fiscal year ended 24 April 2015 and the incremental intangible asset amortization to be
incurred based on the preliminary values of each identifiable intangible asset of $13.8 million for the
transitional period 25 April 2015 to 31 December 2015 and $26.2 million for the fiscal year ended 24 April
2015.

137

As a result of the Mergers, LivaNova recorded a $56.8 million step-up of inventory and recognised an
incremental cost of sales expense of $20.8 million from 19 October 2015 to 31 December 2015 associated with
amortization of the step-up in inventory. The unaudited pro forma results include an adjustment to eliminate the
$20.8 million in expense from the transitional period 25 April 2015 to 31 December 2015 and reflect
amortization expense of $56.8 million in the results of the fiscal year ended 24 April 2015 because the expected
inventory usage period is less than 12 months.

The statutory tax rate was applied to unaudited pro forma adjustments, as appropriate, to each adjustment

based on the jurisdiction in which the adjustment was expected to occur.

The pro forma net loss for the transitional period 25 April 2015 to 31 December 2015 includes the
following non-recurring items directly attributable to the merger: $48.8 million of merger-related transaction
expenses and $19.3 million of non-cash share-based compensation charges. The pro forma net loss for the fiscal
year ended 24 April 2105 includes non-recurring merger-related transaction expenses directly attributable to the
Mergers of $35.9 million.

This supplemental pro forma information has been prepared for comparative purposes and does not purport

to be indicative of what would have occurred had the acquisition been made on 26 April 2014, and it is not
indicative of any future results.

Note 8. 2015 Restructuring Plans

We initiated several restructuring plans after the consummation of the Mergers in October 2015. LivaNova

incurred restructuring expenses triggered by the Mergers and on plans following efforts to eliminate duplicate
corporate expenses and also on plans intended to leverage economies of scale and streamline distributions,
logistics and office functions in order to reduce overall costs. The restructuring provision is based on the
information available at the closing of the period and is subject to periodic review.

The restructuring plan’s liabilities for the transitional period 25 April 2015 to 31 December 2015 are as

follows (in thousands):

Employee
severance and
other termination
costs

Supply chain
contract
termination costs

Beginning liability balance
Charges
Cash payments
Currency translation gains (losses)

Ending liability balance

— $
4,720
—
—
4,720 $

— $
—
—
—
— $

Total

—
4,720
—
—
4,720

138

As a result of the Mergers, LivaNova recorded a $56.8 million step-up of inventory and recognised an

incremental cost of sales expense of $20.8 million from 19 October 2015 to 31 December 2015 associated with

amortization of the step-up in inventory. The unaudited pro forma results include an adjustment to eliminate the

$20.8 million in expense from the transitional period 25 April 2015 to 31 December 2015 and reflect

amortization expense of $56.8 million in the results of the fiscal year ended 24 April 2015 because the expected

inventory usage period is less than 12 months.

The statutory tax rate was applied to unaudited pro forma adjustments, as appropriate, to each adjustment

based on the jurisdiction in which the adjustment was expected to occur.

The pro forma net loss for the transitional period 25 April 2015 to 31 December 2015 includes the

following non-recurring items directly attributable to the merger: $48.8 million of merger-related transaction

expenses and $19.3 million of non-cash share-based compensation charges. The pro forma net loss for the fiscal

year ended 24 April 2105 includes non-recurring merger-related transaction expenses directly attributable to the

Mergers of $35.9 million.

This supplemental pro forma information has been prepared for comparative purposes and does not purport

to be indicative of what would have occurred had the acquisition been made on 26 April 2014, and it is not

indicative of any future results.

Note 8. 2015 Restructuring Plans

We initiated several restructuring plans after the consummation of the Mergers in October 2015. LivaNova

incurred restructuring expenses triggered by the Mergers and on plans following efforts to eliminate duplicate

corporate expenses and also on plans intended to leverage economies of scale and streamline distributions,

logistics and office functions in order to reduce overall costs. The restructuring provision is based on the

information available at the closing of the period and is subject to periodic review.

The restructuring plan’s liabilities for the transitional period 25 April 2015 to 31 December 2015 are as

follows (in thousands):

Employee

severance and

other termination

Supply chain

contract

costs

termination costs

Total

Beginning liability balance

Charges

Cash payments

Currency translation gains (losses)

Ending liability balance

— $

4,720

—

4,720 $

— $

—

— $

—

4,720

—

4,720

Note 9. Property, Plant and Equipment

At 26 April 2014
Gross amount
Accumulated depreciation
and impairment
Net amount

At 24 April 2015
Gross amount
Accumulated depreciation
and impairment
Net amount

At 31 December 2015

Gross amount
Accumulated depreciation
and impairment
Net amount

Building and
building
improvements

Equipment,
other, furniture,
fixtures

Capital
investment in
process

Land

Total

1,644 $

26,839 $

27,237 $

6,926 $

62,646

—
1,644

(5,180)
21,659

(19,938)
7,299

—
6,926

(25,118)
37,528

1,644

28,048

28,788

6,695

65,175

—
1,644

(6,084)
21,964

(20,715)
8,073

—
6,695

(26,799)
38,376

15,662

82,014

123,799

42,210

263,685

—
15,662 $

(7,346)
74,668 $

(27,348)
96,451 $

—
42,210 $

(34,694)
228,991

Changes during the year in the net amount of each category of property, plant and equipment are indicated below:

Building and
building
improvements

Equipment,
other, furniture,
fixtures

Capital
investment in
process

Land

Total

Net amount at 26 April 2014

Purchases
Increases for internal work
Disposals
Impairment
Depreciation
Reclassifications
Other changes

Net amount at 24 April 2015

Purchases
IFRS 3 business combinations
Disposals
Impairment
Depreciation
Currency translation gains/losses
Reclassifications
Other changes

Net amount at 31 December 2015

1,644 $
—
—
—
—
—
—
—
1,644

—
14,391
—

(373)
—
—
15,662 $

21,659 $
1,315
—
—
—
(923)
—
(87)
21,964

437
54,284
(44)
—
(1,356)
(2,030)
1,413
—
74,668 $

139

7,299 $
4,509
—
(640)
—
(3,012)
—
(83)
8,073

3,970
93,511
(584)
—
(7,472)
(4,691)
3,644
—
96,451 $

6,926 $
115
—
—
(346)
—
—
—
6,695

11,650
30,317
(226)
—
—
(1,169)
(5,057)
—
42,210 $

37,528
5,939
—
(640)
(346)
(3,935)
—
(170)
38,376

16,057
192,503
(854)
—
(8,828)
(8,263)
—
—
228,991

A building in Cantù, Italy with a net book value of $1.2 million as at 31 December 2015 was provided as collateral to

secure a long-term loan taken out by Sorin Group Italia S.r.l. Refer to “Note 24. Commitments and Contingencies” for
further information. As part of the acquisition, we acquired Sorin’s PP&E with a carrying value of $192.5 million equal to
their fair value.

Note 10. Goodwill and Intangible Assets

At 26 April 2014

Gross amount

Accumulated amortisation
and impairment

Net amount

At 24 April 2015

Gross amount

Accumulated amortisation
and impairment

Net amount

At 31 December 2015

Gross amount

Accumulated amortisation
and impairment

Net amount

Goodwill

Developed
technology

Customer
relationships

Trademarks
and trade
names

Other
intangible
assets

Software

Total

— $

13,964 $

— $

1,148 $

9,843 $

24,955

—
—

(3,229)
10,735

—

13,204

—
—

(3,713)
9,491

—
—

—

—
—

—

—
—

(228)
920

(7,836)
2,007

(11,293)
13,662

1,023

10,537

24,764

(347)
676

(8,625)
1,912

(12,685)
12,079

746,860

213,873

444,472

13,030

25,821

697,207

—

(6,493)
$ 746,860 $ 207,380 $

(5,291)
439,181 $

(660)
12,370 $

(10,225)

—
(22,669)
11 $ 15,596 $ 674,538

During the transitional period 25 April 2015 to 31 December 2015 we purchased a patent license for $1.0 million
related to the integration of conditionally safe MR technologies with our leads. This patent license has an amortization
period of 15 years. In connection with the Mergers and based upon the preliminary acquisition valuation, we acquired
certain finite-lived intangible assets which included $464.0 million of customer relationships, $211.1 million of developed
technology, $13.6 million of trade names and $15.1 million of software. In addition, in connection with the Mergers, we
recorded $764.7 million of goodwill.

The changes in the net carrying value of each class of intangible assets during the year are indicated below:

140

A building in Cantù, Italy with a net book value of $1.2 million as at 31 December 2015 was provided as collateral to

secure a long-term loan taken out by Sorin Group Italia S.r.l. Refer to “Note 24. Commitments and Contingencies” for

further information. As part of the acquisition, we acquired Sorin’s PP&E with a carrying value of $192.5 million equal to

Goodwill

Developed
technology

Customer
relationships

Trademarks
and trade
names

Other
intangible
assets

Software

Total

their fair value.

Note 10. Goodwill and Intangible Assets

At 26 April 2014

Gross amount

Accumulated amortisation

and impairment

Net amount

At 24 April 2015

Gross amount

Accumulated amortisation

and impairment

Net amount

At 31 December 2015

Gross amount

Accumulated amortisation

and impairment

Net amount

Developed

Customer

and trade

intangible

Trademarks

Other

Goodwill

technology

relationships

names

assets

Software

Total

— $

13,964 $

— $

1,148 $

9,843 $

24,955

—

(3,229)

10,735

—

13,204

—

(3,713)

9,491

—

(228)

920

(7,836)

2,007

(11,293)

13,662

1,023

10,537

24,764

(347)

676

(8,625)

1,912

(12,685)

12,079

746,860

213,873

444,472

13,030

25,821

697,207

—

(6,493)

(5,291)

(660)

—

(10,225)

(22,669)

$ 746,860 $ 207,380 $

439,181 $

12,370 $

11 $ 15,596 $ 674,538

During the transitional period 25 April 2015 to 31 December 2015 we purchased a patent license for $1.0 million

related to the integration of conditionally safe MR technologies with our leads. This patent license has an amortization

period of 15 years. In connection with the Mergers and based upon the preliminary acquisition valuation, we acquired

certain finite-lived intangible assets which included $464.0 million of customer relationships, $211.1 million of developed

technology, $13.6 million of trade names and $15.1 million of software. In addition, in connection with the Mergers, we

recorded $764.7 million of goodwill.

The changes in the net carrying value of each class of intangible assets during the year are indicated below:

Net amount at 26 April
2014

Purchases

Increases for internal work

Disposals

Amortisation

Impairment

Reclassifications

Other changes

Net amount at 24 April
2015

Purchases

Increases for internal work

—
—
—
—
—
—
—
—

—
—
—

10,735
—
—
—
(876)
(368)
—
—

9,491
1,000
—

—
—
—
—
—
—
—
—

—
—
—

—
—
—
—
—
—
—
—

—
—
—

IFRS 3 business
combinations
Disposals

Amortisation

Impairment

Currency translation
gains/losses
Reclassifications

Other changes

Net amount at 31
December 2015

764,717

211,102

—
—
—

(17,857)
—
—

(155)
(3,660)
(1,088)

(9,310)
—
—

463,996
—
(5,317)
—

(19,498)
—
—

13,619
—
(661)
—

(588)
—
—

920
—
—
—
(163)
(81)
—
—

676
—
—

12
—
(75)
(601)

(1)
—
—

2,007

694
—
—
(789)
—
—
—

1,912

229
—

13,662
694
—
—

(1,828)

(449)
—
—

12,079
1,229
—

15,136

703,865

(155)

(11,313)

(1,689)

(29,478)
—
—

(1,600)
—

(81)
—
—

$ 746,860

207,380

439,181

12,370

$ 15,596

$ 674,538

During the transitional period 25 April 2015 to 31 December 2015, we fully impaired finite-lived intangible assets
primarily related to R&D projects, such as our rechargeable battery technology, that no longer factored into our future
product plans, for a loss of $1.7 million. The impairment losses were charged to R&D expense in the consolidated
statement of income (loss).

Amortisation costs charged to the consolidated statement of income (loss) totaled $11.3 million and $1.8 million for

the transitional period 25 April 2015 to 31 December 2015 and for the fiscal year ended 24 April 2015, respectively.

The amortisation periods for our finite-lived intangible assets as at 31 December 2015 was as follows:

Developed technology
Customer relationships
Trademarks and trade names
Other intangible assets
Software

Minimum Life
in years

Maximum life
in years

5
16
4
5
1

18
18
4
5
10

Note 11. Investments in Associates, Joint Ventures and Subsidiaries

Equity investments in associates and joint ventures measured at equity. In connection with the Mergers,
refer to “Note 7. Business Combinations”, we acquired equity investments which are accounted for under the
equity method.

141

Prior to the Mergers, Cyberonics did not have any investments accounted for under the equity method. The

table below lists the investments in associates and joint ventures and the balance as at 31 December 2015 (in
thousands except percentage ownership):

La Bouscarre S.C.I.
LMTB - Laser und Medizin Technologie
Gmbh
MD START S.A.
MD START I K.G.
Enopace Biomedical Ltd.
Cardiosolutions Inc.
Caisson Interventional LLC (1)
Highlife S.A.S. (1)
MicroPort Sorin CRM (Shanghai) Co. Ltd.
Respicardia Inc. (2)

Total

Nature of relationship % Ownership 31 December 2015
16

Associate

50.0 $

Associate

Associate
Associate
Associate
Associate
Associate
Associate
Joint venture
Associate

22.5
20.9
23.4
31.8
35.3
43.7
38.0
49.0
19.7

3
—
—
—
—
13,712
8,363
8,959
30,586
61,639

(1) We have outstanding loans to Caisson Interventional LLC and to Highlife S.A.S for $3.6 million included in non-

current financial assets on the consolidated balance sheet.

(2) Although the Company holds less than 20% of the ownership interest and voting control of Respicardia Inc., the

Company has the ability to exercise significant influence through both its shareholding and its nominated director's
active participation on the Respicardia Inc. Board of Directors.

Summarized financial information for all individually not material associates and joint ventures not

adjusted for the percentage of ownership held by the Company, is presented below:

(in thousands)

MD START S.A.
MD START I K.G.
Enopace Biomedical Ltd.
Cardiosolutions Inc.
Caisson Interventional LLC
Highlife S.A.S.
MicroPort Sorin CRM (Shanghai) Co.
Ltd.
Respicardia Inc.

$
$
$
$
$
$

Revenue

Net Profit
(Loss)

Total Assets

Equity

3 $
— $
— $
— $
— $
— $

(237) $
(364) $
(4,600) $
(2,124) $
(7,883) $
(4,283) $

9 $
3,767 $
315 $
1,080 $
3,308 $
906 $

2,121

$
514 $

(7,375) $

(10,516) $

10,326
$
14,681 $

6
3,744
(7,422 )
(1,494 )
434
(1,314 )

9,311
3,049

The summarised financial information of the associates and joint ventures include adjustments made by the

Company when using the equity method, such as fair value adjustments made at the time of acquisition and
adjustments for differences in accounting policies. Therefore, the Company has presented the above disclosures
on this basis.

142

table below lists the investments in associates and joint ventures and the balance as at 31 December 2015 (in

thousands except percentage ownership):

Nature of relationship % Ownership 31 December 2015

LMTB - Laser und Medizin Technologie

La Bouscarre S.C.I.

Gmbh

MD START S.A.

MD START I K.G.

Enopace Biomedical Ltd.

Cardiosolutions Inc.

Caisson Interventional LLC (1)

Highlife S.A.S. (1)

MicroPort Sorin CRM (Shanghai) Co. Ltd.

Respicardia Inc. (2)

Total

Associate

Joint venture

Associate

50.0 $

22.5

20.9

23.4

31.8

35.3

43.7

38.0

49.0

19.7

—

13,712

8,363

8,959

30,586

61,639

(1) We have outstanding loans to Caisson Interventional LLC and to Highlife S.A.S for $3.6 million included in non-

current financial assets on the consolidated balance sheet.

(2) Although the Company holds less than 20% of the ownership interest and voting control of Respicardia Inc., the

Company has the ability to exercise significant influence through both its shareholding and its nominated director's

active participation on the Respicardia Inc. Board of Directors.

Summarized financial information for all individually not material associates and joint ventures not

adjusted for the percentage of ownership held by the Company, is presented below:

(in thousands)

MD START S.A.

MD START I K.G.

Enopace Biomedical Ltd.

Cardiosolutions Inc.

Caisson Interventional LLC

Highlife S.A.S.

MicroPort Sorin CRM (Shanghai) Co.

Ltd.

Respicardia Inc.

Revenue

Total Assets

Equity

Net Profit

(Loss)

3 $

— $

(237) $

(364) $

(4,600) $

(2,124) $

(7,883) $

(4,283) $

9 $

3,767 $

315 $

1,080 $

3,308 $

906 $

2,121

514 $

(7,375) $

(10,516) $

10,326

14,681 $

3,744

(7,422 )

(1,494 )

434

(1,314 )

9,311

3,049

The summarised financial information of the associates and joint ventures include adjustments made by the

Company when using the equity method, such as fair value adjustments made at the time of acquisition and

adjustments for differences in accounting policies. Therefore, the Company has presented the above disclosures

on this basis.

Prior to the Mergers, Cyberonics did not have any investments accounted for under the equity method. The

Refer to "Note 27. Related Parties" for details of transactions and balances between the Company and its

associates and joint ventures. The associates and joint ventures had no contingent liabilities or capital
commitments as at 31 December 2015. The Company has no contingent liabilities relating to its interests in the
associates and joint ventures.

Principal subsidiaries. The Company had the following subsidiaries as at 31 December 2015:

REG. OFFICE

CURRENCY

% CONSOLIDATED
GROUP
OWNERSHIP

LivaNova Plc (Italian Branch)

Alcard Indústria Mecânica Ltda

Caisson Interventional LLC

California Medical Laboratories (CalMed) Inc.

Cardiosolutions Inc.

Cellplex PTY LTD

Cyberonics Europe BV / BA

Cyberonics France SARL

Cyberonics Holdings LLC

Cyberonics Inc.

Cyberonics Latam SRL

Cyberonics Netherlands CV

Cyberonics Spain SL

Enopace Biomedical Ltd

Highlife SAS

Imthera Medical, Inc

La Bouscare S.C.I.

LivaNova Canada Corp

Livn Irishco 2 UC

Livn Irishco Unlimited Company

Livn Luxco Sarl

Livn Luxco 2 Sarl

Livn UK Holdco Limited

Livn UK Limited 2 Co

Livn UK Limited 3 Co

Livn US Holdco, Inc.

Livn US Lp

Livn US 1, LLC

Livn US 3 LLC

LMTB - Laser - und Medizin - Technologie Gmbh

MD Start I KG

MD Start SA

MicroPort Sorin CRM (Shanghai) Co. Ltd

Reced Indústria Mecânica Ltda

Respicardia, Inc

Sobedia Energia

Sorin CP Holding S.r.l.

Sorin CRM Holding SAS

Sorin CRM SAS

EUR

BRL

USD

AUD

EUR

USD

CRC

EUR

USD

EUR

USD

EUR

CAD

EUR

USD

EUR

CHF

CNY

BRL

USD

EUR

Italy
Brazil
USA
USA
USA
Australia
Belgium
France
USA
USA
Costa Rica
Netherlands
Spain
Israel
France
USA
France
Canada
Ireland
Ireland
Luxembourg
Luxembourg
United Kingdom
United Kingdom
United Kingdom
USA
USA
USA
USA
Germany
Germany
Suisse
China
Brazil
USA
Italy
Italy
France
France

143

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Sorin CRM USA

SorinCardio - Comercialização e Distribuição de
Equipamentos Medicos, Lda
Sorin Group Asia Pte Ltd

Sorin Group Australia PTY Limited

Sorin Group Austria GmbH

Sorin Group Belgium SA

Sorin Group Colombia Sas

Sorin Group Czech Republic

Sorin Group Deutschland GmbH

Sorin Group DR, S.r.l.

Sorin Group Espana S.L.

Sorin Group Finland OY

Sorin Group France SAS

Sorin Group India Private Limited

Sorin Group International SA

Sorin Group Italia S.r.l.

Sorin Group Japan K.K

Sorin Group Nederland

Sorin Group Norway AS

Sorin Group Polska Sp. Z.o.o.

Sorin Group Rus LLC

Sorin Group Scandinavia AB

Sorin Group UK Limited

Sorin Group USA Inc.

Sorin Medical Devices (Suzhou) Co. Ltd

Sorin Medical (Shanghai) Co. Ltd

Sorin Site Management S.r.l.

USA

Portugal
Asia
Australia
Austria
Belgium
Colombia
Czech Republic
Germany
Dominican Republic
Spain
Finland
France
India
Suisse
Italy
Japan
Netherlands
Norway
Poland
Russia
Scandinavia
United Kingdom
USA
China
China
Italy

USD

EUR

USD

AUD

EUR

COP

EUR

USD

EUR

INR

EUR

JPY

EUR

NOK

PLN

RUB

EUR

USD

CNY

EUR

100

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the

subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary
shares held. The parent company does not have any shareholdings in the preference shares of subsidiary
undertakings included in the group.

Note 12. Financial Assets

Non-current financial assets.

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Investments in preferred shares of private
companies
Financial receivables due from associated
companies
Corporate owned life insurance policies
Other

Total non-current financial assets

15,847

2,041
1,777
164
19,829 $

17,127

15,944

—
—
—
17,127 $

—
—
—
15,944

144

Sorin CRM USA

SorinCardio - Comercialização e Distribuição de

Equipamentos Medicos, Lda

Sorin Group Asia Pte Ltd

Sorin Group Australia PTY Limited

Sorin Group Austria GmbH

Sorin Group Belgium SA

Sorin Group Colombia Sas

Sorin Group Czech Republic

Sorin Group Deutschland GmbH

Sorin Group DR, S.r.l.

Sorin Group Espana S.L.

Sorin Group Finland OY

Sorin Group France SAS

Sorin Group India Private Limited

Sorin Group International SA

Sorin Group Italia S.r.l.

Sorin Group Japan K.K

Sorin Group Nederland

Sorin Group Norway AS

Sorin Group Polska Sp. Z.o.o.

Sorin Group Rus LLC

Sorin Group Scandinavia AB

Sorin Group UK Limited

Sorin Group USA Inc.

Sorin Medical Devices (Suzhou) Co. Ltd

Sorin Medical (Shanghai) Co. Ltd

Sorin Site Management S.r.l.

Czech Republic

Germany

Dominican Republic

USA

Portugal

Asia

Australia

Austria

Belgium

Colombia

Spain

Finland

France

India

Suisse

Italy

Japan

Netherlands

Norway

Poland

Russia

Scandinavia

United Kingdom

USA

China

Italy

USD

EUR

USD

AUD

EUR

COP

EUR

USD

EUR

INR

EUR

JPY

EUR

NOK

PLN

RUB

EUR

USD

CNY

EUR

undertakings included in the group.

Note 12. Financial Assets

Non-current financial assets.

Investments in preferred shares of private

Financial receivables due from associated

Corporate owned life insurance policies

companies

Other

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the

subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary

shares held. The parent company does not have any shareholdings in the preference shares of subsidiary

100

—

Our non-current financial assets in the consolidated balance sheets include investments in equity

instruments in privately held companies classified as available-for-sale.

(in thousands)

31 December 2015

24 April 2015

26 April 2014

ImThera Medical, Inc. - convertible
preferred shares and warrants (1)
Cerbomed GmbH - convertible
preferred shares (2)
Rainbow Medical Ltd.(3)

12,000

—
3,847
15,847 $

5,127

—
17,127 $

3,944
—
15,944

(1) ImThera Medical, Inc. is a U.S. company developing a neurostimulation device system for the treatment of obstructive

sleep apnea.

(2) Cerbomed GmbH is a European company developing a transcutaneous vagus nerve stimulation device for the treatment

of epilepsy. During the transitional period 25 April 2015 to 31 December 2015, the Company recorded an impairment
of $5.1 million against the investment in Cerbomed. Refer to “Note 5. Fair Value Measurements” for more details.
Rainbow Medical Ltd. is an Israeli company that seeds and grows companies developing medical devices in a diverse
range of medical fields.

(3)

Current financial assets.

(in thousands)
Certificates of deposits (1)
Commercial paper
Financial receivables vs associated
companies
Other

Total current financial assets

31 December 2015

24 April 2015

26 April 2014

— $
6,997

1,632

642
9,271 $

20,023 $
6,997

—
—
27,020 $

20,031
4,998

—
—
25,029

(1) During the transitional period 25 April 2015 to 31 December 2015, our six-month CD matured, was re-invested in a

three-month CD and was classified with cash equivalents in the consolidated balance sheets.

Certificates of deposits and commercial paper are held-to-maturity investments with maturity of three

and four months.

Note 13. Inventories

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Inventories consisted of the following (in thousands):

15,847

17,127

15,944

2,041

1,777

164

—

Raw materials
Work-in-process
Finished goods

31 December 2015

24 April 2015

26 April 2014

52,482 $
44,369
115,597
212,448 $

11,118 $
5,653
7,192
23,963 $

7,290
4,438
5,902
17,630

Total non-current financial assets

19,829 $

17,127 $

15,944

145

Inventories are reported net of the provision for obsolescence which totaled $3.6 million, $2.3 million and
$1.1 million as at 31 December 2015, 24 April 2015 and 26 April 2014, respectively. As part of the acquisition,
we acquired Sorin’s inventory with a carrying value of $233.8 million. Sorin’s inventory was recorded at fair
value, which was measured considering any provision for obsolescence previously recognised by Sorin.

The write-down of inventories to net of the provision for obsolescence was $0.8 million for the fiscal year

ended 24 April 2015, respectively. There were no write-down of inventories to net of the provision for
obsolescence for the transitional period 25 April 2015 to 31 December 2015. There were no reversal of the
provision for obsolescence during the transitional period 25 April 2015 to 31 December 2015 and the fiscal year
ended 24 April 2015.

Note 14. Trade Receivables and Allowance for Bad Debt

Trade receivables, net, consisted of the following (in thousands):

31 December 2015

24 April 2015

26 April 2014

Trade receivables from third parties

Allowance for bad debt

250,728

(1,653)
249,075 $

51,233

$
(664)
50,569 $

51,359

(685)
50,674

Our customers consist of hospitals, other healthcare institutions, distributors, organized purchase groups and
government and private entities. Actual collection periods for trade receivables vary significantly as a function of the
nature of the customer (e.g. government or private) and its geographic location. We acquired carrying value of $224.5
million of trade receivables from Sorin in the Mergers. As part of the acquisition accounting, trade receivables were
recorded at fair value, which was measured considering any allowance for bad debt previously recognised by Sorin.

Trade receivables are reported net of the allowance for bad debt provision, the changes in which are provided

below (in thousands):

Beginning of period

Additions to provision
Utilisation
Release of provisions
Reclassifications
Currency translation gains/losses

End of period

31 December 2015

24 April 2015

(664) $

(1,337)
—
347
—
1
(1,653) $

(685)
(101)
—
105
—
17
(664)

Actual collection periods for trade receivables vary significantly due to the nature of a customer (e.g.
government or private) and its geographic location. LivaNova utilizes non-recourse and with-recourse factoring
arrangements as a part of its funding policy. Prior to the date of the Mergers, LivaNova had no factoring
arrangements.

Factoring agreements

146

Inventories are reported net of the provision for obsolescence which totaled $3.6 million, $2.3 million and

$1.1 million as at 31 December 2015, 24 April 2015 and 26 April 2014, respectively. As part of the acquisition,

we acquired Sorin’s inventory with a carrying value of $233.8 million. Sorin’s inventory was recorded at fair

value, which was measured considering any provision for obsolescence previously recognised by Sorin.

The write-down of inventories to net of the provision for obsolescence was $0.8 million for the fiscal year

ended 24 April 2015, respectively. There were no write-down of inventories to net of the provision for

obsolescence for the transitional period 25 April 2015 to 31 December 2015. There were no reversal of the

provision for obsolescence during the transitional period 25 April 2015 to 31 December 2015 and the fiscal year

ended 24 April 2015.

Note 14. Trade Receivables and Allowance for Bad Debt

Trade receivables, net, consisted of the following (in thousands):

Trade receivables from third parties

Allowance for bad debt

250,728

(1,653)

249,075 $

51,233

(664)

50,569 $

51,359

(685)

50,674

Our customers consist of hospitals, other healthcare institutions, distributors, organized purchase groups and

government and private entities. Actual collection periods for trade receivables vary significantly as a function of the

nature of the customer (e.g. government or private) and its geographic location. We acquired carrying value of $224.5

recorded at fair value, which was measured considering any allowance for bad debt previously recognised by Sorin.

Trade receivables are reported net of the allowance for bad debt provision, the changes in which are provided

below (in thousands):

31 December 2015

24 April 2015

(664) $

(1,337)

—

347

—

(685)

(101)

—

105

—

(664)

Beginning of period

Additions to provision

Utilisation

Release of provisions

Reclassifications

Currency translation gains/losses

End of period

arrangements.

Factoring agreements

At 31 December 2015 LivaNova had the factoring agreements with the following third parties that qualify for

derecognition:

•

Ifitalia (BNP Paribas Group) for the non-recourse sale of receivables from Italian customers

• Mediofactoring for the non-recourse sale of receivables from French customers

• Unicredit Factoring for the non-recourse sale of receivables from Italian customers

• BNP Paribas Fortis Factor for the non-recourse sale of receivables from Belgian customers

• Banca Farmafactoring for the non-recourse sale of receivables from Italian government customers.

At 31 December 2015 the total outstanding amount of trade receivables sold with non-recourse to factoring

companies was $23.3 million. The total amount of loss recognized on derecognition of trade receivables was less
than $0.1 million at 31 December 2015.

At 31 December 2015 LivaNova had the factoring agreements with the following third parties that do not qualify

for derecognition:

31 December 2015

24 April 2015

26 April 2014

•

Ifitalia (BNP Paribas Group) for the with-recourse sale of receivables from Italian customers

• Unicredit Factoring for the with-recourse sale of receivables from Italian customers.

At 31 December 2015 trade receivables included an amount of $1.2 million for trade receivables sold, on a with

recourse basis, through factoring agreements. Payables were recorded for advances in the same amount as a
balancing item to these sales.

Below is a summary of trade receivables sold:

million of trade receivables from Sorin in the Mergers. As part of the acquisition accounting, trade receivables were

(in thousands)

31 December 2015

Trade receivables sold with recourse:
Recorded in financial statements:
Sold to Ifitalia/BNP Paribas
Sold to UniCredit Factoring

Trade receivables sold with non-recourse:

Sold to Ifitalia/BNP Paribas
Sold to UniCredit Factoring
Sold to Mediofactoring
Sold to Banca Farmafactoring

20
1,198

6,310
10,671
1,817
4,478
24,494

(1,653) $

Below is a summary of other receivables:

Actual collection periods for trade receivables vary significantly due to the nature of a customer (e.g.

government or private) and its geographic location. LivaNova utilizes non-recourse and with-recourse factoring

arrangements as a part of its funding policy. Prior to the date of the Mergers, LivaNova had no factoring

(in thousands)

Prepaid assets
Other receivables
Guarantee deposits

Total

31 December 2015

24 April 2015

26 April 2014

19,036 $
2,832
2,437
24,305 $

3,503 $
1,309
—
4,812 $

3,365
325
—
3,690

147

Note 15. Derivative Financial Instruments

We enter into derivative instruments, principally foreign exchange forward and interest rate swaps contracts for

the purpose of hedging the risk of fluctuations in foreign exchange and interest rates. For additional details refer to
our accounting policy “Derivatives” included within “Note 2. Basis of Preparation, Use of Accounting Estimates and
Significant Accounting Policies” accompanying the consolidated financial statements.

Freestanding derivative forward contracts

Freestanding derivative forward contracts are used to offset the exposure to the change in value of our foreign
currency denominated financial intercompany transactions (current accounts and loans), certain long-term loans and
certain revenue transactions. The gross notional amount of these contracts not designated as hedging instruments,
outstanding at 31 December 2015 was $254.4 million. We did not engage in freestanding derivative forward contracts
prior to the Mergers.

The amount and location of the gains (losses) in the consolidated statements of income (loss) related to
derivative instruments, not designated as hedging instruments, for the transitional period 25 April 2015 to 31
December 2015 are as follows:

(in thousands)

Derivatives Not Designated as Hedging
Instruments
Foreign currency exchange rate contracts

Location

Transitional Period 25 April
2015 to 31 December 2015

Foreign exchange

(12,813)

Foreign currency exchange differences include the losses, realised and unrealised, related to the forward
contracts, not qualifying for hedge accounting, put in place since the date of the Mergers, for the hedging of the
following:

•

intercompany financial accounts and loans not denominated in U.S. dollars, recording a loss for $5.1

million;

•

short and long-term loans denominated in Euro, recording a loss for the amount of $7.9 million, of which

$4.8 million relates to a foreign exchange derivative arrangement on the EIB long-term loan. Such derivative
arrangements have been discontinued in January 2016;

•

revenues denominated in British pounds and Japanese yen for the period from date of the Mergers to 31

December 2015, recording a gain for $0.2 million.

The Foreign currency exchange losses on the above mentioned forward contracts are mainly due to the

revaluation of the U.S. dollar against the euro and other currencies.

Forward foreign exchange contracts

148

Note 15. Derivative Financial Instruments

We enter into derivative instruments, principally foreign exchange forward and interest rate swaps contracts for

the purpose of hedging the risk of fluctuations in foreign exchange and interest rates. For additional details refer to

our accounting policy “Derivatives” included within “Note 2. Basis of Preparation, Use of Accounting Estimates and

Significant Accounting Policies” accompanying the consolidated financial statements.

Freestanding derivative forward contracts

Freestanding derivative forward contracts are used to offset the exposure to the change in value of our foreign

currency denominated financial intercompany transactions (current accounts and loans), certain long-term loans and

certain revenue transactions. The gross notional amount of these contracts not designated as hedging instruments,

outstanding at 31 December 2015 was $254.4 million. We did not engage in freestanding derivative forward contracts

prior to the Mergers.

The amount and location of the gains (losses) in the consolidated statements of income (loss) related to

derivative instruments, not designated as hedging instruments, for the transitional period 25 April 2015 to 31

December 2015 are as follows:

(in thousands)

Instruments

Derivatives Not Designated as Hedging

Location

Transitional Period 25 April

2015 to 31 December 2015

Foreign currency exchange differences include the losses, realised and unrealised, related to the forward

contracts, not qualifying for hedge accounting, put in place since the date of the Mergers, for the hedging of the

•

intercompany financial accounts and loans not denominated in U.S. dollars, recording a loss for $5.1

following:

million;

•

short and long-term loans denominated in Euro, recording a loss for the amount of $7.9 million, of which

$4.8 million relates to a foreign exchange derivative arrangement on the EIB long-term loan. Such derivative

arrangements have been discontinued in January 2016;

•

revenues denominated in British pounds and Japanese yen for the period from date of the Mergers to 31

December 2015, recording a gain for $0.2 million.

The Foreign currency exchange losses on the above mentioned forward contracts are mainly due to the

revaluation of the U.S. dollar against the euro and other currencies.

Forward foreign exchange contracts

Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. We
generally utilize foreign exchange forward contracts that are designed to hedge the variability of material cash flows
associated with forecasted revenue and costs denominated in a currency different from the functional currency of the
transaction that will take place in the future. In most cases, these derivative instruments are designated as cash flow
hedges and are carried at fair value. The effective portion of the gain or loss on these derivative contracts is reported
as a component of accumulated other comprehensive income (loss). The effective portion of the gain or loss on the
derivative instrument is reclassified into earnings and is included in the line item "Foreign exchange" in the
consolidated statements of income (loss), depending on the underlying transaction that is being hedged, in the same
period or periods during which the hedged transaction affects earnings. There was no hedge ineffectiveness at 31
December 2015. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness
and no hedges were derecognised or discontinued during the transitional period 25 April 2015 to 31 December 2015.
The fair value of all cash flow foreign exchange hedging forward contracts, related to revenue denominated in British
pounds and Japanese yen of year 2016 is reported in accrued liabilities line item in the consolidated balance sheets.

The gross notional amount of foreign currency exchange contracts designated as cash flow hedges outstanding
at 31 December 2015 was $66.9 million, related to forward contracts of respectively British pounds 8.5 million and
Japanese yen 6.4 billion, maturing at various dates through December 2016. The contracts have average maturities
from 6 to 12 months and are regularly renewed to provide a continuing coverage throughout the year. There was no
hedge ineffectiveness at 31 December 2015. We did not engage in hedging activities prior to the Mergers.

Foreign currency exchange rate contracts

Foreign exchange

(12,813)

Interest rate swaps

In July 2014, Sorin entered into a European Investment Bank (“EIB”) long-term loan agreement with floating-
rate interest payments. To minimize the impact of changes in interest rates on its interest payments under the EIB
loan, on 30 June 2014 and 7 July 2014 Sorin entered into interest rate swap agreements to swap floating-rate interest
payments for fixed-rate interest payments on a notional amount of Euro 80.0 million, for the amount of Euro 60.0
million effective on 30 June 2014 and for the amount of Euro 20.0 million effective on 7 July 2014. The outstanding
notional amount at 31 December 2015 is Euro 73.3 million (equivalent to $79.6 million). The interest rate swap
agreements mature in June 2021 and have periodic interest settlements. The interest rate swap agreements were
designated as a cash flow hedge of the variability of interest payments under the EIB long-term loan agreement due
to changes in the floating interest rates by converting from Euribor 3 month floating-rate to a fixed-rate loan.

In April 2013 Sorin entered into a Unicredit AG New York branch (“Unicredit NY”) long-term agreement with

floating-rate interest payments, refer to “Note 17. Financial Liabilities” for further discussion. To minimize the
impact of changes in interest rates on its interest payments under the Unicredit NY loan, on July 2013 Sorin entered
into an interest rate swap agreement to swap floating-rate interest payments for fixed-rate interest payments on a
notional amount of $20.0 million, effective in 12 July 2013. Initially the interest rate swap agreement matured in
April 2016 and had periodic interest settlements. We repaid the Unicredit NY loan in December 2015. At 31
December 2015 due to the prepayment of the underlying hedged loan, this interest rate swap is not treated as a
hedging instrument. This interest swap will mature on 12 April 2016 and its fair value, inclusive of accrued interest,
at 31 December 2015 of $24,000 is accounted in the consolidated statement of income (loss).

The swaps fixed rates were structured to mirror the payment terms of the loan. The effective portion of the gain
or loss on these derivatives is reported as a component of accumulated other comprehensive income. On interest rate
swap contracts we had an effective portion equivalent at $83,000 in after-tax net unrealised gains, and an ineffective
portion for the amount of $25,000 reported in the line item interest expense in consolidated statement of income
(loss).

149

As of 31 December 2015, we had $0.8 million in after-tax net unrealised gains associated with the cash flow

hedging instruments recorded in accumulated other comprehensive income. The Company expects that $0.8
million of after-tax net unrealised gains as at 31 December 2015 will be reclassified into the line item interest
expense, net in the consolidated statements of income (loss) over the next 12 months.

If, at any time, the swap is determined to be ineffective, in whole or in part, due to changes in the interest rate

swap or underlying the debt agreement, the fair value of the portion of the swap determined to be ineffective will be
recognised as a gain or loss in the consolidated statement of income (loss) for the applicable period. If the hedging
instrument matures or is canceled, the amounts previously recorded in the statement of accumulated other
comprehensive income are posted to the statement income (loss) statement.

We did not engage in interest rate swap contracts prior to the Mergers.

Presentation in Financial Statements

The amount of gains (losses) and location of the gains (losses) in the consolidated statements of income (loss) and
accumulated other comprehensive income (“OCI”) related to foreign currency exchange rate contract and interest rate
swap derivative instruments designated as cash flow hedges for the transitional period 25 April 2015 to 31 December
2015 are as follows:

(in thousands)

Derivatives in Cash Flow Hedging
Relationships
Foreign currency exchange

rate contracts
Interest rate swap contracts

Total

Gross Gains
Recognised in OCI

on Effective Portion of
Derivative

Effective Portion of Gains (Losses) on
Derivative Reclassified from:

Amount

Location

Amount

1,150

Foreign exchange

124 Interest expense

1,274

1,150

124
1,274

The following tables summarize the location and fair value amounts of derivative instruments reported in the

consolidated balance sheets as at 31 December 2015. The fair value amounts are presented on a gross basis and are
segregated between derivatives that are designated and qualify as hedging instruments and those that are not, and are
further segregated by type of contract within those two categories.

150

As of 31 December 2015, we had $0.8 million in after-tax net unrealised gains associated with the cash flow

hedging instruments recorded in accumulated other comprehensive income. The Company expects that $0.8

million of after-tax net unrealised gains as at 31 December 2015 will be reclassified into the line item interest

expense, net in the consolidated statements of income (loss) over the next 12 months.

If, at any time, the swap is determined to be ineffective, in whole or in part, due to changes in the interest rate

swap or underlying the debt agreement, the fair value of the portion of the swap determined to be ineffective will be

recognised as a gain or loss in the consolidated statement of income (loss) for the applicable period. If the hedging

instrument matures or is canceled, the amounts previously recorded in the statement of accumulated other

comprehensive income are posted to the statement income (loss) statement.

We did not engage in interest rate swap contracts prior to the Mergers.

Presentation in Financial Statements

The amount of gains (losses) and location of the gains (losses) in the consolidated statements of income (loss) and

accumulated other comprehensive income (“OCI”) related to foreign currency exchange rate contract and interest rate

swap derivative instruments designated as cash flow hedges for the transitional period 25 April 2015 to 31 December

2015 are as follows:

(in thousands)

Derivatives in Cash Flow Hedging

Relationships

Foreign currency exchange

rate contracts

Interest rate swap contracts

Total

Gross Gains

Recognised in OCI

on Effective Portion of

Derivative

Amount

Effective Portion of Gains (Losses) on

Derivative Reclassified from:

Location

Amount

1,150

Foreign exchange

124 Interest expense

1,274

1,150

124

1,274

The following tables summarize the location and fair value amounts of derivative instruments reported in the

consolidated balance sheets as at 31 December 2015. The fair value amounts are presented on a gross basis and are

segregated between derivatives that are designated and qualify as hedging instruments and those that are not, and are

further segregated by type of contract within those two categories.

(in thousands)

Asset Derivatives

Liability Derivatives

Fair Value

Balance Sheet Location Fair Value

1,083

Derivatives designated as hedging
instruments

Interest rate contracts

Foreign currency exchange rate
contracts
Total derivatives designated as
hedging instruments
Derivatives not designated as
hedging instruments

Interest rate contracts

Foreign currency exchange rate
contracts
Total derivatives not designated as
hedging instruments
Total derivatives

Balance Sheet
Location
Current financial
assets
Non-current financial
assets
Current financial
assets

Current financial
assets
Current financial
assets

—

Current financial
derivative liabilities
Non-current financial
derivative liabilities
Current financial
derivative liabilities

Current financial
derivative liabilities
Current financial
derivative liabilities

—
—

1,793

(839)

2,037

1,547

1,571
3,608

Note 16. Shareholders' Equity

Common share of Cyberonics and ordinary shares of LivaNova. Prior to the Mergers, shares of Cyberonics common

shares were registered pursuant to Section 12(b) of the Exchange Act and listed on NASDAQ under the ticker symbol
“CYBX,” and Sorin Ordinary Shares were listed on the Mercato Telematico Azionario organized and managed by Borsa
Italiana S.p.A. (the “Italian Stock Exchange”). Shares of Cyberonics common shares and the Sorin ordinary shares were
suspended from trading on NASDAQ and the Italian Stock Exchange, respectively, prior to the open of trading on 19
October 2015. NASDAQ filed a Form 25 on Cyberonics’ behalf to provide notice to the SEC regarding the withdrawal of
shares of Cyberonics common shares from listing and to terminate the registration of such shares under Section 12(b) of
the Exchange Act.

Following the completion of the Mergers, LivaNova became the holding company of the combined businesses of
Cyberonics and Sorin, and LivaNova’s ordinary shares were listed on NASDAQ and listed on the Official List of the
U.K.’s Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange under the
ticker symbol “LIVN.”

LivaNova is incorporated in England and Wales as a public company limited by shares. The principal legislation under

which LivaNova operates is the Companies Act 2006, and regulations made thereunder. LivaNova ordinary shares were
registered under the Securities Act, pursuant to the Registration Statement on Form S-4 (File No. 333-203510), as
amended, filed with the SEC by LivaNova and declared effective on 19 August 2015.

The Company’s authorised share capital is as following:

151

(in number of shares)

Authorised share capital, ordinary shares of £1 each,
unlimited shares authorized
Issued - fully paid
Outstanding

Common shares $0.01 each, cancelled 19 October 2015
Issued - fully paid
Outstanding

31 December
2015

24 April 2015

26 April 2014

48,868,305
48,868,305

32,054,236
25,996,102

31,819,678
26,745,713

Preferred shares. LivaNova is not authorised to issue preferred shares and no Cyberonics’ preferred shares were

outstanding at the consummation of the Mergers on 19 October 2015.

Share repurchase plans prior to the Mergers. Common shares were repurchased on the open market pursuant to the
Cyberonics’ Board of Directors-approved repurchase plans during the year ended 24 April 2015 and prior. In January 2013,
December 2013 and November 2014, the Cyberonics Board of Directors authorized repurchase programs of its common
shares of up to one million shares under each program. However, on 27 February 2015, the Cyberonics treasury share
purchase plan under Rule 10b5-1 under the Exchange Act terminated, and Cyberonics stopped repurchasing its shares of
common share. During the fiscal year ended 24 April 2015, pursuant to the approved plans, Cyberonics repurchased
875,121 shares of its common share at an average price of $55.94.

Group reconstruction reserve. Group reconstruction reserve represents the excess of value attributed to the shares
issued during the Mergers over the nominal value of those shares and relates to LivaNova ordinary shares and replacement
share appreciation rights issued in the Mergers in exchange for Cyberonics and Sorin equity shares. See "Note 7. Business
Combinations" for discussion of the Mergers.

Comprehensive income.

The table below presents the change in each component of accumulated other comprehensive income (loss), net of tax

and the reclassifications out of accumulated other comprehensive income into net earnings.

Taxes were not provided for foreign currency translation adjustments for the transitional period ended 31 December

2015 as translation adjustment related to earnings that are intended to be reinvested in the countries where earned.

For Cyberonics historical fiscal years ended 24 April 2015, no reclassifications were transferred out of other

comprehensive income and all changes in comprehensive income were related to foreign currency translation adjustments.

152

Authorised share capital, ordinary shares of £1 each,

(in number of shares)

unlimited shares authorized

Issued - fully paid

Outstanding

Common shares $0.01 each, cancelled 19 October 2015

Issued - fully paid

Outstanding

31 December

2015

24 April 2015

26 April 2014

48,868,305

32,054,236

25,996,102

31,819,678

26,745,713

Preferred shares. LivaNova is not authorised to issue preferred shares and no Cyberonics’ preferred shares were

outstanding at the consummation of the Mergers on 19 October 2015.

Share repurchase plans prior to the Mergers. Common shares were repurchased on the open market pursuant to the

Cyberonics’ Board of Directors-approved repurchase plans during the year ended 24 April 2015 and prior. In January 2013,

December 2013 and November 2014, the Cyberonics Board of Directors authorized repurchase programs of its common

shares of up to one million shares under each program. However, on 27 February 2015, the Cyberonics treasury share

purchase plan under Rule 10b5-1 under the Exchange Act terminated, and Cyberonics stopped repurchasing its shares of

common share. During the fiscal year ended 24 April 2015, pursuant to the approved plans, Cyberonics repurchased

875,121 shares of its common share at an average price of $55.94.

Group reconstruction reserve. Group reconstruction reserve represents the excess of value attributed to the shares

issued during the Mergers over the nominal value of those shares and relates to LivaNova ordinary shares and replacement

share appreciation rights issued in the Mergers in exchange for Cyberonics and Sorin equity shares. See "Note 7. Business

Combinations" for discussion of the Mergers.

Comprehensive income.

The table below presents the change in each component of accumulated other comprehensive income (loss), net of tax

and the reclassifications out of accumulated other comprehensive income into net earnings.

Taxes were not provided for foreign currency translation adjustments for the transitional period ended 31 December

2015 as translation adjustment related to earnings that are intended to be reinvested in the countries where earned.

For Cyberonics historical fiscal years ended 24 April 2015, no reclassifications were transferred out of other

comprehensive income and all changes in comprehensive income were related to foreign currency translation adjustments.

Change in
unrealised gain
(loss) on
derivatives

Foreign
currency
translation
adjustments

Revaluation of
net liability
(asset) for
defined benefits

— $

—
—

1,274

(386)

455 $

(3,856)

(3,401)

(51,716)
—

— $

—
—

(180)
50

Total

455

(3,856)

(3,401)

(50,622)

(336)

888

(51,716)

(130)

(50,958)

—
—

—

—
—

—

—
—

—

—
—

—

888
888 $

(51,716)

(55,117) $

(130)

(130) $

(50,958)

(54,359)

Beginning Balance - 26 April 2014
Other comprehensive income (loss) before
reclassifications, before tax
Beginning Balance - 25 April 2015
Other comprehensive income (loss) before
reclassifications, before tax
Tax benefit (expense)

Other comprehensive income (loss) before
reclassifications, net of tax
Reclassification of (gain)/loss from
accumulated other comprehensive income,
before tax
Tax effect

Reclassification of (gain)/loss from
accumulated other comprehensive income,
after tax
Net current-period other comprehensive
income (loss), net of tax
Ending Balance - 31 December 2015

Note 17. Financial Liabilities

In connection with the Mergers, LivaNova acquired all of the outstanding debt of Sorin. As of the Mergers

date, Sorin had $203.0 million aggregate principal amount due to various financial and non-financial institutions
(collectively, the “Sorin Loans”). We recorded an aggregate foreign exchange adjustment of $5.7 million to
decrease the carrying value of the total long-term Sorin Loans since the date of the Mergers. Additionally, we
made principal payments of $32.0 million post-merger to reduce long-term debt to $113.0 million.

The outstanding principal amount of long-term debt at 31 December 2015 and as of the date of the Mergers,

19 October 2015, consisted of the following (in thousands, except interest rates):

153

Principal
Amount at
31 December
2015

Principal
Amount at
19 October
2015

Maturity

99,426 $
—
8,851
2,621
—

1,192

944

113,490 June 2021
20,000 October 2017
10,283 December 2019
2,914 October 2019
1,686 January 2020

1,316

987

March 2020 - June
2033
September 2021-
2026

113,034

150,676

21,243
91,791 $

22,218
128,458

Effective
Interest Rate

1.15%
1.89%
0.50% - 3.35%
2.58%
1.35%

0.00% - 3.42%

1.05% - 1.55%

European Investment Bank
Unicredit AG New York
Banca del Mezzogiorno
Bpifrance (ex-Oséo)
Banca Regionale Europea

Novalia SA (Vallonie)

Mediocredito Italiano

Total long-term facilities
Less current portion of long-term
debt
Total long-term debt

We recorded an aggregate foreign exchange adjustment of $2.2 million to decrease the carrying value of the

short-term facilities since the date of the Mergers. Subsequent to the Mergers, our net short-term facility debt
has exceeded our repayments by $11.1 million.

The outstanding principal amount of short-term debt as of 31 December 2015, and as of the date of the

Mergers, 19 October 2015, consisted of the following (in thousands, except interest rates):

Intesa San Paolo Bank
BNL BNP Paribas
Unicredit Banca
BNP Paribas (Brazil)
French Government
Other short-term facilities

Total short-term facilities
Current portion of long-term debt

Total current debt
Total debt

Principal
Amount at
31 December
2015

Principal
Amount at
October 19,
2015

Effective
Interest
Rate

0.25%
0.27%
0.45%
15.95%

$
$

20,630
18,459
15,201
2,225
2,030
2,725
61,270 $
21,243
82,513 $
174,304 $

—
20,428
17,024
4,400
2,121
8,342
52,315
22,218
74,533
202,991

There was no outstanding debt in the historic Cyberonics consolidated balance sheet as of 24 April 2015 or

25 April 2014.

154

European Investment Bank

99,426 $

113,490 June 2021

Principal

Amount at

Principal

Amount at

31 December

19 October

2015

Maturity

Effective

Interest Rate

—

8,851

2,621

—

1,192

944

20,000 October 2017

10,283 December 2019

2,914 October 2019

1,686 January 2020

March 2020 - June

1,316

2033

September 2021-

987

2026

113,034

150,676

21,243

22,218

0.50% - 3.35%

1.15%

1.89%

2.58%

1.35%

0.00% - 3.42%

1.05% - 1.55%

Unicredit AG New York

Banca del Mezzogiorno

Bpifrance (ex-Oséo)

Banca Regionale Europea

Novalia SA (Vallonie)

Mediocredito Italiano

Total long-term facilities

Less current portion of long-term

debt

Total long-term debt

91,791 $

128,458

We recorded an aggregate foreign exchange adjustment of $2.2 million to decrease the carrying value of the

short-term facilities since the date of the Mergers. Subsequent to the Mergers, our net short-term facility debt

has exceeded our repayments by $11.1 million.

The outstanding principal amount of short-term debt as of 31 December 2015, and as of the date of the

Mergers, 19 October 2015, consisted of the following (in thousands, except interest rates):

Principal

Amount at

Principal

Amount at

31 December

October 19,

2015

Effective

Interest

Rate

0.25%

0.27%

0.45%

15.95%

20,630

18,459

15,201

2,225

2,030

2,725

61,270 $

21,243

82,513 $

—

20,428

17,024

4,400

2,121

8,342

52,315

22,218

74,533

174,304 $

202,991

Intesa San Paolo Bank

BNL BNP Paribas

Unicredit Banca

BNP Paribas (Brazil)

French Government

Other short-term facilities

Total short-term facilities

Current portion of long-term debt

Total current debt

Total debt

25 April 2014.

There was no outstanding debt in the historic Cyberonics consolidated balance sheet as of 24 April 2015 or

The European Investment Bank (“EIB”) loan was provided to Sorin to support research and development

projects in Italy and France related to the development of new products or improvements in Sorin’s products in
Cardiac Surgery, Cardiac Rhythm Management and new therapeutic solutions aimed at treating heart failure and
mitral valve regurgitation. The loan was issued in July 2014, has a seven-year term with interest paid in
quarterly installments. The loan is guaranteed by Sorin Group Italia S.r.l. and Sorin CRM SAS, subsidiaries of
LivaNova. In December 2015, we paid our scheduled semi-annual $9.0 million principal payment.

The EIB loan is subject to the various terms and conditions:

•

certain financial ratios calculated based on the Sorin consolidated financial statements;

subordination clauses, based on which the loan cannot be subordinated to other loans, with the

exception of loans given preference deriving from legal obligations;

• negative pledge clauses that place limits on the issue of collateral;

• other customary clauses for loans of this type, including limits on LivaNova’s asset disposals.

In April 2013, Sorin entered into a long-term loan agreement for $50.0 million with UniCredit (Unicredit
Banca and Unicredit AG New York branch ) consisting of a term loan totaling $20.0 million and a revolving
facility of $30 million.

In December 2014 the credit facility was renegotiated with the cancellation of the revolving facility, the
decrease of the interest margin of the term loan and the extension of its maturity by 18 months from April 2016
to October 2017. In December 2015, we pre-paid this $20.0 million loan at par, without penalty.

In 2005 Sorin entered in two long-term loans that were to mature in 2020, with Banca Regionale Europea.

These loans were pre-paid at the outstanding principal amount of $1.6 million in November 2015 by
LivaNova’s subsidiaries, Sorin Group Italia S.r.l. and Sorin Site Management S.r.l.

In January 2015, Sorin Group Italia S.r.l. was provided with loans specified to support research and
development projects as a part of the Large Strategic Project program of the Italian Ministry of Education,
Universities and Research (“MIUR”). One loan is subsidized by Cassa DepositiePrestiti at a fixed rate of 0.50%
and a second loan, an ordinary bank loan, is provided by GE Capital Interbanca at a floating rate of 6-month
Euribor plus a spread of 3.3%. At 31 December 2015, $8.9 million was outstanding on both of these loans. Both
loans have an amortized repayment plan with final maturity on 31 December 2019. In December 2015, we paid
our scheduled semi-annual payment of $1.1 million.

In 2012, Sorin entered into a long-term loan agreement for a total of €3.0 million with Bpifrance (formerly
Oséo), a French government company that provides financial support for innovation and development projects.
The loan is repayable in installments with final maturity on 31 October 2019. At 31 December 2015, $2.6
million was outstanding on this loan. In October 2015, we paid our scheduled $0.2 million quarterly payment.

In 2014, through an acquisition of the cannulae business, Sorin assumed mortgages due to Mediocredito

Italiano totaling €1.0 million. At 31 December 2015, $0.9 million was outstanding. The loans are secured by a
mortgage on a building located at Cantù manufacturing site in Italy.

Prior to the Mergers, Sorin Group Belgium received loans from Novalia SA, a finance company in the

Wallonia Region in Belgium, to support several R&D projects. At 31 December 2015, $1.2 million was
outstanding.

155

In December 2015, we utilized our uncommitted revolving credit facilities for certain short-term loans and

entered into a $20.6 million short-term loan with Intesa San Paolo Bank, a $18.5 million short-term loan with
BNL/BNP Paribas after repaying $19.5 million, a $15.2 million loan with UniCredit Banca after repaying $16.3
million, and a $2.2 million loan with BNP Paribas (Brazil) after repaying $4.3 million. During this period, we
also reduced other short-term facilities by $5.3 million. These facilities are used for general corporate purposes.

Note 18. Other Non-Current Liabilities

(in thousands)
Unfavorable operating leases

Other

Total

31 December 2015

24 April 2015

26 April 2014

2,513 $
4,534
7,047 $

— $
—
— $

—
—
—

The unfavorable operating leases were acquired in the Mergers at 19 October 2015.

Note 19. Provisions

The provisions in the table below are expected to result in payments within the next year. In addition, the

Restructuring reserve is expected to accrue activity over the next three years.

Current provisions

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Advances received on customer receivables
Contractual warranty reserve
Restructuring reserve
Merger related expense
Clinical study costs
Other

Total

Non-Current provisions

1,218 $
2,119
4,720
1,506
2,004
1,313
12,880 $

— $
—
—
4,101
974
3,259
8,334 $

—
—
—
—
1,227
3,542
4,769

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Liability for uncertain tax provisions
Other

Total

13,048 $
3,937
16,985 $

5,782 $
828
6,610 $

4,257
454
4,711

Recorded with other non-current provisions is a contingent liability totaling $3.4 million incurred during

the Mergers. Refer for details to "Note 7. Business Combinations."

Warranties. We offer a warranty on various products. We estimate the costs that may be incurred under the

warranties and record a liability in the amount of such costs at the time the product is sold. The amount of the
reserve recorded is equal to the cost to satisfy the claim. We include the costs associated with claims, if any, in
cost of sales in the consolidated statements of income (loss). We acquired $2.1 million in warranty obligation
from Sorin as part of the Mergers.

156

In December 2015, we utilized our uncommitted revolving credit facilities for certain short-term loans and

Restructuring reserve. Refer to Note 8. 2015 Restructuring Plans for more details.

entered into a $20.6 million short-term loan with Intesa San Paolo Bank, a $18.5 million short-term loan with

BNL/BNP Paribas after repaying $19.5 million, a $15.2 million loan with UniCredit Banca after repaying $16.3

million, and a $2.2 million loan with BNP Paribas (Brazil) after repaying $4.3 million. During this period, we

also reduced other short-term facilities by $5.3 million. These facilities are used for general corporate purposes.

Note 18. Other Non-Current Liabilities

(in thousands)

Unfavorable operating leases

Other

Total

31 December 2015

24 April 2015

26 April 2014

2,513 $

4,534

7,047 $

— $

—

— $

—

The unfavorable operating leases were acquired in the Mergers at 19 October 2015.

The provisions in the table below are expected to result in payments within the next year. In addition, the

Restructuring reserve is expected to accrue activity over the next three years.

Note 19. Provisions

Current provisions

(in thousands)

Contractual warranty reserve

Restructuring reserve

Merger related expense

Clinical study costs

Other

Total

Other

Total

Advances received on customer receivables

1,218 $

2,119

4,720

1,506

2,004

1,313

12,880 $

— $

—

4,101

974

3,259

8,334 $

—

1,227

3,542

4,769

4,257

454

4,711

Non-Current provisions

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Liability for uncertain tax provisions

13,048 $

3,937

16,985 $

5,782 $

828

6,610 $

Recorded with other non-current provisions is a contingent liability totaling $3.4 million incurred during

the Mergers. Refer for details to "Note 7. Business Combinations."

Warranties. We offer a warranty on various products. We estimate the costs that may be incurred under the

warranties and record a liability in the amount of such costs at the time the product is sold. The amount of the

reserve recorded is equal to the cost to satisfy the claim. We include the costs associated with claims, if any, in

cost of sales in the consolidated statements of income (loss). We acquired $2.1 million in warranty obligation

from Sorin as part of the Mergers.

The changes in the carrying value of current provisions during the year are indicated below (in thousands):

Restructuring
reserve

Warranties
reserve

Other
reserves

Total

26 April 2014

Additions to provision
Utilisation
Release of provisions
Reclassifications

24 April 2015

IFRS 3 Business Combination
Additions to provision
Utilisation
Release of provisions
Currency translation gains/losses

31 December 2015

— $
—
—
—
—
—
4,320
4,609
(3,608)
(400)
(201)
4,720 $

— $
—
—
—
—
—
2,069
141
(57)
—
(34)
2,119 $

4,769 $
6,378
(2,813)
—
—
8,334
5,646
3,448
(11,194)
—
(193)
6,041 $

4,769
6,378
(2,813)
—
—
8,334
12,035
8,198
(14,859)
(400)
(428)
12,880

The changes in the carrying value of non-current provisions during the year are indicated below (in thousands):

31 December 2015

24 April 2015

26 April 2014

Additions to provision
Utilisation
Release of provisions
Reclassifications

24 April 2015

IFRS 3 Business Combination
Additions to provision
Utilisation
Currency translation gains/losses

31 December 2015

Uncertain tax
positions reserve

Other reserves

Total

4,257 $
1,525
—
—
—
5,782
9,158
—
(1,523)
(369)
13,048

454 $
374
—
—
—
828
3,839
152
(828)
(54)
3,937

4,711
1,899
—
—
—
6,610
12,997
152
(2,351 )
(423 )
16,985

157

Note 20. Other Payables

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Accrued expenses- employee-related
charges
Other accrued expenses
Other current liabilities

Other amounts due to health and social
security institution

Amounts due to employees
Current advances from customers
Deferred income

Total

44,580

$
30,602
10,941

9,649
5,585
3,330 $
992
105,679 $

13,781

16,957

—
—

—
—
— $
—
13,781 $

—
—

—
—
—
—
16,957

Note 21. Share-Based Incentive Plans

Share-Based Incentive Plans

Sorin awards exchanged for LivaNova awards

Prior to the Mergers, the Sorin Board of Directors adopted the Long-Term Incentive 2012-2014 (the “2012-

2014 Plan), 2013-2015 (the “2013-2015 Plan”) and 2014-2016 (the “2014-2016 Plan”) share grant plans in
April 2012, April 2013 and April 2014, respectively. The share grant plans authorised the issuance of stock
appreciation rights (2014-2016 Plan only), performance share units and restricted share units. The awards under
these share grant plans were converted into LivaNova awards pursuant to the terms of the Transaction
Agreement as described below and were accounted for as equity settled. Refer to “Note 1. Nature of
Operations” for additional details related to the Mergers.

Pursuant to the Transaction Agreement, 3,815,824 share appreciation rights outstanding (2014-2016 Plan)
and 3,365,931 restricted share units (2013-2015 and 2014-2016 Plans) and performance share units (2012-2014
Plan) that were unvested immediately prior to the Mergers were accelerated and vested upon the close of the
Mergers and were converted into 180,076 LivaNova share appreciation rights and 158,716 LivaNova ordinary
shares, respectively, in a manner designed to preserve the intrinsic value of such awards. The accelerated
vesting and share conversion constituted a modification under the authoritative guidance for accounting for
share-based compensation. The modification resulted in $8.8 million of incremental costs on the date of
acquisition.

158

(in thousands)

31 December 2015

24 April 2015

26 April 2014

Accrued expenses- employee-related

13,781

16,957

44,580

30,602

10,941

9,649

5,585

3,330 $

992

—

— $

—

105,679 $

13,781 $

16,957

Note 20. Other Payables

charges

Other accrued expenses

Other current liabilities

Other amounts due to health and social

security institution

Amounts due to employees

Current advances from customers

Deferred income

Total

Note 21. Share-Based Incentive Plans

Share-Based Incentive Plans

Sorin awards exchanged for LivaNova awards

Prior to the Mergers, the Sorin Board of Directors adopted the Long-Term Incentive 2012-2014 (the “2012-

2014 Plan), 2013-2015 (the “2013-2015 Plan”) and 2014-2016 (the “2014-2016 Plan”) share grant plans in

April 2012, April 2013 and April 2014, respectively. The share grant plans authorised the issuance of stock

appreciation rights (2014-2016 Plan only), performance share units and restricted share units. The awards under

these share grant plans were converted into LivaNova awards pursuant to the terms of the Transaction

Agreement as described below and were accounted for as equity settled. Refer to “Note 1. Nature of

Operations” for additional details related to the Mergers.

Pursuant to the Transaction Agreement, 3,815,824 share appreciation rights outstanding (2014-2016 Plan)

Plan) that were unvested immediately prior to the Mergers were accelerated and vested upon the close of the

Mergers and were converted into 180,076 LivaNova share appreciation rights and 158,716 LivaNova ordinary

shares, respectively, in a manner designed to preserve the intrinsic value of such awards. The accelerated

vesting and share conversion constituted a modification under the authoritative guidance for accounting for

share-based compensation. The modification resulted in $8.8 million of incremental costs on the date of

acquisition.

In addition, pursuant to the Transaction Agreement, 2,617,490 unvested performance share units granted
under the 2014-2016 Plan and 2013-2015 Plan which were held by Sorin employees upon close of the Mergers
were converted into 123,456 LivaNova ordinary shares in a manner designed to preserve the intrinsic value of
such awards. For awards not yet earned based on performance achieved as of the date of the Mergers, a service
requirement was added to the remaining awards and the performance conditions were removed, resulting in a
modification to the award (see below for further details). A portion of the service awards vested on the date of
the Mergers and of the remaining awards, 50% were paid on 26 February 2016 and 50% will be paid on 26
February 2017, in each case subject to continued employment. The awards will continue to be governed in
accordance with the terms and conditions as were applicable immediately prior to the completion of the
Mergers, with the exception of the modified terms pursuant to the Transaction Agreement. The modifications
made to the performance share units granted under the 2014-2016 Plan and 2013-2015 Plan constituted
modifications under the authoritative guidance for accounting for share compensation. The modification
resulted in $8.6 million incremental costs of which $0.9 million was recognised on the acquisition date and the
remaining $7.7 million will be recognised over the remaining service period of the award. We recognised $1.4
million share-based compensation expense related to these modifications from the date of the acquisition
through the period ended 31 December 2015.

Further, pursuant to the Transaction Agreement, 1,721,530 deferred bonus shares held by Sorin employees
that were outstanding immediately prior to the Mergers were accelerated and became vested upon the close of
the Mergers, and were converted to 81,251 LivaNova ordinary shares in a manner designed to preserve the
intrinsic value of such awards. The accelerated vesting and share conversion constituted a modification under
the authoritative guidance for accounting for share-based compensation. This guidance requires the Company to
revalue the award upon the transaction close and allocate the revised fair value between consideration paid and
post-combination expense based on the ratio of service performed through the transaction date over the total
service period of the award. The revised fair value allocated to post-combination services resulted in $0.3
million of incremental costs which was recognised on the acquisition date.

Cyberonics awards exchanged for LivaNova awards

and 3,365,931 restricted share units (2013-2015 and 2014-2016 Plans) and performance share units (2012-2014

Prior to the Mergers, Cyberonics issued share options and restricted share awards under its Amended and

Restated New Employee Equity Inducement Plan and 2009 Stock Plan. All of the awards under these plans
were accounted for as equity settled and were accelerated and vested as a result of the Mergers. Cyberonics
share options (except as described below) and restricted shares were converted into 813,794 LivaNova share
options and 209,043 LivaNova ordinary shares, respectively, in a manner designed to preserve the intrinsic
value of such awards. The share options will continue to become exercisable in accordance with the terms and
conditions as were applicable immediately prior to the completion of the Mergers. Additionally, 146,105
Cyberonics share options held by executive officers that were outstanding immediately prior to the Mergers
were settled in cash in the amount of $5.0 million.

159

LivaNova awards

On 16 October 2015, the sole shareholder of LivaNova approved the adoption of the Company’s 2015

Incentive Award Plan (the “2015 Plan”), which was previously approved by the Board of Directors of the
Company on 14 September 2015 subject to such shareholder approval. The Plan was adopted in order to
facilitate the grant of cash and equity incentives to non-employee directors, employees (including our named
executive officers) and consultants of the Company and certain of our affiliates and to enable the Company and
certain of our affiliates to obtain and retain services of these individuals. The Plan became effective as of 19
October 2015. Incentive awards may be granted under the 2015 Plan in the form of share options, share
appreciation rights, restricted share, restricted share units, other share and cash-based awards and dividend
equivalents. As of 31 December 2015, there were approximately 8,047,364 shares available for future grants
under the 2015 Plan.

Share-Based Compensation

Amounts of share-based compensation recognised in the consolidated statement of income (loss),
including the modification expense related to the Mergers, by expense category are as follows (in thousands):

Transitional Period 25
April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

Cost of sales

Selling, general and administrative
Research and development
Merger-related expense

Total share-based compensation expense

278 $
13,588
511
13,010
27,387 $

588
8,780
3,189
—
12,557

Amounts of share-based compensation expense recognised in the consolidated statement of income (loss),

including the modification expense related to the Mergers, by type of arrangement are as follows, (in
thousands):

Service-based share option awards
Service-based share appreciation rights

Service-based restricted and restricted share unit awards

Performance-based restricted share and restricted share
unit awards
Other Awards

Total share-based compensation expense

Transitional Period 25
April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

6,988 $
2,747

5,672

11,724

256
27,387 $

4,600
—

6,453

1,504
—
12,557

The expense for the transitional period 25 April 2015 to 31 December 2015 and for the fiscal year ended 24

April 2015 related to awards that were accounted for as equity settled.

160

LivaNova awards

Share Options and Share Appreciation Rights

On 16 October 2015, the sole shareholder of LivaNova approved the adoption of the Company’s 2015

Incentive Award Plan (the “2015 Plan”), which was previously approved by the Board of Directors of the

Company on 14 September 2015 subject to such shareholder approval. The Plan was adopted in order to

facilitate the grant of cash and equity incentives to non-employee directors, employees (including our named

executive officers) and consultants of the Company and certain of our affiliates and to enable the Company and

certain of our affiliates to obtain and retain services of these individuals. The Plan became effective as of 19

October 2015. Incentive awards may be granted under the 2015 Plan in the form of share options, share

appreciation rights, restricted share, restricted share units, other share and cash-based awards and dividend

equivalents. As of 31 December 2015, there were approximately 8,047,364 shares available for future grants

under the 2015 Plan.

Share-Based Compensation

Amounts of share-based compensation recognised in the consolidated statement of income (loss),

including the modification expense related to the Mergers, by expense category are as follows (in thousands):

Transitional Period 25

April 2015 to 31

December 2015

Fiscal Year Ended 24

April 2015

Cost of sales

Selling, general and administrative

Research and development

Merger-related expense

Total share-based compensation expense

Amounts of share-based compensation expense recognised in the consolidated statement of income (loss),

including the modification expense related to the Mergers, by type of arrangement are as follows, (in

thousands):

Transitional Period 25

April 2015 to 31

December 2015

Fiscal Year Ended 24

April 2015

278 $

13,588

511

13,010

27,387 $

6,988 $

2,747

5,672

11,724

256

27,387 $

588

8,780

3,189

—

12,557

4,600

—

6,453

1,504

—

12,557

Service-based share option awards

Service-based share appreciation rights

Service-based restricted and restricted share unit awards

Performance-based restricted share and restricted share

unit awards

Other Awards

Total share-based compensation expense

The expense for the transitional period 25 April 2015 to 31 December 2015 and for the fiscal year ended 24

April 2015 related to awards that were accounted for as equity settled.

We use the Black-Scholes option pricing methodology to calculate the grant date fair market value of share
option awards and share appreciation rights. The following table lists the assumptions we utilized as inputs to
the Black-Scholes model:

Weighted average share price
Exercise price
Dividend Yield (1)
Risk-free interest rate - based on grant date (2)
Expected option term - in years per group of
employees/consultants (3)
Expected volatility at grant date (4)

(1) We do not plan to pay dividends.

Transitional Period 25
April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

69.39
51.34-69.39

—

1.2% - 1.4%

57.29
53.90-57.39
—
1.60 - 1.98%

4 - 5

34%

4.88 - 6.56

31.67% - 41.09%

(2) We use yield rates on U.S. Treasury securities for a period that approximated the expected term of the award to estimate

the risk-free interest rate.

(3) We estimated the expected term of the awards granted using historic data of actual time elapsed between the date of
grant and the exercise or forfeiture of options or SARs for employees. For consultants, the expected term is the
remaining time until expiration of the option or SAR.

(4) Refer to “Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies-Share-based

Compensation” for further information regarding expected volatility.

The following tables detail the activity for service-based share option awards and share appreciation rights,

including awards assumed or issued as a result of the Mergers:

Options and SARs

Outstanding - at beginning of period
Granted
Assumed in Merger
Exercised
Forfeited
Cashed-out in Merger
Expired

Outstanding - end of year

Fully vested and exercisable - end of year
Fully vested and expected to vest - end of year (1)

For the Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24 April
2015

Number of
Optioned
Shares
1,125,738
677,560
180,076
(199,655)
(45,553)
(146,105)
(2,500)

1,589,561

935,586
1,571,191

Wtd. Avg.
Exercise
Price

Number of
Optioned
Shares

Wtd. Avg.
Exercise
Price

41.33
69.39
51.34
34.11
61.27
31.67
28.21
55.56
45.90
55.40

1,012,387 $
273,445
—
(127,379)
(32,355)
—
(360)

1,125,738

509,136
1,095,446

35.25
57.29
—
26.89
42.44
—
51.90
41.33
30.15
40.98

161

(1) Factors in expected future forfeitures.

The weighted average remaining contractual life for the share options and SARs outstanding at 31

December 2015 and 24 April 2015 is 4.70 years and 6.97 years, respectively.

The aggregate intrinsic value of the options and SARs outstanding at 31 December 2015 and 24 April 2015
is $12.7 million and $24.3 million, respectively. The aggregate intrinsic value of options and SARs is based on
the difference between the fair market value of the underlying share at the end of the period using the market
closing share price, and exercise price for in-the-money awards.

The range of exercise prices for options and SARs outstanding at 31 December 2015 and 24 April 2015 are

categorized in exercise price ranges as follows:

Outstanding Options

31 December 2015

24 April 2015

$10-20

$21-30

$31-40

$41-50

$51-60

$61-70

Total

94,021
90,368
20,481
91,887
633,329
659,475
1,589,561

131,652
244,092
35,623
183,798
525,073
5,500
1,125,738

Transitional Period 25
April 2015 to
31 December 2015

Fiscal Year Ended

24 April 2015

Weighted average grant date fair value of share option
awards and SARs during the fiscal year (1)
Weighted average share price of share option exercises
during the period
Aggregate intrinsic value of share option and SAR
exercises during the fiscal year (in thousands)

21.05

34.97

5,464

18.64

26.89

3,973

(1) Including weighted average Mergers date fair value of SARs assumed in the Mergers.

Restricted Share and Restricted Share Units Awards

162

(1) Factors in expected future forfeitures.

The weighted average remaining contractual life for the share options and SARs outstanding at 31

December 2015 and 24 April 2015 is 4.70 years and 6.97 years, respectively.

The aggregate intrinsic value of the options and SARs outstanding at 31 December 2015 and 24 April 2015

is $12.7 million and $24.3 million, respectively. The aggregate intrinsic value of options and SARs is based on

the difference between the fair market value of the underlying share at the end of the period using the market

closing share price, and exercise price for in-the-money awards.

The range of exercise prices for options and SARs outstanding at 31 December 2015 and 24 April 2015 are

categorized in exercise price ranges as follows:

Outstanding Options

31 December 2015

24 April 2015

$10-20

$21-30

$31-40

$41-50

$51-60

$61-70

Total

94,021

90,368

20,481

91,887

633,329

659,475

1,589,561

21.05

34.97

5,464

131,652

244,092

35,623

183,798

525,073

5,500

1,125,738

18.64

26.89

3,973

Transitional Period 25

April 2015 to

31 December 2015

Fiscal Year Ended

24 April 2015

Weighted average grant date fair value of share option

awards and SARs during the fiscal year (1)

Weighted average share price of share option exercises

during the period

Aggregate intrinsic value of share option and SAR

exercises during the fiscal year (in thousands)

(1) Including weighted average Mergers date fair value of SARs assumed in the Mergers.

Restricted Share and Restricted Share Units Awards

The following tables detail the activity for service-based restricted share and restricted share unit awards,
including activity from restricted share units assumed or issued as a result of the Mergers:

For the Transitional Period 25 April 2015
to 31 December 2015

Fiscal Year Ended 24 April 2015

Number of Shares

Wtd. Avg. Grant
Date Fair Value

Number of Shares

Wtd. Avg. Grant
Date Fair Value

Non-vested shares at
beginning of period
Granted
Conversion of shares
Vested
Forfeited

Non-vested shares at
end of year

279,818
$
99,870
213,038
(378,322)
(10,831)

203,573

50.70
57.55
69.39
54.92
54.65

63.57

348,725
$
102,652
-
(158,257 )
(13,302 )

279,818

40.65
56.85
-
33.27
42.25

50.70

Transitional Period
25 April 2015 to
31 December 2015

Fiscal Year Ended

24 April 2015

Weighted average grant date fair value of service-based share
grants issued during the fiscal year
Aggregate fair value of service-based share grants that vested
during the year (in thousands)

57.55

24,384

56.85

9,194

The following tables detail the activity for performance-based and market-based restricted share and

restricted share unit awards:

For the Transitional Period 25
April 2015 to 31 December 2015

Fiscal Year Ended 24
April 2015

Non-vested shares at beginning of period

Granted
Conversion of shares
Vested
Forfeited

Non-vested shares at end of year

155,288 $
—
150,285
(245,466)
(60,107)
— $

Number of
Shares

Wtd. Avg.
Grant Date
Fair Value

Number
of Shares

Wtd. Avg.
Grant Date
Fair Value
25.54
57.39
—
22.65
—
31.76

333,641 $

31.76
—
15,837
69.39
—
55.93 (194,190)
—
33.82
—

155,288 $

Transitional Period 25
April 2015 to
31 December 2015

Fiscal Year Ended

24 April 2015

Weighted average grant date fair value of performance-
based share grants issued during the fiscal year

Aggregate fair value of performance-based share grants
that vested during the year (in thousands)

—

9,648

57.39

10,519

163

Note 22. Employee Retirement Plans

We sponsor various retirement plans, including defined benefit pension plans (pension benefits), an
employee retirement savings plan and a deferred compensation plan, covering U.S. employees and many
employees outside the U.S. The expense related to these plans was $3.5 million for the transitional period 25
April 2015 to 31 December 2015.

As at 31 December 2015 the net underfunded status of our benefit plans was $31.0 million.

Defined Benefit Plan.

Prior to the Mergers, we did not sponsor any defined benefit pension plans.

As a result of the Mergers, we assumed several defined benefit pension plans which include plans in the
U.S., Italy, Germany, Japan and France. In the U.S., we maintain a frozen cash balance retirement plan that is a
contributory, defined benefit plan designed to provide the benefit in terms of a stated account balance dependent
on the employer's promised interest-crediting rate. In Italy and France we maintain a severance pay defined
benefit plan that obligates the employer to pay severance pay in case of resignation, dismissal or retirement. In
other jurisdictions we sponsor non-contributory, defined benefit plans designated to provide a guaranteed
minimum retirement benefits to eligible employees.

Risks Related to Defined-benefit Plans

The defined benefit plans expose the Company to various demographic and economic risks such as

longevity risk, investment risks, currency and interest rate risk and in some cases inflation risk. The latter plans
a role in the assumed wage increase and in some smaller plans where indexation is mandatory. Pension fund
Trustees are responsible for and have full discretion over the investment strategy of the plan assets. In general
Trustees manage pension fund risks by diversifying the investments of plan assets and by (partially) matching
interest rate risk of liabilities.

The Company has an active de-risking strategy in which it constantly looks for opportunities to reduce the
risks associated with its defined benefit plans. The plans are governed by Trustees who have a legal obligation
to evenly balance the interests of all stakeholders and operate under the local regulatory framework.

164

Note 22. Employee Retirement Plans

We sponsor various retirement plans, including defined benefit pension plans (pension benefits), an

employee retirement savings plan and a deferred compensation plan, covering U.S. employees and many

employees outside the U.S. The expense related to these plans was $3.5 million for the transitional period 25

April 2015 to 31 December 2015.

Defined Benefit Plan.

As at 31 December 2015 the net underfunded status of our benefit plans was $31.0 million.

Prior to the Mergers, we did not sponsor any defined benefit pension plans.

As a result of the Mergers, we assumed several defined benefit pension plans which include plans in the

U.S., Italy, Germany, Japan and France. In the U.S., we maintain a frozen cash balance retirement plan that is a

contributory, defined benefit plan designed to provide the benefit in terms of a stated account balance dependent

on the employer's promised interest-crediting rate. In Italy and France we maintain a severance pay defined

benefit plan that obligates the employer to pay severance pay in case of resignation, dismissal or retirement. In

other jurisdictions we sponsor non-contributory, defined benefit plans designated to provide a guaranteed

minimum retirement benefits to eligible employees.

Risks Related to Defined-benefit Plans

The defined benefit plans expose the Company to various demographic and economic risks such as

longevity risk, investment risks, currency and interest rate risk and in some cases inflation risk. The latter plans

a role in the assumed wage increase and in some smaller plans where indexation is mandatory. Pension fund

Trustees are responsible for and have full discretion over the investment strategy of the plan assets. In general

Trustees manage pension fund risks by diversifying the investments of plan assets and by (partially) matching

interest rate risk of liabilities.

The Company has an active de-risking strategy in which it constantly looks for opportunities to reduce the

risks associated with its defined benefit plans. The plans are governed by Trustees who have a legal obligation

to evenly balance the interests of all stakeholders and operate under the local regulatory framework.

The change in benefit obligations and funded status of our U.S. and non-U.S. pension benefits as of and for the
transitional period 25 April 2015 to 31 December 2015 are as follows:

(in thousands)

Accumulated benefit obligation at end of year:
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Benefits obligations assumed in the Mergers
Employee contributions
Plan curtailments and settlements
Actuarial (gain) loss
Benefits paid
Foreign currency exchange rate changes and other

Projected benefit obligation at end of year

Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Plan assets acquired in the Mergers
Employer contributions
Employee contributions
Plan settlements
Benefits paid
Foreign currency exchange rate changes

Fair value of plan assets at end of year

Funded status at end of year:
Fair value of plan assets
Benefit obligations

Underfunded status of the plans
Recognised liability

Amounts recognised on the consolidated balance
sheets consist of:

Non-current assets
Current liabilities
Non-current liabilities

Recognised liability

U.S. Pension
Benefits

Non-U.S. Pension
Benefits

Total Pension
Benefits

$
$

— $
—
86
10,378
—
(59)
(40)
(147)
—
10,218 $

— $
(33)
6,097
—
—
(59)
(147)
—
5,858 $

5,858 $
10,218
4,360 $
4,360 $

— $
—
4,360
4,360 $

— $
155
117
29,082
—
—
193
(232)
—
29,315

— $
6
2,676
83
—
—
(5)
—
2,760 $

2,760 $
29,315
26,555 $
26,555 $

— $
—
26,555
26,555 $

—
155
203
39,460
—
(59)
153
(379)
—
39,533

—
(27)
8,773
83
—
(59)
(152)
—
8,618

8,618
39,533
30,915
30,915

—
—
30,915
30,915

Major actuarial assumptions used in determining the benefit obligations and net periodic benefit (income)
cost for our significant benefit plans are presented in the following table as weighted averages as at 31 December
2015.

165

Actuarial assumptions used to determine benefit
obligation
Discount rate
Rate of compensation increase

Actuarial assumptions used to determine net
periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase

U.S. Pension Benefits

Non-U.S. Pension
Benefits

3.79%
N/A

3.64%
5.00%
N/A

0.48% - 2.00%
2.50% - 3.89%

—
0.48% - 2.00%
0.48% - 2.00%

To determine the discount rate for our U.S. benefit plan, we used the Citigroup Above-median yield curve.
For the discount rate used to determine the other non-U.S. benefit plans we consider local market expectations
of long-term returns. The resulting discount rates are consistent with the duration of plan liabilities.

The expected long-term rate of return on plan assets assumptions are determined using a building block

approach, considering historical averages and real returns of each asset class. In certain countries, where
historical returns are not meaningful, consideration is given to local market expectations of long-term returns.

Retirement Benefit Plan Investment Strategy

In the U.S., we have an account that holds the defined benefit frozen balance pension plan assets. The
Qualified Plan Committee (the “Plan Committee”) sets investment guidelines for U.S. pension plans with the
assistance of an external consultant. The plan assets in the U.S. are invested in accordance with sound
investment practices that emphasize long-term fundamentals. The investment objectives for the plan assets in
the U.S. are to achieve a positive rate of return that would be expected to close the current funding deficit and
so enable us to terminate the frozen pension plan at a reasonable cost. These guidelines are established based on
market conditions, risk tolerance, funding requirements and expected benefit payments. The Plan Committee
also oversees the investment allocation process, selects the investment managers, and monitors asset
performance. The investment portfolio contains a diversified portfolio of fixed income and equity index funds.
Securities are also diversified in terms of domestic and international securities, short- and long-term securities,
growth and value styles, large cap and small cap stocks.

Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. There is

a significant variation in policy asset allocation from country to country. Local regulations, local funding rules,
and local financial and tax considerations are part of the funding and investment allocation process in each
country. Pension plan assets outside of the U.S. were $2.8 million as of 31 December 2015 and were not
material.

Our pension plan target allocations as of 31 December 2015, by asset category, are as follows:

166

Actuarial assumptions used to determine benefit

obligation

Discount rate

Rate of compensation increase

Actuarial assumptions used to determine net

periodic benefit cost

Discount rate

Expected return on plan assets

Rate of compensation increase

U.S. Pension Benefits

Non-U.S. Pension

Benefits

3.79%

N/A

3.64%

5.00%

N/A

0.48% - 2.00%

2.50% - 3.89%

—

0.48% - 2.00%

To determine the discount rate for our U.S. benefit plan, we used the Citigroup Above-median yield curve.

For the discount rate used to determine the other non-U.S. benefit plans we consider local market expectations

of long-term returns. The resulting discount rates are consistent with the duration of plan liabilities.

The expected long-term rate of return on plan assets assumptions are determined using a building block

approach, considering historical averages and real returns of each asset class. In certain countries, where

historical returns are not meaningful, consideration is given to local market expectations of long-term returns.

Retirement Benefit Plan Investment Strategy

In the U.S., we have an account that holds the defined benefit frozen balance pension plan assets. The

Qualified Plan Committee (the “Plan Committee”) sets investment guidelines for U.S. pension plans with the

assistance of an external consultant. The plan assets in the U.S. are invested in accordance with sound

investment practices that emphasize long-term fundamentals. The investment objectives for the plan assets in

the U.S. are to achieve a positive rate of return that would be expected to close the current funding deficit and

so enable us to terminate the frozen pension plan at a reasonable cost. These guidelines are established based on

market conditions, risk tolerance, funding requirements and expected benefit payments. The Plan Committee

also oversees the investment allocation process, selects the investment managers, and monitors asset

performance. The investment portfolio contains a diversified portfolio of fixed income and equity index funds.

Securities are also diversified in terms of domestic and international securities, short- and long-term securities,

growth and value styles, large cap and small cap stocks.

Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. There is

a significant variation in policy asset allocation from country to country. Local regulations, local funding rules,

and local financial and tax considerations are part of the funding and investment allocation process in each

country. Pension plan assets outside of the U.S. were $2.8 million as of 31 December 2015 and were not

material.

Our pension plan target allocations as of 31 December 2015, by asset category, are as follows:

Equity Securities
Debt Securities
Other

Retirement Benefit Fair Values

U.S. Pension
Benefits

30%
69%
1%

100%

The following is a description of the valuation methodologies used for retirement benefit plan assets

measured at fair value:

Equity Mutual Funds: Valued based on the year-end net asset values of the investment vehicles. The net asset
values of the investment vehicles are based on the fair values of the underlying investments of the partnerships
valued at the closing price reported in the active markets in which the individual security is traded. Equity mutual
funds have a daily reported net asset value and we classify these investments as Level 2.

Fixed Income Mutual Funds: Valued based on the year-end net asset values of the investment vehicles. The
net asset values of the investment vehicles are based on the fair values of the underlying investments of the
partnerships valued based on inputs other than quoted prices that are observable.

Money Markets: Valued based on quoted prices in active markets for identical assets.

U.S. Pension Benefits

The following tables provide information by level for the retirement benefit plan assets that are measured at
fair value, as defined by IFRS. Refer to “Note 2. Basis of Preparation, Use of Accounting Estimates and
Significant Accounting Policies” for discussion of the fair value measurement terms of Levels 1, 2, and 3.

Fair Value as at

Fair Value Measurement Using Inputs Considered as

(in thousands)

31 December 2015

Level 1

Level 2

Level 3

Equity mutual funds
Fixed income mutual funds
Money market funds

1,727 $
4,058
73
5,858 $

— $
—
73
73 $

1,727 $
4,058
—
5,785 $

—
—
—
—

Retirement Benefit Funding Plan

We have the policy to make the minimum required contribution to fund the U.S. pension plan as determined

by MAP - 21 and the Highway and Transportation Funding Act of 2014 (“HAFTA”).

During the transitional period 25 April 2015 to 31 December 2015, we did not make a material contribution
to the U.S. pension plan or to the non-U.S. pension plan. The weighted average duration of the defined benefit
plans is 8.6 years and about 10 years for U.S. plans and Non-U.S. plans respectively. We anticipate that we will
make contributions to the U.S. pension plan of approximately $0.6 million during fiscal year 2016. Contributions
to the non-U.S. pension plans in fiscal year 2016 are not expected to be material.

167

Benefit payments, including amounts to be paid from our assets, and reflecting expected future service, as

appropriate, are expected to be paid as follows:

(in thousands)

2016
2017
2018
2019
2020
Thereafter

Sensitivity analysis

$
$
$
$
$
$

U.S. Plans

Non-U.S. Plans
1,244
816
1,018
804
902
24,535

481 $
741 $
908 $
635 $
1,050 $
6,404 $

The sensitivity analysis below indicates the main impact of an increase or decrease in the discount rate used

to measures 2015 defined benefits obligations.

Discount rate
Interest rate

Increase +0.50%

(5.25)%
(6.95)%
Increase +10%

Decrease -0.50%

5.73%
6.95%
Decrease -10%

Employee turnover rate

(0.18)%

(0.08)%

The above sensitivity analysis are based on a change in an assumption while holding all other

assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions
the same method (present value of the defined benefit obligation calculated with the projected until credit
method at the end of the reporting period) has been applied as when calculating the defined benefit liability
recognised in the consolidated balance sheets.

The Employee Retirement Savings Plan. We sponsor the Cyberonics, Inc. Employee Retirement Savings

Plan (the “Savings Plan”), which qualifies under Section 401(k) of the IRC. We match 50% of employees’
contributions up to 6% of eligible compensation, subject to a five-year vesting period that starts on the date of
employment. We incurred expenses for these contributions of approximately $1.5 million and $1.8 million for
the transitional period 25 April 2015 to 31 December 2015 and fiscal year ended 24 April 2015, respectively.

The Deferred Compensation Plan. We sponsor the Cyberonics, Inc. Non-Qualified Deferred

Compensation Plan (the “Deferred Compensation Plan”) to a group consisting of certain members of middle
and senior management. The Deferred Compensation Plan provides an opportunity for the group to defer up to
50% of their annual base salary and commissions and 100% of their bonus or performance-based compensation
until the earlier of (i) termination of employment or (ii) an elected distribution date. In addition, effective 1
January 2014, we agreed to match 50% of the contributions of non-officer members of the group up to 6% of
eligible compensation, subject to a five-year vesting period that starts on the date of employment. Employee
deductions result in a liability; refer to “Note 11. Other Long-Term Liabilities.” We incurred expenses for this
plan, based on the company match, of approximately $62,000, $76,000 and $22,000 for the transitional period
25 April 2015 to 31 December 2015 and the fiscal year ended 24 April 2015, respectively.

168

Benefit payments, including amounts to be paid from our assets, and reflecting expected future service, as

Severance Indemnity. In Italy, upon termination of employment for any reason, employers are required to

appropriate, are expected to be paid as follows:

(in thousands)

2016

2017

2018

2019

2020

Thereafter

Sensitivity analysis

Discount rate

Interest rate

Employee turnover rate

U.S. Plans

Non-U.S. Plans

481 $

741 $

908 $

635 $

1,050 $

6,404 $

1,244

816

1,018

804

902

24,535

pay a termination indemnity (Trattamento di fine Rapporto or “TFR”) to all employees as required by Italian
legislation. The TFR serves as a backup in the event of redundancy or as an additional pension benefit after
retirement. The TFR is considered a defined contribution plan with respect to amounts vesting after January 1,
2007 for employees who have opted for a supplementary pensions system or who have chosen to maintain the
TFR at the company, for companies with more than 50 employees. A similar termination indemnity is required
in France. In France the Indemnités de Fin de Carrière consists in a termination indemnity which must be paid
by the employer to an employee in case of retirement, based on a number of monthly gross salary depending by
seniority, type of contract and employee level. We have incurred expenses related to the Italian TFR and France
severance indemnity of approximately $1.5 million and $0.1 million, respectively, for the transitional period 25
April 2015 to 31 December 2015.

Note 23. Income Taxes

Income tax expense (benefit) consists of the following (in thousands):

Increase +0.50%

Decrease -0.50%

(5.25)%

(6.95)%

(0.18)%

5.73%

6.95%

(0.08)%

Increase +10%

Decrease -10%

Current tax

Deferred tax

Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

28,481 $
(35,021)

(6,540) $

21,744
10,641
32,385

The following is a reconciliation of the statutory income tax rate to our effective income tax rate expressed

as a percentage of income before income taxes:

The sensitivity analysis below indicates the main impact of an increase or decrease in the discount rate used

to measures 2015 defined benefits obligations.

Statutory tax rate at U.S. Rate
Statutory tax rate at U.K. Rate
Change in tax Rate (1)
Change in unrecognized deferred tax assets
Reduced tax benefit due to non-deductible transaction costs (2)

State and local tax provision, net of federal benefit (3)
Foreign tax rate differential
Notional interest deduction
U.S. Subpart F
Research and development tax credits

Equity compensation
Reserve for uncertain tax positions
Domestic manufacturing deduction
Other, net

Effective tax rate

169

Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

—%

20.0
(8.2)
(5.4)

(13.2)
—
27.1
7.6
(4.8)
3.8
(14.0)
—
1.9
1.1
15.9%

35.0%
—
—
—
—
2.7
1.5
—
—
(2.1)
1.0
(1.5)
(2.9)
2.5
36.2%

The above sensitivity analysis are based on a change in an assumption while holding all other

assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be

correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions

the same method (present value of the defined benefit obligation calculated with the projected until credit

method at the end of the reporting period) has been applied as when calculating the defined benefit liability

recognised in the consolidated balance sheets.

The Employee Retirement Savings Plan. We sponsor the Cyberonics, Inc. Employee Retirement Savings

Plan (the “Savings Plan”), which qualifies under Section 401(k) of the IRC. We match 50% of employees’

contributions up to 6% of eligible compensation, subject to a five-year vesting period that starts on the date of

employment. We incurred expenses for these contributions of approximately $1.5 million and $1.8 million for

the transitional period 25 April 2015 to 31 December 2015 and fiscal year ended 24 April 2015, respectively.

The Deferred Compensation Plan. We sponsor the Cyberonics, Inc. Non-Qualified Deferred

Compensation Plan (the “Deferred Compensation Plan”) to a group consisting of certain members of middle

and senior management. The Deferred Compensation Plan provides an opportunity for the group to defer up to

50% of their annual base salary and commissions and 100% of their bonus or performance-based compensation

until the earlier of (i) termination of employment or (ii) an elected distribution date. In addition, effective 1

January 2014, we agreed to match 50% of the contributions of non-officer members of the group up to 6% of

eligible compensation, subject to a five-year vesting period that starts on the date of employment. Employee

deductions result in a liability; refer to “Note 11. Other Long-Term Liabilities.” We incurred expenses for this

plan, based on the company match, of approximately $62,000, $76,000 and $22,000 for the transitional period

25 April 2015 to 31 December 2015 and the fiscal year ended 24 April 2015, respectively.

(1) The Italian budget law for 2016 was published in the Official Gazette on 30 December 2015. For Fiscal Year 2017

onward, the law provides a reduction of the applicable corporate income tax rate from 27.5% to 24% resulting in an
adjustment to deferred taxes and a corresponding increase to tax expense of approximately $3.4 million.

(2) Included in this adjustment is the reversal of the deferred tax asset established during the fiscal year ended 24 April

2015 and the quarter ended 24 July 2015, based on the assumption that these otherwise non-deductible transaction costs
would be deductible if the business combination was not consummated. Because the transaction was ultimately
consummated, the deferred tax asset was reversed as a non-deductible transaction cost in the amount of $2.3 million.

(3) State and local tax provision is included in other lines for the transitional period ended 31 December 2015.

The change in net deferred taxes recognized in the balance sheet can be analyzed as follows (in thousands):

Transitional Period 25
April 2015 to 31 December
2015

Fiscal Year Ended 24 April
2015

At the beginning of the period
Deferred taxes recognized in equity
Deferred tax income (expense) for the period, net
Effect of business combination (a)

At the end of the period

20,662 $
9,685
35,021
(134,981)

(69,613 ) $

34,184
(2,881)
(10,641)
—
20,662

(a) The increase in assets and liabilities recognized in an acquisition can be attributed for the most part to the Mergers (see
"Note 7. Business Combinations" for more details).

Deferred income tax assets and liabilities on a gross basis are summarized as follows (in thousands):

31 December 2015 24 April 2015

26 April 2014

Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Deferred compensation
Accruals and reserves
Depreciation and amortisation
Inventory
Other

Deferred tax assets
Deferred tax liabilities:
Basis differences in subsidiaries
Property and equipment and intangible assets

Other

Deferred tax liabilities:

Total deferred tax assets (liabilities), net
Reported in the consolidated balance sheet:
Deferred tax assets, net
Deferred tax liability, net

Net deferred tax asset (liability)

170

81,058 $
17,143
6,583
21,635
16,796
19,001
5,626
167,842

(13,555)
(223,715)

(185)

(237,455)

(69,613 ) $

165,729 $
(235,342)

(69,613 ) $

1,906 $
1,720
7,812
8,837
—
384
919
21,578

—
(916)
—
(916)
20,662 $

20,662 $
—
20,662 $

3,534
11,128
7,886
12,029
—
94
1,146
35,817

—
(1,633)
—
(1,633)
34,184

34,184
—
34,184

(1) The Italian budget law for 2016 was published in the Official Gazette on 30 December 2015. For Fiscal Year 2017

onward, the law provides a reduction of the applicable corporate income tax rate from 27.5% to 24% resulting in an

adjustment to deferred taxes and a corresponding increase to tax expense of approximately $3.4 million.

(2) Included in this adjustment is the reversal of the deferred tax asset established during the fiscal year ended 24 April

2015 and the quarter ended 24 July 2015, based on the assumption that these otherwise non-deductible transaction costs

would be deductible if the business combination was not consummated. Because the transaction was ultimately

consummated, the deferred tax asset was reversed as a non-deductible transaction cost in the amount of $2.3 million.

(3) State and local tax provision is included in other lines for the transitional period ended 31 December 2015.

The change in net deferred taxes recognized in the balance sheet can be analyzed as follows (in thousands):

Transitional Period 25

April 2015 to 31 December

Fiscal Year Ended 24 April

2015

At the beginning of the period

Deferred taxes recognized in equity

Deferred tax income (expense) for the period, net

Effect of business combination (a)

At the end of the period

20,662 $

9,685

35,021

(134,981)

(69,613 ) $

(a) The increase in assets and liabilities recognized in an acquisition can be attributed for the most part to the Mergers (see

"Note 7. Business Combinations" for more details).

During the transitional period 25 April 2015 to 31 December 2015 we have recorded $14.0 million of
foreign tax credits in the United States. We have $0.6 million in Canadian research and development credits,
$2.1 million of U.S. State tax credits and $1.2 million of other U.S. credits. Lastly, we have 3.9 million Euros
of French refundable research and development credits recognised as a deferred tax benefits in our balance
sheet. We have net operating losses (“NOL”) and carryforwards of the following amounts:

Region

Europe
U.S. Federal
U.S. State
Far East

Gross Amount

Gross Amount
with No
Expiration

With
Expiration

Starting
Expiration
Year

200,751 $
164,226
141,083
6,899

186,122 $
—
—
4,795

14,630
164,226
141,083
2,104

2016
2020
2016
2017

As a result of the business combination, the historic net operating losses of Sorin U.S. are limited by IRC

section 382. Before considering the adjustments for net unrealised and realised built in-gains, the annual
limitation is approximately $12.5 million, which is sufficient to absorb the U.S. net operating losses prior to
their expiration.

A significant portion of the net deferred tax liability included above relates to the tax effect of the step-up in

value of the assets acquired in the combination with Sorin. Refer to “Note 7. Business Combinations” for
additional information.

Deferred income tax assets and liabilities on a gross basis are summarized as follows (in thousands):

Deferred tax assets have not been recognized with respect of the following items in gross amounts (in

31 December 2015 24 April 2015

26 April 2014

81,058 $

1,906 $

thousands):

Tax loss carryforwards
Other

31 December 2015

24 April 2015

26 April 2014

150,949 $
8,598
159,547 $

5,653 $
3,444
9,097 $

7,077
1,169
8,246

Included in the table above are primarily tax loss carryforwards for which a tax benefit was not recorded
due to the inability to utilize such losses. In addition, the items included in the other category relate to certain
tax credits and capital losses that a tax benefit was not recorded.

As of the transaction close date, there were several investments in subsidiaries where the book basis was
greater than the tax basis, whereby a deferred tax liability was recognised as part of the purchase accounting.
The deferred tax liability recognised as part of the purchase accounting related to these subsidiaries was
approximately $17 million. No further provision has been made for income taxes on undistributed earnings of
foreign subsidiaries as of 31 December 2015 because it is our intention to indefinitely reinvest undistributed
earnings of our foreign subsidiaries. In the event of the distribution of those earnings in the form of dividends, a
sale of the subsidiaries, or certain other transactions, we may be liable for income taxes. There should be no
material tax liability on future distributions as most jurisdictions with undistributed earnings have various
participation exemptions / no withholding tax. As at 31 December 2015, it was not practicable to determine the
amount of the income tax liability related to those investments.

171

34,184

(2,881)

(10,641)

—

20,662

3,534

11,128

7,886

12,029

—

1,146

35,817

(1,633)

—

(1,633)

34,184

—

34,184

Deferred tax assets:

Net operating loss carryforwards

Tax credit carryforwards

Deferred compensation

Accruals and reserves

Depreciation and amortisation

Inventory

Other

Deferred tax assets

Deferred tax liabilities:

Basis differences in subsidiaries

Property and equipment and intangible assets

Other

Deferred tax liabilities:

17,143

6,583

21,635

16,796

19,001

5,626

167,842

(13,555)

(223,715)

(185)

(237,455)

1,720

7,812

8,837

—

384

919

21,578

—

(916)

—

(916)

Total deferred tax assets (liabilities), net

Reported in the consolidated balance sheet:

Deferred tax assets, net

Deferred tax liability, net

Net deferred tax asset (liability)

(69,613 ) $

20,662 $

165,729 $

(235,342)

(69,613 ) $

20,662 $

—

20,662 $

Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly

assess the likely outcomes of our tax positions in order to determine the appropriateness of our reserves for
uncertain tax positions. However, there can be no assurance that we will accurately predict the outcome of these
audits and the actual outcome of an audit could have a material impact on our consolidated results of income,
financial position or cash flows. If all of our unrecognised tax benefits as 31 December 2015 were recognised,
$20.2 million would impact our effective tax rate. The liability for uncertain tax positions reserve in the balance
sheet is $13.0 million, however the remaining amount up to the $20.2 million is included as an offset to the
deferred tax asset account. We are unable to estimate the amount of change in the majority of our unrecognised
tax benefits over the next 12 months; however, approximately $0.9 million will be resolved over the next 12
months due to the expected completion of an audit. Refer to “Note 16. Commitments and Contingencies” for
additional information regarding the status of current tax litigation.

During fiscal year ended 24 April 2015, based upon our review and rework of certain prior-year R&D tax
credits, we believe that the credits are more likely than not to be sustained upon examination and as a result we
released the reserve against these R&D tax credits.

We record accrued interest and penalties related to unrecognised tax benefits in interest expense and

operating expense, respectively.

The major jurisdictions where we are subject to income tax examinations are as follows:

Jurisdiction
U.S. - federal and state
Italy
Germany
England and Wales
Canada
France

Earliest year open

1992
2010
2010
2012
2011
2010

Note 24. Commitments and Contingencies

Litigation and Regulatory Proceedings

FDA Warning Letter. On 31 December 2015, LivaNova received a Warning Letter dated 29 December
2015 from the FDA alleging certain violations of FDA regulations applicable to medical device manufacturers
at the Company’s Munich, Germany and Arvada, Colorado facilities.

The FDA inspected the Company’s Munich facility from 24 August 2015 to 27 August 2015 and its Arvada
facility from 24 August 2015 to 1 September 2015. On 27 August 2015, the FDA issued a Form 483 identifying
two observed non-conformities with certain regulatory requirements at the Munich facility. The Company did
not receive a Form 483 in connection with the FDA’s inspection of the Arvada facility. Following the receipt of
the Form 483, the Company provided written responses to the FDA describing corrective and preventive actions
that were underway or to be taken to address the FDA’s observations at the Munich facility. The Warning Letter
responded in part to LivaNova’s responses and identified other alleged violations not previously included in the
Form 483.

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Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly

The Warning Letter further stated that the Company’s 3T Heater Cooler devices and other devices

assess the likely outcomes of our tax positions in order to determine the appropriateness of our reserves for

uncertain tax positions. However, there can be no assurance that we will accurately predict the outcome of these

audits and the actual outcome of an audit could have a material impact on our consolidated results of income,

financial position or cash flows. If all of our unrecognised tax benefits as 31 December 2015 were recognised,

$20.2 million would impact our effective tax rate. The liability for uncertain tax positions reserve in the balance

sheet is $13.0 million, however the remaining amount up to the $20.2 million is included as an offset to the

deferred tax asset account. We are unable to estimate the amount of change in the majority of our unrecognised

tax benefits over the next 12 months; however, approximately $0.9 million will be resolved over the next 12

months due to the expected completion of an audit. Refer to “Note 16. Commitments and Contingencies” for

additional information regarding the status of current tax litigation.

During fiscal year ended 24 April 2015, based upon our review and rework of certain prior-year R&D tax

credits, we believe that the credits are more likely than not to be sustained upon examination and as a result we

released the reserve against these R&D tax credits.

We record accrued interest and penalties related to unrecognised tax benefits in interest expense and

operating expense, respectively.

The major jurisdictions where we are subject to income tax examinations are as follows:

Jurisdiction

Earliest year open

U.S. - federal and state

Italy

Germany

Canada

France

England and Wales

1992

2010

2012

2011

2010

Note 24. Commitments and Contingencies

Litigation and Regulatory Proceedings

FDA Warning Letter. On 31 December 2015, LivaNova received a Warning Letter dated 29 December

2015 from the FDA alleging certain violations of FDA regulations applicable to medical device manufacturers

at the Company’s Munich, Germany and Arvada, Colorado facilities.

The FDA inspected the Company’s Munich facility from 24 August 2015 to 27 August 2015 and its Arvada

facility from 24 August 2015 to 1 September 2015. On 27 August 2015, the FDA issued a Form 483 identifying

two observed non-conformities with certain regulatory requirements at the Munich facility. The Company did

not receive a Form 483 in connection with the FDA’s inspection of the Arvada facility. Following the receipt of

the Form 483, the Company provided written responses to the FDA describing corrective and preventive actions

that were underway or to be taken to address the FDA’s observations at the Munich facility. The Warning Letter

responded in part to LivaNova’s responses and identified other alleged violations not previously included in the

Form 483.

manufactured by the Company’s Munich facility are subject to refusal of admission into the United States until
resolution of the issues set forth by the FDA in the Warning Letter. The FDA has informed the Company that the
import alert is limited to the 3T Heater Cooler devices, but that the agency reserves the right to expand the
scope of the import alert if future circumstances warrant such action. The Warning Letter did not request that
existing users cease using the 3T Heater Cooler device, and manufacturing and shipment of all of the
Company’s products other than the 3T Heater Cooler remain unaffected by the import limitation. To help clarify
these issues for current customers, the Company issued an informational Customer Letter in January 2016, and
that same month agreed with the FDA on a process for shipping 3T Heater Cooler devices to existing U.S. users
pursuant to a certificate of medical necessity program.

Lastly, the Warning Letter states that premarket approval applications for Class III devices to which certain

Quality System regulation deviations identified in the Warning Letter are reasonably related will not be
approved until the violations have been corrected. However, the Warning Letter only specifically names the
Munich and Arvada facilities in this restriction, which do not manufacture or design devices subject to
premarket approval.

The Company is continuing to work diligently to remediate the FDA’s inspectional observations for the

Munich facility as well as the additional issues identified in the Warning Letter. The Company takes these
matters seriously and intends to respond timely and fully to the FDA’s requests.

The Warning Letter had no impact on the Company’s financial statements during 2015. The Company
currently believes that less than 1% of 2016 consolidated sales could be impacted by this Warning Letter and
that the FDA’s concerns can be resolved without a material impact on the Company’s financial results.

Baker, Miller et al v. LivaNova PLC. On 12 February 2016, LivaNova was alerted that a class action
complaint had been filed in the U.S. District Court for the Middle District of Pennsylvania with respect to the
Company’s 3T Heater Cooler devices, naming as evidence, in part, the Warning Letter issued by the FDA in
December 2015. The named plaintiffs to the complaint are two individuals who underwent open heart surgeries
at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center in 2015, and the complaint alleges
that: (i) patients were exposed to a harmful form of bacteria, known as nontubercuous mycobacterium
(“NTM”), from LivaNova’s 3T Heater Cooler devices; and (ii) LivaNova knew or should have known that
design or manufacturing defects in 3T Heater Cooler devices can lead to NTM bacterial colonization, regardless
of the cleaning and disinfection procedures used (and recommended by the Company). Named plaintiffs seek to
certify a class of plaintiffs consisting of all Pennsylvania residents who underwent open heart surgery at
WellSpan York Hospital and Penn State Milton S. Hershey Medical Center between 2011 and 2015 and who are
currently asymptomatic for NTM infection (approximately 3,600 patients).

The putative class action, which has not been certified, seeks: (i) declaratory relief finding the 3T Heater
Cooler devices are defective and unsafe for intended uses; (ii) medical monitoring; (iii) general damages; and
(iv) attorneys’ fees. On 21 March 2016 the plaintiffs filed a First Amended Complaint adding Sorin Group
Deutschland GmbH and Sorin Group USA, Inc. as defendants.

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At LivaNova, patient safety is of the utmost importance, and significant resources are dedicated to the
delivery of safe, high-quality products. The Company intends to vigorously defend against these claims. Given
the early stage of this matter, we cannot, however, give any assurances that additional legal proceedings making
the same or similar allegations will not be filed against LivaNova PLC or one of its subsidiaries, nor that the
resolution of the complaint and any related litigation in connection therewith will not have a material adverse
effect on the Company’s business, results of operations, financial condition and/or liquidity.

SNIA Litigation. Sorin S.p.A. was created as a result of a spin-off (the “Sorin spin-off”) from SNIA S.p.A.

(“SNIA”). The Sorin spin-off, which spun off SNIA’s medical technology division, became effective on 2
January 2004. Pursuant to the Italian Civil Code, in a spin-off transaction, the parent and the spun-off company
can be held jointly liable for certain indebtedness or liabilities of the pre-spin-off company in two scenarios:

• The parent and the spun-off company can be held jointly liable, up to the actual value of the

shareholders’ equity conveyed or received, for “debt” (debiti) of the pre-spin-off company that existed at the
time of the spin-off. This joint liability is secondary in nature and, consequently, arises only when such
indebtedness is not satisfied by the company owing such indebtedness. We estimate that at the time of the spin-
off, the value of the residual shareholders’ equity received was approximately €573 million.

• The parent and the spun-off company can be held jointly liable, up to the actual value of the

shareholders’ equity conveyed or received, for “liabilities” (elementi del passivo) whose allocation between the
parties to the spin-off cannot be determined based on the spin-off plan.

For purposes of the Italian Civil Code, Sorin believes and has argued that the term “debt” (debiti) is

generally understood to refer to indebtedness as reflected on a debtor’s balance sheet for accounting purposes in
accordance with the European Union directive pursuant to which these provisions of the Italian Civil Code were
enacted, which translates “debiti” as “obligations.” The European Union directive uses “obligations” to refer to
indebtedness owed to creditors and the term “liabilities” to refer to general liabilities. In connection with the
Sorin spin-off, the assets and liabilities of SNIA’s medical technology division were allocated to Sorin, and the
remaining assets and liabilities of SNIA, including those related to the Caffaro chemical operations (as
described below), were allocated to SNIA.

174

At LivaNova, patient safety is of the utmost importance, and significant resources are dedicated to the

delivery of safe, high-quality products. The Company intends to vigorously defend against these claims. Given

the early stage of this matter, we cannot, however, give any assurances that additional legal proceedings making

the same or similar allegations will not be filed against LivaNova PLC or one of its subsidiaries, nor that the

resolution of the complaint and any related litigation in connection therewith will not have a material adverse

effect on the Company’s business, results of operations, financial condition and/or liquidity.

SNIA Litigation. Sorin S.p.A. was created as a result of a spin-off (the “Sorin spin-off”) from SNIA S.p.A.

(“SNIA”). The Sorin spin-off, which spun off SNIA’s medical technology division, became effective on 2

January 2004. Pursuant to the Italian Civil Code, in a spin-off transaction, the parent and the spun-off company

can be held jointly liable for certain indebtedness or liabilities of the pre-spin-off company in two scenarios:

• The parent and the spun-off company can be held jointly liable, up to the actual value of the

shareholders’ equity conveyed or received, for “debt” (debiti) of the pre-spin-off company that existed at the

time of the spin-off. This joint liability is secondary in nature and, consequently, arises only when such

indebtedness is not satisfied by the company owing such indebtedness. We estimate that at the time of the spin-

off, the value of the residual shareholders’ equity received was approximately €573 million.

• The parent and the spun-off company can be held jointly liable, up to the actual value of the

shareholders’ equity conveyed or received, for “liabilities” (elementi del passivo) whose allocation between the

parties to the spin-off cannot be determined based on the spin-off plan.

For purposes of the Italian Civil Code, Sorin believes and has argued that the term “debt” (debiti) is

generally understood to refer to indebtedness as reflected on a debtor’s balance sheet for accounting purposes in

accordance with the European Union directive pursuant to which these provisions of the Italian Civil Code were

enacted, which translates “debiti” as “obligations.” The European Union directive uses “obligations” to refer to

indebtedness owed to creditors and the term “liabilities” to refer to general liabilities. In connection with the

Sorin spin-off, the assets and liabilities of SNIA’s medical technology division were allocated to Sorin, and the

remaining assets and liabilities of SNIA, including those related to the Caffaro chemical operations (as

described below), were allocated to SNIA.

Between 1906 and 2010, SNIA’s subsidiaries Caffaro Chimica S.r.l. and Caffaro S.r.l. and their
predecessors (the “SNIA Subsidiaries”), conducted certain chemical operations (the Caffaro Chemical
Operations”), at sites in Torviscosa, Brescia and Colleferro, Italy (the “Caffaro Chemical Sites”). These
activities allegedly resulted in substantial and widely dispersed contamination of soil, water and ground water
caused by a variety of hazardous substances released at the Caffaro Chemical Sites. In 2009 and 2010, SNIA
and the SNIA Subsidiaries filed for insolvency. In connection with SNIA’s Italian insolvency proceedings, the
Italian Ministry of the Environment and the Protection of Land and Sea (the “Italian Ministry of the
Environment”), sought compensation from SNIA in an aggregate amount of €3.4 billion for remediation costs
relating to the environmental damage at the Caffaro Chemical Sites allegedly caused by the Caffaro Chemical
Operations. The amount, which was based on certain clean-up activities and precautionary measures set forth in
three technical reports prepared by ISPRA, the technical agency of the Ministry of Environment. Similar
activities and precautionary measures have also been requested to the SNIA Subsidiaries by the Ministry of
Environment and other competent authorities in the context of the administrative proceeding for the remediation
of the Caffaro Chemical Sites. However, these administrative acts have been the invalidated in part by courts in
Friuli Venezia Giulia (for the site of Torviscosa) and Brescia, which deemed them based on fact-finding. The
administrative proceeding regarding the Torviscosa site is also currently subject to a criminal investigation by
the Public Prosecutor of Udine. In addition, partial final remediation plans have been approved and
implemented for the Colleferro site. These plans provide remediation activities significantly different, and
entailing much lower expenses, from those included in the ISPRA’s technical reports which ground the request
for compensation of the abovementioned amount. Notwithstanding the above, that amount, remains in dispute,
and no final remediation plan has been approved for the other site.

In September 2011, the Bankruptcy Court of Udine, and in July 2014, the Bankruptcy Court of Milan each

held that the Italian Ministry of the Environment and other Italian government agencies were not creditors of
SNIA and the SNIA Subsidiaries in connection with the agencies’ claims against them in the context of their
Italian insolvency proceedings. LivaNova (as the successor to Sorin in the litigation) believes these findings are
influential but not binding in other Italian courts, including civil courts. The Italian Ministry of the Environment
and the other Italian government agencies have appealed both decisions, but in January 2016, the Court of
Udine rejected the appeal (with a decision which has been challenged before the Italian Supreme Court), while
the appeal before the Court of Milan is currently pending. LivaNova (as the successor to Sorin in the litigation)
believes these findings are influential but not binding in other Italian courts, including civil courts.

In January 2012, SNIA filed a civil action against Sorin in the Civil Court of Milan on the basis of the
Italian Civil Code’s provisions for potential joint liability of a parent and a spun-off company in the context of a
spin-off, as described above, seeking to determine Sorin’s joint liability with SNIA for damages allegedly
related to the Caffaro chemical operations (as described below). SNIA’s civil action against Sorin also named
the Italian Ministry of the Environment and other Italian government agencies, as defendants, in order to have
them bound to a potential ruling. The Italian Ministry of the Environment, together with the Italian Ministry of
Economy and Finance and certain additional Italian government agencies that also sought compensation from
SNIA for the alleged environmental damages, subsequently counterclaimed against Sorin, seeking to have Sorin
found jointly liable to them with SNIA, on the same basis. SNIA and these government agencies asked the court
to find inapplicable to the Sorin spin-off the Italian Civil Code’s caps on potential joint liability of parties to a
spin-off, which limit such joint liability to the actual value of the shareholders’ equity received, on the basis that
the Sorin spin-off was planned prior to the date such caps were enacted under the Italian Civil Code, and despite

175

the fact that the Sorin spin-off became effective after such date. Sorin sought to contest SNIA’s claims against
Sorin, in their entirety, due to:

•

the Italian bankruptcy courts’ previous findings that the Italian Ministry of the Environment and other

Italian government agencies were not creditors of SNIA and the SNIA subsidiaries in connection with the
agencies’ claims against them;

• Sorin’s belief that the alleged liabilities related to the Caffaro chemical operations did not constitute
indebtedness of SNIA at the time of the Sorin spin-off, and thus that Sorin should not be held liable under the
Italian Civil Code’s provisions relating to joint liability for indebtedness in the context of spin-offs, as described
above; and

•

the allocation to SNIA of the assets and liabilities related to the Caffaro chemical operations in
connection with the Sorin spin-off, and Sorin’s belief that Sorin should therefore not be liable under the Italian
Civil Code’s provisions relating to joint liability in the context of spin-offs for liabilities of indeterminate
allocation, as described above.

A hearing to submit final claims (precisazione delle conclusioni) in connection with SNIA’s civil action
was held in September 2015 and parties have since filed final defense briefs. A favourable decision pertaining to
the case was delivered in judgement No. 4101/2016 of 1 April 2016 (the "Decision"). In its Decision the Court
of Milan dismissed the legal actions of SNIA s.p.a. in Amministrazione Straordinaria (SNIA) and of the Italian
Public Administration (the Public Administration) against Sorin (now LivaNova PLC), further requiring the
Public Administration to pay Sorin Euro 300,000, as legal fees (of which Euro 50,000 jointly with SNIA).
Neither of the losing parties has yet filed an appeal in this case.

LivaNova (as successor to Sorin in the litigation) continues to believe that the risk of material loss relating
to the SNIA litigation is not probable as a result of the reasons and recent court decisions described above. We
also believe that the amount of potential losses relating to the SNIA litigation is in any event not estimable
given that the underlying damages and related remediation costs (and which party would be responsible for
what portion or time period related to which) remain in dispute and that no final decision on a remediation plan
has been approved. As a result, LivaNova has not made any accrual in connection with the SNIA litigation.

Pursuant to European Union, United Kingdom and Italian cross-border merger regulations applicable to the

Mergers, legacy Sorin’s liabilities, including any potential liabilities arising from the claims against Sorin
relating to the SNIA litigation, are assumed by LivaNova as successor to Sorin. Although LivaNova believes the
claims against Sorin in connection with the SNIA litigation are without merit and continues to contest them
vigorously, there can be no assurance as to the outcome. A finding, during any appeal or novel proceedings, that
Sorin or LivaNova is liable for the environmental damage at the Caffaro chemical sites could have a material
adverse effect on the financial position, results of operations and/or cash flows of LivaNova.

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the fact that the Sorin spin-off became effective after such date. Sorin sought to contest SNIA’s claims against

Environmental Remediation Order. On 28 July 2015, Sorin and other direct and indirect shareholders of

Sorin, in their entirety, due to:

agencies’ claims against them;

•

the Italian bankruptcy courts’ previous findings that the Italian Ministry of the Environment and other

Italian government agencies were not creditors of SNIA and the SNIA subsidiaries in connection with the

• Sorin’s belief that the alleged liabilities related to the Caffaro chemical operations did not constitute

indebtedness of SNIA at the time of the Sorin spin-off, and thus that Sorin should not be held liable under the

Italian Civil Code’s provisions relating to joint liability for indebtedness in the context of spin-offs, as described

above; and

•

the allocation to SNIA of the assets and liabilities related to the Caffaro chemical operations in

connection with the Sorin spin-off, and Sorin’s belief that Sorin should therefore not be liable under the Italian

Civil Code’s provisions relating to joint liability in the context of spin-offs for liabilities of indeterminate

allocation, as described above.

A hearing to submit final claims (precisazione delle conclusioni) in connection with SNIA’s civil action

was held in September 2015 and parties have since filed final defense briefs. A favourable decision pertaining to

the case was delivered in judgement No. 4101/2016 of 1 April 2016 (the "Decision"). In its Decision the Court

of Milan dismissed the legal actions of SNIA s.p.a. in Amministrazione Straordinaria (SNIA) and of the Italian

Public Administration (the Public Administration) against Sorin (now LivaNova PLC), further requiring the

Public Administration to pay Sorin Euro 300,000, as legal fees (of which Euro 50,000 jointly with SNIA).

Neither of the losing parties has yet filed an appeal in this case.

LivaNova (as successor to Sorin in the litigation) continues to believe that the risk of material loss relating

to the SNIA litigation is not probable as a result of the reasons and recent court decisions described above. We

also believe that the amount of potential losses relating to the SNIA litigation is in any event not estimable

given that the underlying damages and related remediation costs (and which party would be responsible for

what portion or time period related to which) remain in dispute and that no final decision on a remediation plan

has been approved. As a result, LivaNova has not made any accrual in connection with the SNIA litigation.

Pursuant to European Union, United Kingdom and Italian cross-border merger regulations applicable to the

Mergers, legacy Sorin’s liabilities, including any potential liabilities arising from the claims against Sorin

relating to the SNIA litigation, are assumed by LivaNova as successor to Sorin. Although LivaNova believes the

claims against Sorin in connection with the SNIA litigation are without merit and continues to contest them

vigorously, there can be no assurance as to the outcome. A finding, during any appeal or novel proceedings, that

Sorin or LivaNova is liable for the environmental damage at the Caffaro chemical sites could have a material

adverse effect on the financial position, results of operations and/or cash flows of LivaNova.

SNIA received an administrative order from the Italian Ministry of the Environment (the “Environmental
Remediation Order”), directing them to promptly commence environmental remediation efforts at the Caffaro
chemical sites (as described above). LivaNova believes that the Environmental Remediation Order is without
merit. LivaNova (as successor to Sorin) believes that it should not be liable for damages relating to the Caffaro
chemical operations pursuant to the Italian statute on which the Environmental Remediation Order relies
because the statute does not apply to activities occurring prior to 2006, the date on which the statute was
enacted, and Sorin was spun off from SNIA in 2004. Additionally, LivaNova believes that Sorin should not be
subject to the Environmental Remediation Order because Italian environmental regulations only permit such an
order to be imposed on an “operator” of a remediation site, and Sorin had never been identified in any legal
proceeding as an operator at any of the Caffaro chemical sites, has not conducted activities of any kind at any of
the Caffaro chemical sites and had not caused any environmental damage at any of the Caffaro chemical sites.

Accordingly, LivaNova (as successor to Sorin) alongside other parties, challenged the Environmental
Remediation Order before the Administrative Court of Lazio in Rome (TAR). A hearing was held on February
3, 2016.

On March 21, 2016 the TAR issued several judgements, annulling the Environmental remediation Order,
one for each of the addressees of the Environmental Remediation Order, including LivaNova. Those judgements
were based on the fact that (i) the Order lacks any detailed analysis of the causal link between the alleged
damage and the activities of the Company, which is a pre-condition to imposition of the measures proposed in
the Order, (ii) the situation of the Caffaro site does not require urgent safety measures, because no new pollution
events have occurred and no additional information/evidence of a situation of contamination exists and (iii) the
Order was not enacted using the correct legal basis, and in any event the Ministry failed to verify the legal
elements that could have led to a conclusion of legal responsibility of the addressees of the Order.

The TAR decision described above may be appealed by the Ministry before the Council of State (within 60

days from the notification of the TAR’s judgement, or six months if the judgement has not been notified.)

Andrew Hagerty v. Cyberonics, Inc. On 5 December 2013, the United States District Court for the District

of Massachusetts unsealed a qui tam action filed by former employee Andrew Hagerty against Cyberonics
under the False Claims Act (the “False Claims Act”) and the false claims statutes of 28 different states and the
District of Columbia (United States of America et al ex rel. Andrew Hagerty v. Cyberonics, Inc. Civil Action No.
1:13-cv-10214-FDS). The False Claims Act prohibits the submission of a false claim or the making of a false
record or statement to secure reimbursement from, or limit reimbursement to, a government-sponsored program.
A “qui tam” action is a lawsuit brought by a private individual, known as a relator, purporting to act on behalf of
the government. The action is filed under seal, and the government, after reviewing and investigating the
allegations, may elect to participate, or intervene, in the lawsuit. Typically, following the government’s election,
the qui tam action is unsealed.

Previously, in August 2012, Mr. Hagerty filed a related lawsuit in the same court and then voluntarily
dismissed that lawsuit immediately prior to filing this qui tam action. In addition to his claims for wrongful and
retaliatory discharge stated in the first lawsuit, the qui tam lawsuit alleges that Cyberonics violated the False
Claims Act and various state false claims statutes while marketing its VNS Therapy System, and seeks an
unspecified amount consisting of treble damages, civil penalties, and attorneys’ fees and expenses.

177

In October 2013, the United States Department of Justice declined to intervene in the qui tam action, but
reserved the right to do so in the future. In December 2013, the district court unsealed the action. In April 2014,
Cyberonics filed a motion to dismiss the qui tam complaint, alleging a number of deficiencies in the lawsuit. In
May 2014, the relator filed a First Amended Complaint. Cyberonics filed another motion to dismiss in June
2014, and the parties completed their briefing on the motion in July 2014. On 6 April 2015, the district court
dismissed all claims filed by Andrew Hagerty under the False Claims Act, but did not dismiss the claims for
wrongful and retaliatory discharge. On 28 July 2015, Cyberonics filed its answer to the surviving claims in Mr.
Hagerty’s first Amended Complaint and asserted its demand for arbitration pursuant to Mr. Hagerty’s
employment documents.

In August 2015, Mr. Hagerty filed a Motion Seeking Leave to file a Second Amended Complaint

responding to certain deficiencies noted by the court when dismissing claims in his First Amended Complaint
alleging that Cyberonics submitted, or caused the submission of false claims under the False Claims Act. On 4
September 2015, Cyberonics filed our Brief in Opposition to Hagerty’s Motion for Leave to file a Second
Amended Complaint. Mr. Hagerty filed a Reply Brief in support of his Motion for Leave to file a Second
Amended Complaint on 11 September 2015. On 16 September 2015, the Court heard oral arguments on (a) Mr.
Hagerty’s motion seeking to amend his complaint, and (b) Cyberonics’ pending motion demanding arbitration
on the claims relating to wrongful and retaliatory discharge. On 17 November 2015, the court (1) denied Mr.
Hagerty’s Motion for Leave to File a Second Amended Complaint (accordingly, the previously dismissed claims
remain dismissed); (2) granted Cyberonics’ Motion to Compel Arbitration of the two remaining claims (for
retaliatory discharge under the False Claims Act and for wrongful termination/retaliation under Massachusetts
law); and (3) stayed the pending case (in order to consolidate all issues for appeal pending resolution of the
arbitration). On or about 22 February 2016, Mr. Hagerty dismissed, without prejudice, his individual claims that
were ordered to arbitration. Subsequently, on or about 21 March 2016, Mr. Hagerty filed an appeal of the
previously dismissed FCA claims with the U.S. First Circuit Court of Appeals. The appeal is pending.

We believe that our commercial practices were and are in compliance with applicable legal standards, and

we will continue to defend this case vigorously. We make no assurance as to the resources that will be needed to
respond to these matters or the final outcome, and we cannot estimate a range of potential loss or damages.

Tax Litigation. In a tax audit report notified on October 30, 2009, the Regional Internal Revenue Office of
Lombardy (the “Internal Revenue Office”) informed Sorin Group Italia S.r.l. that, among several issues, it was
disallowing in part (for a total of €102.6 million) a tax-deductible write down of the investment in the U.S.
company, Cobe Cardiovascular Inc., which Sorin Group Italia S.r.l. recognised in 2002 and deducted in five
equal installments, beginning in 2002. In December 2009, the Internal Revenue Office issued notices of
assessment for 2002, 2003 and 2004. The assessments for 2002 and 2003 were automatically voided for lack of
merit. In December 2010 and October 2011, the Internal Revenue Office issued notices of assessment for 2005
and 2006 respectively. The Company challenged all three notices of assessment (for 2004, 2005 and 2006)
before the relevant Provincial Tax Courts.

178

In October 2013, the United States Department of Justice declined to intervene in the qui tam action, but

The preliminary challenges filed for 2004, 2005 and 2006 were heard and all denied at the first

reserved the right to do so in the future. In December 2013, the district court unsealed the action. In April 2014,

Cyberonics filed a motion to dismiss the qui tam complaint, alleging a number of deficiencies in the lawsuit. In

May 2014, the relator filed a First Amended Complaint. Cyberonics filed another motion to dismiss in June

2014, and the parties completed their briefing on the motion in July 2014. On 6 April 2015, the district court

dismissed all claims filed by Andrew Hagerty under the False Claims Act, but did not dismiss the claims for

wrongful and retaliatory discharge. On 28 July 2015, Cyberonics filed its answer to the surviving claims in Mr.

Hagerty’s first Amended Complaint and asserted its demand for arbitration pursuant to Mr. Hagerty’s

employment documents.

In August 2015, Mr. Hagerty filed a Motion Seeking Leave to file a Second Amended Complaint

responding to certain deficiencies noted by the court when dismissing claims in his First Amended Complaint

alleging that Cyberonics submitted, or caused the submission of false claims under the False Claims Act. On 4

September 2015, Cyberonics filed our Brief in Opposition to Hagerty’s Motion for Leave to file a Second

Amended Complaint. Mr. Hagerty filed a Reply Brief in support of his Motion for Leave to file a Second

Amended Complaint on 11 September 2015. On 16 September 2015, the Court heard oral arguments on (a) Mr.

Hagerty’s motion seeking to amend his complaint, and (b) Cyberonics’ pending motion demanding arbitration

on the claims relating to wrongful and retaliatory discharge. On 17 November 2015, the court (1) denied Mr.

Hagerty’s Motion for Leave to File a Second Amended Complaint (accordingly, the previously dismissed claims

remain dismissed); (2) granted Cyberonics’ Motion to Compel Arbitration of the two remaining claims (for

retaliatory discharge under the False Claims Act and for wrongful termination/retaliation under Massachusetts

law); and (3) stayed the pending case (in order to consolidate all issues for appeal pending resolution of the

arbitration). On or about 22 February 2016, Mr. Hagerty dismissed, without prejudice, his individual claims that

were ordered to arbitration. Subsequently, on or about 21 March 2016, Mr. Hagerty filed an appeal of the

previously dismissed FCA claims with the U.S. First Circuit Court of Appeals. The appeal is pending.

We believe that our commercial practices were and are in compliance with applicable legal standards, and

we will continue to defend this case vigorously. We make no assurance as to the resources that will be needed to

respond to these matters or the final outcome, and we cannot estimate a range of potential loss or damages.

Tax Litigation. In a tax audit report notified on October 30, 2009, the Regional Internal Revenue Office of

Lombardy (the “Internal Revenue Office”) informed Sorin Group Italia S.r.l. that, among several issues, it was

disallowing in part (for a total of €102.6 million) a tax-deductible write down of the investment in the U.S.

company, Cobe Cardiovascular Inc., which Sorin Group Italia S.r.l. recognised in 2002 and deducted in five

equal installments, beginning in 2002. In December 2009, the Internal Revenue Office issued notices of

assessment for 2002, 2003 and 2004. The assessments for 2002 and 2003 were automatically voided for lack of

merit. In December 2010 and October 2011, the Internal Revenue Office issued notices of assessment for 2005

and 2006 respectively. The Company challenged all three notices of assessment (for 2004, 2005 and 2006)

before the relevant Provincial Tax Courts.

jurisdictional level, and subsequently, the Company filed an appeal against the decisions in the belief that all the
decisions are incorrect in their reasoning and radically flawed. The appeal submitted against the first-level
decision for 2005 was rejected. The second-level decision (relating to the 2005 notice of assessment) was
appealed to the Italian Supreme Court (Corte di Cassazione), where LivaNova will argue that the assessment
should be deemed null and void and illegitimate because of a false application of regulations. This litigation is
still pending before the Italian Supreme Court.

In November 2012, the Internal Revenue Office served a notice of assessment for 2007 and, in July 2013,

served a notice of assessment for 2008, wherein the Internal Revenue Office claimed an increase in taxable
income due to a reduction (similar to the previous notices of assessment for 2004, 2005 and 2006) of the losses
reported by Sorin Group Italia S.r.l. for the 2002, 2003 and 2004 tax periods and utilized in 2007 and 2008.
Both notices of assessment were challenged within the statutory deadline. The Provincial Tax Court of Milan
suspended the decision until the litigation regarding years 2004, 2005 and 2006 are defined.

The total amount of losses in dispute is €62.6 million. At the time of Cyberonics-Sorin merger, LivaNova
carefully reassessed its exposure, on this complex tax litigation, taking into account the recent general adverse
trend to taxpayers on litigations with Italian tax authorities. Although the Company’s defensive arguments are
strong, the negative Court trend experienced so far by Sorin (four consecutive negative judgements received to
date) as well as the fact of the ultimate outcome being dependent on the last possible Court level, i.e. the Italian
Supreme Court, which is entitled to resolve only on procedural and legal aspects of the case but not on its
substance, led LivaNova to recognise a risk provision of $18.3 million.

Other Litigation. Additionally, we are the subject of various pending or threatened legal actions and
proceedings that arise in the ordinary course of our business. These matters are subject to many uncertainties
and outcomes that are not predictable and that may not be known for extended periods of time. Since the
outcome of these matters cannot be predicted with certainty, the costs associated with them could have a
material adverse effect on our consolidated net income, financial position or cash flows.

Lease Agreements

We have operating leases for facilities and equipment. Rent expense from all operating leases amounted

to approximately $5.2 million and $0.8 million for the transitional period 25 April 2015 to 31 December 2015
and fiscal year ended 24 April 2015, respectively.

Future minimum lease payments for operating leases as of 31 December 2015 are as follows (in

thousands):

No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years

Present value of minimum lease payments

17,798
53,568
29,300
100,666

179

Other commitments and contingencies. Certain potential commitments of LivaNova related to the funding

of equity method investments are such that LivaNova invests in minority shares of companies with assets still in
development that often require milestone and/or royalty payments to a third party, contingent upon the
occurrence of certain future events. Milestone payments may be required, and are contingent upon the
successful achievement of an important point in the development life cycle of a product or upon certain pre-
designated levels of achievement in clinical trials. A number of these arrangements give LivaNova the
discretion to unilaterally make the decision to stop development of a product or cease progress of a clinical trial,
which would allow LivaNova to avoid making the contingent payments. Although LivaNova is unlikely to
cease development if a device successfully achieves clinical testing objectives, these are not considered
contractual obligations because of the contingent nature of these payments and LivaNova’s ability to avoid them
if LivaNova decided to pursue a different path of development.

In the normal course of business, LivaNova periodically enters into agreements that require it to indemnify
customers or suppliers for specific risks, such as claims for injury or property damage arising out of LivaNova’s
products or the negligence of LivaNova’s personnel or claims alleging that its products infringe third-party
patents or other intellectual property. LivaNova’s maximum exposure under these indemnification provisions
cannot be estimated, and LivaNova has not accrued any liabilities within LivaNova’s consolidated financial
statements, with the exceptions of those which will probably require the use of financial resources in an amount
that can be estimated reliably.

Note 25. Earnings Per Share

Basic earnings per share (EPS) is calculated by dividing the profit for the year attributable to owners of the

parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is
calculated by dividing the net profit attributable to attributable to owners of the parent by the weighted average
number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that
would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following table sets forth the computation of basic and diluted net earnings per share of common shares, (in
thousands except per share data):

Transitional Period 25
April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

Numerator:
Profit (loss) attributable to owners of the parent

(29,116) $

57,003

Denominator:
Basic weighted average shares outstanding

Add effects of share options (1) (2)

Diluted weighted average shares outstanding

Basic earnings per share
Diluted earnings per share

$
$

32,741,357
—
32,741,357
(0.89) $
(0.89) $

26,391,064
234,657
26,625,721
2.16
2.14

(1) Excluded from the computation of diluted EPS for the transitional period 25 April 2015 to 31 December 2015 were

outstanding options to purchase 220,536 ordinary shares because to include them would be anti-dilutive due to the net
loss during the period.

180

Other commitments and contingencies. Certain potential commitments of LivaNova related to the funding

of equity method investments are such that LivaNova invests in minority shares of companies with assets still in

development that often require milestone and/or royalty payments to a third party, contingent upon the

occurrence of certain future events. Milestone payments may be required, and are contingent upon the

successful achievement of an important point in the development life cycle of a product or upon certain pre-

designated levels of achievement in clinical trials. A number of these arrangements give LivaNova the

discretion to unilaterally make the decision to stop development of a product or cease progress of a clinical trial,

which would allow LivaNova to avoid making the contingent payments. Although LivaNova is unlikely to

cease development if a device successfully achieves clinical testing objectives, these are not considered

contractual obligations because of the contingent nature of these payments and LivaNova’s ability to avoid them

if LivaNova decided to pursue a different path of development.

In the normal course of business, LivaNova periodically enters into agreements that require it to indemnify

customers or suppliers for specific risks, such as claims for injury or property damage arising out of LivaNova’s

products or the negligence of LivaNova’s personnel or claims alleging that its products infringe third-party

patents or other intellectual property. LivaNova’s maximum exposure under these indemnification provisions

cannot be estimated, and LivaNova has not accrued any liabilities within LivaNova’s consolidated financial

statements, with the exceptions of those which will probably require the use of financial resources in an amount

that can be estimated reliably.

Note 25. Earnings Per Share

Basic earnings per share (EPS) is calculated by dividing the profit for the year attributable to owners of the

parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is

calculated by dividing the net profit attributable to attributable to owners of the parent by the weighted average

number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that

would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following table sets forth the computation of basic and diluted net earnings per share of common shares, (in

thousands except per share data):

Transitional Period 25

April 2015 to 31

December 2015

Fiscal Year Ended 24

April 2015

Numerator:

Profit (loss) attributable to owners of the parent

(29,116) $

57,003

Denominator:

Basic weighted average shares outstanding

Add effects of share options (1) (2)

Diluted weighted average shares outstanding

Basic earnings per share

Diluted earnings per share

32,741,357

—

32,741,357

(0.89) $

26,391,064

234,657

26,625,721

2.16

2.14

(1) Excluded from the computation of diluted EPS for the transitional period 25 April 2015 to 31 December 2015 were

outstanding options to purchase 220,536 ordinary shares because to include them would be anti-dilutive due to the net

loss during the period.

(2) Excluded from the computation of diluted EPS for the year ended 24 April 2015 were outstanding options to purchase
56,547 common shares, because to include them would have been anti-dilutive due to the option exercise price
exceeding the average market price of our common share during the period.

Note 26. Geographic and Segment Information

We identify operating segments based on the way we manage, evaluate and internally report our business

activities for purposes of allocating resources and assessing performance.

Upon completion of the Mergers, we reorganized our reporting structure and aligned our segments and the
underlying divisions and businesses. The historical Cyberonics operations are included in the Neuromodulation
segment and the historical Sorin businesses are included in the Cardiac Surgery and the Cardiac Rhythm
Management segments. This change had no impact on our consolidated results for prior periods presented.

The Cardiac Surgery segment generates its revenue from the development, production and sale of
cardiovascular surgery products. Cardiac Surgery products include oxygenators, heart-lung machines,
autotransfusion, mechanical heart valves and tissue heart valves. The Cardiac Rhythm Management segment
generates its revenue from the development, manufacturing and marketing of products for the diagnosis,
treatment, and management of heart rhythm disorders and heart failure. Cardiac Rhythm Management products
include high-voltage defibrillators CRT-D and low-voltage pacemakers. The Neuromodulation segment
generates its revenue from the design, development and marketing of neuromodulation therapy for the treatment
of drug-resistant epilepsy and treatment resistant depression. Neuromodulation product include the VNS
Therapy System, which consists of an implantable pulse generator, a lead that connects the generator to the
vagus nerve, surgical equipment to assist with the implant procedure, equipment to enable the treating physician
to set the pulse generator stimulation parameters for the patient, instruction manuals and magnets to suspend or
induce stimulation manually.

Corporate expenses include shared services for finance, legal, human resources and information

technology, together with corporate business development (“New Ventures”). New Ventures is focused on new
growth platforms and identification of other opportunities for expansion.

Revenue and income (loss) before merger, integration and restructuring expenses by reportable segment are

as follows (in thousands):

Revenue

Cardiac Surgery
Cardiac Rhythm Management
Neuromodulation
Corporate

Total Revenue

Transitional Period
25 April 2015 to
31 December 2015

Fiscal Year Ended

24 April 2015

147,635 $
52,470
214,761
841
415,707 $

—
—
291,558
—
291,558

181

Income (loss) before merger, integration, restructuring
expenses and impairment of AFS assets:

Transitional Period
25 April 2015 to
31 December 2015

Fiscal Year Ended
24 April 2015

Cardiac Surgery
Cardiac Rhythm Management
Neuromodulation
Corporate

Total reportable segments’ income (loss) before merger,
integration, restructuring expenses and impairment of AFS
assets:
Merger-related expenses
Integration expenses
Restructuring expenses

7,441 $
(13,293)
87,845
(38,592)

43,401

(42,098)
(13,689)
(11,323)

Operating Profit (Loss)

(23,709) $

The following tables presents our assets by reportable segment (in thousands):

—
—
97,438
—

97,438

(8,692 )
—
—
88,746

Total Assets
Cardiac Surgery
Cardiac Rhythm Management
Neuromodulation
Corporate

Total

31 December 2015
$

1,459,978 $
422,859
540,041
112,301
2,535,179 $

24 April 2015

26 April 2014

— $
—
323,329
—
323,329 $

—
—
305,396
—
305,396

The following tables present the depreciation and amortization expense and capital expenditures by

reportable segment (in thousands):

Depreciation and amortization expense

Cardiac Surgery
Cardiac Rhythm Management
Neuromodulation
Corporate

Total

Capital expenditures

Cardiac Surgery
Cardiac Rhythm Management
Neuromodulation
Corporate

Total

182

Transitional Period
25 April 2015 to
31 December 2015

Fiscal Year
Ended
24 April 2015

11,247 $
4,292
4,103
858
20,500 $

—
—
6,807
—
6,807

Transitional Period
25 April 2015 to
31 December 2015

Fiscal Year
Ended
24 April 2015

10,402 $
4,954
1,418
512
17,286 $

—
—
6,687
—
6,687

Income (loss) before merger, integration, restructuring

expenses and impairment of AFS assets:

Transitional Period

25 April 2015 to

31 December 2015

Fiscal Year Ended

24 April 2015

Total reportable segments’ income (loss) before merger,

integration, restructuring expenses and impairment of AFS

7,441 $

(13,293)

87,845

(38,592)

43,401

(42,098)

(13,689)

(11,323)

(23,709) $

31 December 2015

24 April 2015

26 April 2014

1,459,978 $

422,859

540,041

112,301

2,535,179 $

— $

—

323,329

—

323,329 $

—

305,396

The following tables present the depreciation and amortization expense and capital expenditures by

Cardiac Surgery

Cardiac Rhythm Management

Neuromodulation

Corporate

assets:

Merger-related expenses

Integration expenses

Restructuring expenses

Operating Profit (Loss)

Total Assets

Cardiac Surgery

Cardiac Rhythm Management

Neuromodulation

Corporate

Total

reportable segment (in thousands):

Depreciation and amortization expense

Cardiac Surgery

Cardiac Rhythm Management

Neuromodulation

Corporate

Total

Capital expenditures

Cardiac Surgery

Cardiac Rhythm Management

Neuromodulation

Corporate

Total

Transitional Period

Fiscal Year

25 April 2015 to

Ended

31 December 2015

24 April 2015

11,247 $

4,292

4,103

858

20,500 $

10,402 $

4,954

1,418

512

17,286 $

Transitional Period

Fiscal Year

25 April 2015 to

Ended

31 December 2015

24 April 2015

—

97,438

(8,692 )

—

88,746

—

6,807

—

6,807

—

6,687

—

6,687

Revenue of our reportable segments include end-customer revenues from the sale of products they each

develop and manufacture or distribute. The segment income represents operating income before merger,
integration and restructuring expenses. This measurement is included in the reporting package for the CODM,
and used by the CODM in evaluating performance and allocating resources.

The segment’s assets included in management evaluations are those used by the segment in the
performance of its ordinary activities, or those assets that may be reasonably allocated to the segment as a
function of its ordinary activities. These include the following financial statement items: property, plant and
equipment; intangible assets; goodwill; investments in associates measured at net equity; investments in other
companies; and inventories.

Geographic Information

We operate under three geographic regions: United States, Europe, and Rest of World. Accordingly, the

geographic information for the prior years has been restated to present these regions.

Net sales to external customers by geography are determined based on the country the products are shipped

The following tables presents our assets by reportable segment (in thousands):

from and are as follows (in thousands):

United States
Europe (1) (2)
Rest of World

Total

Transitional Period 25
April 2015 to 31 December
2015

Fiscal Year Ended 24 April
2015

232,261 $
105,322
78,124
415,707 $

235,712
41,484
14,362
291,558

(1) Net sales to external customers includes $14.3 million in the United Kingdom for the transitional period ended 31

December 2015. Prior to the Mergers, we were domiciled in the United States.

(2) Includes those countries in Europe where LivaNova has a direct sales presence. Countries where sales are made

through distributors are included in Rest of World.

No single customer represented over 10 percent of our consolidated revenue in the transitional period 25

April 2015 to 31 December 2015 and the fiscal year ended 24 April 2015.

Property, plant, and equipment, net by geography are as follows (in thousands):

United States
Europe (1)
Rest of World

Total

31 December 2015

24 April 2015

26 April 2014

54,935 $
136,357
37,699
228,991 $

26,577 $
519
11,280
38,376 $

27,397
857
9,274
37,528

(1) Property, plant, and equipment, net includes $2.4 million in the United Kingdom for the period ended 31 December

2015. Prior to the Mergers, we were domiciled in the United States.

183

Note 27. Related Parties

Interests in subsidiaries are set out in “Note 11. Investments in associates, joint ventures and subsidiaries”.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.

In the normal course of business the Company issues loans, purchases and sells goods and services from or
to various related parties in which the Company typically holds a 50% or less equity interest and has significant
influence. These transactions are generally conducted with terms comparable to transactions with third parties.

Prior to the Mergers the Company did not carry any transactions with related parties. The following

receivable balances arose from sale and financing transactions with associates (in thousands):

Balance Sheet

Financial assets - non-current:
Caisson Interventional LLC

Trade receivables - current:
Microport Sorin
Cardiosolution Inc

Other financial assets - current:
Highlife SAS

31 December 2015

2,041
2,041

1,204
10
1,214

1,632
1,632

The following sales and financing transactions were entered into with associates during the transitional

period (in thousands):

Income Statement

Revenue:
Microport Sorin

Financial income:
Highlife SAS

Transitional Period 25
April 2015 to 31
December 2015

565

Total compensation in respect of key management, who are defined as the Board of Directors and certain

members of senior management, is considered to be a related party transaction.

The total compensation in respect of key management was as follows (in thousands):

184

Note 27. Related Parties

Interests in subsidiaries are set out in “Note 11. Investments in associates, joint ventures and subsidiaries”.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on

consolidation and are not disclosed in this note.

In the normal course of business the Company issues loans, purchases and sells goods and services from or

to various related parties in which the Company typically holds a 50% or less equity interest and has significant

influence. These transactions are generally conducted with terms comparable to transactions with third parties.

Prior to the Mergers the Company did not carry any transactions with related parties. The following

receivable balances arose from sale and financing transactions with associates (in thousands):

Salaries and short term benefits
Post-employment benefits
Termination benefits
Share-based compensation

Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

4,076 $
112
3,589
5,952
13,729 $

3,455
40
—
4,567
8,062

31 December 2015

There were no other material related party transactions in the period.

Note 28. Consolidated Statements of Income (Loss) - Expenses by Nature

Balance Sheet

Financial assets - non-current:

Caisson Interventional LLC

Trade receivables - current:

Microport Sorin

Cardiosolution Inc

Other financial assets - current:

Highlife SAS

period (in thousands):

Income Statement

Revenue:

Microport Sorin

Financial income:

Highlife SAS

The following sales and financing transactions were entered into with associates during the transitional

2,041

1,204

1,214

1,632

Transitional Period 25

April 2015 to 31

December 2015

565

(in thousands)

Revenue

Other revenues and income
Change in inventories of work-in-process, semi-finished and
finished goods
Increase in fixed assets for internal work
Cost of raw materials and other materials
Cost of services used
Personnel expense
Other operating costs
Amortisation, depreciation and write-downs
Additions to provisions
Interest expense
Interest income
Impairment of AFS assets
Foreign exchange
Share of profit (loss) from equity method investments

Profit (loss) before tax
Income tax expense (benefit)

Transitional Period
24 April 2015 31
December 2015

Fiscal Year Ended 24
April 2015

415,707 $

291,558

1,945

(39,450)
1,623
(53,808)
(56,821)
(166,662)
(92,729)
(22,864)
(5,588)
(1,509)
392
(5,062)
(7,522)
(3,308)

(35,656)
(6,540)

—

6,333
—
(24,175 )
(51,608 )
(114,495 )
(11,609 )
(7,258 )
—
(21 )
184
—
479
—
89,388
32,385
57,003

Total compensation in respect of key management, who are defined as the Board of Directors and certain

members of senior management, is considered to be a related party transaction.

The total compensation in respect of key management was as follows (in thousands):

Profit (loss) attributable to owners of the parent

(29,116) $

Note 29. Employee and Key Management Compensation Costs

Employee costs

185

(in thousands)

Wages and salaries
Share-based payments (1)
Other employee costs

Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

126,841 $
19,264
20,557
166,662 $

68,926
11,762
33,807
114,495

(1) Represents share-based payments included in personnel expense. Refer to Note 21. "Share-Based Incentive
Plans" for total share-based compensation expense.

Details of Directors' remuneration are included in pages 61 to 84 of the Directors' remuneration report,

which forms part of these financial statements.

Employee numbers

The average monthly employee numbers on a full-time equivalent basis, excluding employees of associated

and joint venture undertakings and including executive directors were 4,660, 661 and 652 for the period 19
October 2015 to 31 December 2015 (transitional period subsequent to the Mergers), for the period 25 April
2015 to 18 October 2015 (transitional period prior to the Mergers) and the fiscal year ended 24 April 2015,
respectively.

Note 30. Exceptional Items

The following exceptional items are included within operating profit (loss) (in thousands):

Merger related expenses
Integration expenses
Restructuring expenses
Impairment of AFS assets

Total exceptional items

Transitional Period 25
April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

42,098 $
13,689
11,323
5,062
72,172 $

8,692
—
—
—
8,692

Merger Expenses. Merger expenses consisted of expenses directly related to the Mergers, such as

professional fees for legal services, accounting services, due diligence, a fairness opinion and the preparation of
registration and regulatory filings in the United States and Europe, as well as investment banking fees. Refer to
"Note 7. Business Combinations" for more details.

Integration Expenses. Integration expenses consisted primarily of consultation with regard to our systems
integration, organization structure integration, finance, synergy and tax planning, the transition to U.S. GAAP
for Sorin activity, our London Stock Exchange listing and certain re-branding efforts.

186

(in thousands)

Wages and salaries

Share-based payments (1)

Other employee costs

Transitional Period

25 April 2015 to 31

December 2015

Fiscal Year Ended 24

April 2015

126,841 $

19,264

20,557

166,662 $

68,926

11,762

33,807

114,495

(1) Represents share-based payments included in personnel expense. Refer to Note 21. "Share-Based Incentive

Plans" for total share-based compensation expense.

Details of Directors' remuneration are included in pages 61 to 84 of the Directors' remuneration report,

which forms part of these financial statements.

Employee numbers

The average monthly employee numbers on a full-time equivalent basis, excluding employees of associated

and joint venture undertakings and including executive directors were 4,660, 661 and 652 for the period 19

October 2015 to 31 December 2015 (transitional period subsequent to the Mergers), for the period 25 April

2015 to 18 October 2015 (transitional period prior to the Mergers) and the fiscal year ended 24 April 2015,

The following exceptional items are included within operating profit (loss) (in thousands):

Transitional Period 25

April 2015 to 31

December 2015

Fiscal Year Ended 24

April 2015

42,098 $

13,689

11,323

5,062

72,172 $

8,692

—

8,692

respectively.

Note 30. Exceptional Items

Merger related expenses

Integration expenses

Restructuring expenses

Impairment of AFS assets

Total exceptional items

Merger Expenses. Merger expenses consisted of expenses directly related to the Mergers, such as

professional fees for legal services, accounting services, due diligence, a fairness opinion and the preparation of

registration and regulatory filings in the United States and Europe, as well as investment banking fees. Refer to

"Note 7. Business Combinations" for more details.

Integration Expenses. Integration expenses consisted primarily of consultation with regard to our systems

integration, organization structure integration, finance, synergy and tax planning, the transition to U.S. GAAP

for Sorin activity, our London Stock Exchange listing and certain re-branding efforts.

Restructuring Expenses. After the consummation of the Mergers between Cyberonics with Sorin in October

2015, we initiated several restructuring plans to combine our business operations. We identify costs incurred
and liabilities assumed for the restructuring plans. The restructuring plans are intended to leverage economies of
scale, eliminate duplicate corporate expenses, streamline distributions and logistics and office functions in order
to reduce overall costs.

Impairment of AFS assets. During the transitional period 25 April 2015 to 31 December 2015 an

impairment of $5.1 million in equity investment in Cerbomed GmbH was recorded. Refer for details to "Note 5.
Fair Value Measurements".

Note 31. Auditors' Remuneration

(in thousands)

LivaNova auditors

Fees payable to the Company’s auditor and its associates for
the audit of parent company and consolidated financial
statements

Fees payable to the Company’s auditor and its associates
for other services:

The audit of the Company’s subsidiaries

Total audit fees payable to the Company’s auditor

Taxation compliance services
Taxation advisory services
Other non-audit services

Total fees payable to the Company’s auditor

Note 32. New Accounting Pronouncements

Transitional Period
25 April 2015 to 31
December 2015

Fiscal Year Ended 24
April 2015

2,172

1,034

1,613
3,785 $

— $
66
410
4,261 $

—
1,034

220
—
215
1,469

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the

Company’s financial statements are disclosed below. The Company intends to adopt these standards, if
applicable, when they become effective.

IFRS 9 Financial Instruments. In July 2014, the IASB issued the final version of IFRS 9 Financial
Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous
versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project:
classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods
beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting,
retrospective application is required but providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively, with some limited exceptions. The Company
plans to adopt the new standard on the required effective date. The Company is evaluating the effect this
standard will have on its financial statements and related disclosures.

IFRS 15 Revenue from Contracts with Customers. IFRS 15 was issued in May 2014 and establishes a five-

187

goods or services to a customer. The new revenue standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or a modified retrospective application is
required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Company
plans to adopt the new standard on the required effective date. The Company is evaluating the effect this
standard will have on its financial statements and related disclosures.

IFRS 16 Leases. In January 2016, the IASB issued final accounting guidance on leases which provides a
new model for lease accounting in which all leases, other than short-term and small-ticket-item leases, will be
accounted for by the recognition on the balance sheet of a right-to-use asset and a lease liability, and the
subsequent amortization of the right-to-use asset over the lease term. IFRS 16 will be effective for annual
periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue
standard, IFRS 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as
IFRS 16. The Company is evaluating the effect this standard will have on its financial statements and related
disclosures.

The Company does not expect to adopt IFRS 9 or IFRS 15 before 1 January 2018 and has not yet

determined its date of adoption for IFRS 16. The Company has not yet completed its evaluation of the effect of
adoption of these standards. The EU has not yet adopted IFRS 9, IFRS 15 or IFRS 16 and consequently these
standards are not yet available for early adoption to the Company.

There are no other standards and interpretations in issue but not yet adopted that the management anticipate

will have a material effect on the reported income or net assets of the Company.

Note 33. Events after the Reporting Period

Restructuring Plan

On March 10, 2016, the Company announced a reorganization plan for its Cardiac Rhythm Management
Business Unit intended to strengthen its operational effectiveness and efficiency in response to changes in the
global marketplace. The Company estimates that, net of new positions created, the reorganization plan will
result in a reduction of around 140 in the workforce, primarily based at the Company's facility in Clamart,
France. The plan also contemplates the closure of the Company's research and development facility in Meylan,
France, and the consolidation of the Business Unit's research and development capabilities into the Clamart
facility. In addition, the research and development team of the Company's New Ventures organization will be
combined with those of the Cardiac Rhythm Management Business Unit. Although terms are not likely to be
finalized until the second quarter of 2016, the Company believes that the reduction in force should be
accomplished primarily through voluntary separation packages. The Company estimates that these actions will
result in total pre-tax charges of approximately $16 million to $21 million in 2016, relating to non-recurring
cash employee-related costs, including costs for severance and other employee-related assistance and other exit
costs associated with the plan.

188

goods or services to a customer. The new revenue standard will supersede all current revenue recognition

Capital Reduction

Subsequent to the year end, the majority of the merger relief reserve as at 31 December 2015 was
capitalised by way of a bonus share issue, which gave rise to an increase in the company's share premium
account. Having previously obtained shareholder approval on 16 October 2015, and following the approval of
the High Court of Justice, Chancery Division on 6 April 2016, the share premium of the Company in the
amount of $2,587 million was cancelled. The purpose of the cancellation of the share premium account was to
create distributable reserves in the books of account of the Company to be used for any corporate purpose of the
Company for which realised profits are required.

requirements under IFRS. Either a full retrospective application or a modified retrospective application is

required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Company

plans to adopt the new standard on the required effective date. The Company is evaluating the effect this

standard will have on its financial statements and related disclosures.

IFRS 16 Leases. In January 2016, the IASB issued final accounting guidance on leases which provides a

new model for lease accounting in which all leases, other than short-term and small-ticket-item leases, will be

accounted for by the recognition on the balance sheet of a right-to-use asset and a lease liability, and the

subsequent amortization of the right-to-use asset over the lease term. IFRS 16 will be effective for annual

periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue

standard, IFRS 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as

IFRS 16. The Company is evaluating the effect this standard will have on its financial statements and related

disclosures.

The Company does not expect to adopt IFRS 9 or IFRS 15 before 1 January 2018 and has not yet

determined its date of adoption for IFRS 16. The Company has not yet completed its evaluation of the effect of

adoption of these standards. The EU has not yet adopted IFRS 9, IFRS 15 or IFRS 16 and consequently these

standards are not yet available for early adoption to the Company.

There are no other standards and interpretations in issue but not yet adopted that the management anticipate

will have a material effect on the reported income or net assets of the Company.

Note 33. Events after the Reporting Period

Restructuring Plan

On March 10, 2016, the Company announced a reorganization plan for its Cardiac Rhythm Management

Business Unit intended to strengthen its operational effectiveness and efficiency in response to changes in the

global marketplace. The Company estimates that, net of new positions created, the reorganization plan will

result in a reduction of around 140 in the workforce, primarily based at the Company's facility in Clamart,

France. The plan also contemplates the closure of the Company's research and development facility in Meylan,

France, and the consolidation of the Business Unit's research and development capabilities into the Clamart

facility. In addition, the research and development team of the Company's New Ventures organization will be

combined with those of the Cardiac Rhythm Management Business Unit. Although terms are not likely to be

finalized until the second quarter of 2016, the Company believes that the reduction in force should be

accomplished primarily through voluntary separation packages. The Company estimates that these actions will

result in total pre-tax charges of approximately $16 million to $21 million in 2016, relating to non-recurring

cash employee-related costs, including costs for severance and other employee-related assistance and other exit

costs associated with the plan.

189

Table of Contents

COMPANY STATEMENT OF INCOME (LOSS)
COMPANY STATEMENT OF COMPREHENSIVE INCOME (LOSS)
COMPANY BALANCE SHEET
COMPANY STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CASH FLOWS
Note 1. Nature of Operations
Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies
Note 3. Financial Risk Management
Note 4. Fair Value Measurements
Note 5. Financial Instruments
Note 6. Plant Property and Equipment
Note 7. Intangibles Assets
Note 8. Investments in Subsidiaries
Note 9. Other Financial Assets
Note 10. Trade Receivables and Allowance for Bad Debt
Note 11. Derivative Financial Instruments
Note 12. Equity
Note 13. Financial Liabilities
Note 14. Other Payables
Note 15. Share-based Incentives Plans
Note 16. Employee Retirement Plans
Note 17. Income Taxes
Note 18. Commitments and Contingencies
Note 19. Related Parties
Note 20. Statement of Income (Loss) - Expenses by Nature
Note 21. Employee Compensation Costs
Note 22. Exceptional Items
Note 23. Auditors' Remuneration
Note 24. New Accounting Pronouncements
Note 25. Events After Reporting Period

191
192
193
195
196
197
198
208
212
214
215
216
217
220
220
221
223
224
226
226
231
233
234
241
243
243
244
244
244
245

190

LIVANOVA PLC

COMPANY STATEMENT OF INCOME (LOSS)

(In thousands)

Revenue
Net operating expenses

Operating loss before exceptional items

Exceptional items

Operating loss
Interest income
Interest expense
Foreign exchange

Loss before tax

Income tax expense (benefit)

Loss for the period

Notes

20 $

From Inception to 31
December 2015

1,764
(8,932)

(7,168)
(4,106)

(11,274)
199
(1,807)
(6,867)

(19,749)
4,629
(24,378)

Table of Contents

COMPANY STATEMENT OF INCOME (LOSS)

COMPANY STATEMENT OF COMPREHENSIVE INCOME (LOSS)

COMPANY BALANCE SHEET

COMPANY STATEMENT OF CHANGES IN EQUITY

COMPANY STATEMENT OF CASH FLOWS

Note 1. Nature of Operations

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Note 10. Trade Receivables and Allowance for Bad Debt

Note 11. Derivative Financial Instruments

Note 3. Financial Risk Management

Note 4. Fair Value Measurements

Note 5. Financial Instruments

Note 6. Plant Property and Equipment

Note 7. Intangibles Assets

Note 8. Investments in Subsidiaries

Note 9. Other Financial Assets

Note 12. Equity

Note 13. Financial Liabilities

Note 14. Other Payables

Note 15. Share-based Incentives Plans

Note 16. Employee Retirement Plans

Note 17. Income Taxes

Note 18. Commitments and Contingencies

Note 19. Related Parties

Note 21. Employee Compensation Costs

Note 22. Exceptional Items

Note 23. Auditors' Remuneration

Note 24. New Accounting Pronouncements

Note 25. Events After Reporting Period

Note 20. Statement of Income (Loss) - Expenses by Nature

191

192

193

195

196

197

198

208

212

214

215

216

217

220

221

223

224

226

231

233

234

241

243

244

245

See accompanying notes to the Company financial statements

191

LIVANOVA PLC

COMPANY STATEMENT OF

COMPREHENSIVE INCOME (LOSS)

(In thousands)

Loss for the period
Items of other comprehensive income (loss) that will subsequently be
reclassified under profit:
Cash flow hedges for interest rate fluctuations
Tax impact
Foreign currency translation differences

Notes

Total items of other comprehensive income (loss) that will subsequently
be reclassified under profit

Items of other comprehensive income (loss) that will not subsequently be
reclassified under profit:
Remeasurements of net liability (asset) for defined benefits
Tax impact

Total items of other comprehensive income (loss) that will not
subsequently be reclassified under profit
Total other comprehensive income (loss), net of taxes

Total comprehensive income (loss) for the period, net of taxes

From Inception to 31
December 2015

(24,378)

124
(41)
(22,665)

(22,582)

(8)
3

(5)

(22,587)

(46,965)

See accompanying notes to the Company financial statements

192

LIVANOVA PLC

COMPANY STATEMENT OF

COMPREHENSIVE INCOME (LOSS)

(In thousands)

From Inception to 31

December 2015

Notes

Loss for the period

reclassified under profit:

Items of other comprehensive income (loss) that will subsequently be

Cash flow hedges for interest rate fluctuations

Tax impact

Foreign currency translation differences

Total items of other comprehensive income (loss) that will subsequently

be reclassified under profit

Items of other comprehensive income (loss) that will not subsequently be

reclassified under profit:

Remeasurements of net liability (asset) for defined benefits

Tax impact

Total items of other comprehensive income (loss) that will not

subsequently be reclassified under profit

Total other comprehensive income (loss), net of taxes

Total comprehensive income (loss) for the period, net of taxes

(24,378)

124

(41)

(22,665)

(22,582)

(8)

(5)

(22,587)

(46,965)

LIVANOVA PLC

COMPANY BALANCE SHEET

(In thousands)

Notes

31 December 2015

ASSETS
Non-current Assets

Property, plant and equipment
Intangible Assets
Investments in subsidiaries
Deferred tax assets
Other Assets

Total non-current Assets

Trade receivables
Other receivables
Other financial assets
Tax assets
Cash and cash equivalents

Total current assets
Total assets
LIABILITIES AND EQUITY
Equity

Share capital
Merger relief reserve
Share premium
Accumulated other comprehensive income (loss)
Retained earnings (deficit)

Total equity
Non-current liabilities

Financial derivative liabilities
Financial liabilities
Provision for employee severance indemnities and other employee benefit

Total non-current liabilities
Current liabilities
Trade payables
Other payables
Financial derivative liabilities
Other financial liabilities
Tax payable

Total current liabilities
Total liabilities and equity

6 $
7
8
17

$
$

12 $
12
12
12
12

11 $
13
16

14
11
13
17

$
$

434
1,086
3,476,708
5,088
4,288
3,487,604
3,847
14,495
88,054
8,098
10,102
124,596
3,612,200

75,444
2,649,592
1,673
(22,587)
(22,614)
2,681,508

1,786
192,375
285
194,446

10,186
9,471
1,798
709,961
4,830
736,246
3,612,200

See accompanying notes to the Company financial statements

193

The financial statements were approved by the Board of Directors and were signed on its behalf on

29 April 2016 by:

André-Michel Ballester

Chief Executive Officer & Director

See accompanying notes to the Company financial statements

194

The financial statements were approved by the Board of Directors and were signed on its behalf on

LIVANOVA PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

(In thousands)

Ordinary Shares

Number
of
Shares

Share
Capital

Merger
Relief
Reserve

Notes

Share
Premium

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings
(Deficit)

Total
Equity

29 April 2016 by:

André-Michel Ballester

Chief Executive Officer & Director

Opening balance at 20 February
2015
Issuance of LivaNova (ex Sand
HoldCo) ordinary shares
Cancellation of LivaNova (ex Sand
HoldCo) ordinary shares

Issuance of LivaNova ordinary shares

Share-based compensation plans

Total transactions with owners,
recognised directly in

Loss for the period

Other comprehensive loss

Total comprehensive income (loss) for
the period

Balance at 31 December 2015

—

$ —

—

(50)
12
12 48,719
149
16

(75)

—
75,218 2,649,592
—

226

48,868

75,444

—
—

2,649,592
—
—

—
—

—
—
1,673

1,673
—
—

—

—
—
1,764

(75)
2,724,810
3,663

—

—
—
—

—
—
(22,587 )

1,764
(24,378)
—

2,728,473

(24,378)

(22,587)

—
48,868 $ 75,444 $ 2,649,592 $

—

—
1,673 $

(22,587 )
(22,587) $

(24,378)
(46,965)
(22,614) $ 2,681,508

See accompanying notes to the Company financial statements

195

LIVANOVA PLC

COMPANY STATEMENT OF CASH FLOWS

(In thousands)

Cash Flows From Operating Activities:

Loss for the period

Non-cash items included in net income (loss):

Depreciation and amortization
Share-based compensation
Deferred income tax expense
Unrealised loss in foreign currency transactions
Other non-cash items

Changes in operating assets and liabilities:

Accounts receivable, net
Other current and non-current assets
Current and non-current liabilities

Net cash used in by operating activities

Cash Flow From Investing Activities:

Purchase of property, plant and equipment
Purchase of intangible assets
Cash obtained in the Merger

Net cash provided by investing activities

Cash Flows From Financing Activities:

Repayment of long-term debt obligations
Proceeds from exercise of options for shares
Short-term borrowings

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplementary Disclosures of Cash Flow Information:

Cash paid for interest

Notes

From Inception to 31
December 2015

(24,378)

6,7
16

132
1,764
13,908
2,248
233

(1,339)
(6,279)
(13,053)

(26,764)

(92)
(227)
2,917
2,598

(9,048)
1,741
41,701
34,394
(126)
10,102
—
10,102

384

See accompanying notes to the Company financial statements

196

COMPANY STATEMENT OF CASH FLOWS

LIVANOVA PLC

(In thousands)

Notes

From Inception to 31

December 2015

(24,378)

6,7

Cash Flows From Operating Activities:

Loss for the period

Non-cash items included in net income (loss):

Depreciation and amortization

Share-based compensation

Deferred income tax expense

Unrealised loss in foreign currency transactions

Other non-cash items

Changes in operating assets and liabilities:

Accounts receivable, net

Other current and non-current assets

Current and non-current liabilities

Net cash used in by operating activities

Cash Flow From Investing Activities:

Purchase of property, plant and equipment

Purchase of intangible assets

Cash obtained in the Merger

Net cash provided by investing activities

Cash Flows From Financing Activities:

Repayment of long-term debt obligations

Proceeds from exercise of options for shares

Short-term borrowings

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplementary Disclosures of Cash Flow Information:

Cash paid for interest

See accompanying notes to the Company financial statements

132

1,764

13,908

2,248

233

(1,339)

(6,279)

(13,053)

(26,764)

(92)

(227)

2,917

2,598

(9,048)

1,741

41,701

34,394

(126)

10,102

—

10,102

384

Note 1. Nature of Operations

Company information. LivaNova PLC (the “Company”, “LivaNova”, “we”, or “our”) is a public limited
company incorporated in the United Kingdom under the Companies Act 2006 (Registration number 09451374).
The Company is domiciled in the United Kingdom and its registered address is 5 Merchant Square, North
Wharf Road, London, W2 1AY, United Kingdom.

The principal legislation under which LivaNova operates is the Companies Act 2006, and regulations made

thereunder. The LivaNova Shares are admitted to listing on the Official List pursuant to Chapter 14 of the
Listing Rules, which sets out the requirements for standard listings. LivaNova complies with Listing Principles
1 and 2 as set out in Chapter 7 of the Listing Rules, as required by the Financial Conduct Authority.

Background. LivaNova was incorporated in England and Wales on 20 February 2015 (the "Inception date")

for the purpose of facilitating the business combination of Cyberonics, Inc., a Delaware corporation
(“Cyberonics”) and Sorin S.p.A., a joint stock company organized under the laws of Italy (“Sorin”). As a result
of the business combination, LivaNova became the holding company of the combined businesses of Cyberonics
and Sorin. This business combination (the "Mergers") became effective on 19 October 2015, at which time
LivaNova’s ordinary shares were listed for trading on the NASDAQ Global Market (“NASDAQ”) and on the
London Stock Exchange (the “LSE”) as a standard listing under the trading symbol “LIVN”.

As part of the Mergers Sorin undertook a cross-border legal entity merger with LivaNova (the “Sorin
merger”) under which LivaNova was the surviving ultimate holding company. The Company elected to apply
predecessor accounting to this common control business combination and as a result of the Sorin merger the
assets and liabilities of Sorin were transferred to LivaNova and recorded in the Company’s books using the
predecessor book values in the amount of $903.0 million as at the date of the transfer. All shares of Sorin were
cancelled and LivaNova issued 22,673 thousands shares to the Sorin shareholders. As a result of the Sorin
merger a merger relief reserve was recorded in the amount of $867.9 million.

Immediately following the Sorin merger, each issued and outstanding Cyberonics common shares was
converted into LivaNova ordinary shares. As a result of the share conversion LivaNova issued 26,046 thousands
shares to the Cyberonics shareholders in exchange for Cyberonics shares. The investment in Cyberonics was
recorded at cost, being the fair value of consideration transferred which is calculated by reference to the fair
value of Cyberonics’s closing share price of $69.95 per share on 16 October 2015, the last business day prior to
the date of the share exchange. As a result of the share exchange transaction the Company recognised a merger
reserve in the amount of $1,781.7 million equal to the difference between the fair value of the increase in the
investment carrying value and the aggregate nominal value of the shares issued. Since the shares issued by
LivaNova as part of the Cyberonics merger were issued with nominal value equal to fair value on that basis the
shares were not issued at a premium, therefore, no share premium was recognised.

In respect of both of these share issues, the Company took merger relief in line with the Companies Act

2006 and recognised a merger relief reserve instead of share premium.

197

Description of the business. Headquartered in London, United Kingdom (“U.K.”), LivaNova, is a global
medical device company focused on the development and delivery of important therapeutic solutions for the
benefit of patients, healthcare professionals, and healthcare systems throughout the world. Working closely with
medical professionals throughout the world in the field of Cardiac Surgery, Neuromodulation and Cardiac
Rhythm Management, we design, develop, manufacture and sell innovative therapeutic solutions that are
consistent with our mission to improve our patients’ quality of life, increase the skills and capabilities of
healthcare professionals and minimize healthcare costs.

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Basis of Preparation. These separate financial statements of LivaNova have been prepared on a going
concern basis, in accordance with the Companies Act 2006 as applicable to companies using International
Financial Reporting Standards (IFRS) as adopted by the European Union and interpretations issued by the IFRS
Interpretations Committee (IFRIC).

The financial statements have been prepared on a historical cost basis, except for derivative financial
instruments and share based payments awards that have been measured at fair value. The financial statements
are presented in United States (U.S.) dollars and all values are rounded to the nearest thousand, except when
otherwise indicated.

Fiscal Year-End. The period presented is from the Inception date to 31 December 2015.

Investments. Investments in subsidiaries, associates and joint ventures are accounted for at cost less any

provision for impairment.

Foreign currencies. The U.S. dollar (US$) is the functional currency of the Company and presentation
currency of LivaNova separate financial statements. Foreign currency transactions are translated into functional
currency using the exchange rates prevailing at the dates of the transactions or valuation where items are
remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the statement of income (loss), except when deferred in other comprehensive income (loss) as
qualifying cash flow hedges.

Foreign currency differences arising from translation are recognised in the income statement, except for

available-for-sale equity investments which are recognised in other comprehensive income (loss), unless
regarding an impairment in which case foreign currency differences that have been recognised in other
comprehensive income (loss) are reclassified to the income statement.

The British pound (GBP) exchange rate to the U.S. dollar used in preparing the Company financial

statements was as follows:

For the period from inception to 31 December 2015

Weighted average rate
GBP

Closing rate GBP

0.650364

0.678578

All exchange differences are presented as part of "Foreign exchange" on the statement of income (loss).

Financial Instruments

198

Description of the business. Headquartered in London, United Kingdom (“U.K.”), LivaNova, is a global

medical device company focused on the development and delivery of important therapeutic solutions for the

benefit of patients, healthcare professionals, and healthcare systems throughout the world. Working closely with

medical professionals throughout the world in the field of Cardiac Surgery, Neuromodulation and Cardiac

Rhythm Management, we design, develop, manufacture and sell innovative therapeutic solutions that are

consistent with our mission to improve our patients’ quality of life, increase the skills and capabilities of

healthcare professionals and minimize healthcare costs.

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Basis of Preparation. These separate financial statements of LivaNova have been prepared on a going

concern basis, in accordance with the Companies Act 2006 as applicable to companies using International

Financial Reporting Standards (IFRS) as adopted by the European Union and interpretations issued by the IFRS

Interpretations Committee (IFRIC).

The financial statements have been prepared on a historical cost basis, except for derivative financial

instruments and share based payments awards that have been measured at fair value. The financial statements

are presented in United States (U.S.) dollars and all values are rounded to the nearest thousand, except when

otherwise indicated.

provision for impairment.

Fiscal Year-End. The period presented is from the Inception date to 31 December 2015.

Investments. Investments in subsidiaries, associates and joint ventures are accounted for at cost less any

Foreign currencies. The U.S. dollar (US$) is the functional currency of the Company and presentation

currency of LivaNova separate financial statements. Foreign currency transactions are translated into functional

currency using the exchange rates prevailing at the dates of the transactions or valuation where items are

remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the

translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are

recognised in the statement of income (loss), except when deferred in other comprehensive income (loss) as

qualifying cash flow hedges.

Foreign currency differences arising from translation are recognised in the income statement, except for

available-for-sale equity investments which are recognised in other comprehensive income (loss), unless

regarding an impairment in which case foreign currency differences that have been recognised in other

comprehensive income (loss) are reclassified to the income statement.

The British pound (GBP) exchange rate to the U.S. dollar used in preparing the Company financial

statements was as follows:

For the period from inception to 31 December 2015

Weighted average rate

GBP

Closing rate GBP

0.650364

0.678578

All exchange differences are presented as part of "Foreign exchange" on the statement of income (loss).

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. Financial assets and financial liabilities are offset with the net
amount reported in the statement of financial position only if there is a current enforceable legal right to offset
the recognised amounts and an intent to settle on a net basis, or to realise the assets and settle the liabilities
simultaneously.

(a) Financial assets

Initial recognition and measurement. Financial assets are classified, at initial recognition, as financial assets

at fair value through profit or loss, loans and receivables, held-to-maturity investments, Available-for-sale
(AFS) financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
The Company determines the classification of its financial assets at initial recognition. All financial assets are
recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, transaction
costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that
require delivery of assets within a time frame established by regulation or convention in the marketplace
(regular way trades) are recognised on the trade date, i.e., the date on which the Company commits to purchase
or sell the asset.

Impairment of financial assets. The Company assesses, at each reporting date, whether there is any
objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one
or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’), has an
impact on the estimated future cash flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate
that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.

The subsequent measurement and impairment of financial assets depends on their classification as

described below:

199

Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit
or loss. The receivables balance consists of trade receivables from subsidiaries and third party customers. We
maintain an allowance for doubtful accounts for potential credit losses based on our estimates of the ability of
customers to make required payments, historical credit experience, existing economic conditions and expected
future trends. We write off uncollectible accounts against the allowance when all reasonable collection efforts
have been exhausted. Loans, together with the associated allowance are written off when there is no realistic
prospect of future recovery and all collateral has been realised or has been transferred to the Company. The
losses arising from impairment are recognised in the statement of income or loss in net operating expenses.
Refer to “Note 10. Trade Receivables and Allowance for Bad Debt" for further information.

Available-for-sale (AFS) financial investments. AFS financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories. The Company does not have financial
instruments classified as AFS.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of

similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired, or

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-

(b) Financial liabilities

Initial recognition and measurement. Financial liabilities are classified, at initial recognition, as financial

200

Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. After initial measurement, such financial assets are

subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs

that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit

or loss. The receivables balance consists of trade receivables from subsidiaries and third party customers. We

maintain an allowance for doubtful accounts for potential credit losses based on our estimates of the ability of

customers to make required payments, historical credit experience, existing economic conditions and expected

future trends. We write off uncollectible accounts against the allowance when all reasonable collection efforts

have been exhausted. Loans, together with the associated allowance are written off when there is no realistic

prospect of future recovery and all collateral has been realised or has been transferred to the Company. The

losses arising from impairment are recognised in the statement of income or loss in net operating expenses.

Refer to “Note 10. Trade Receivables and Allowance for Bad Debt" for further information.

Available-for-sale (AFS) financial investments. AFS financial assets are non-derivatives that are either

designated in this category or not classified in any of the other categories. The Company does not have financial

instruments classified as AFS.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of

similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired, or

obligation to pay the received cash flows in full without material delay to a third party under a

‘pass-through arrangement, and either (a) the Company has transferred substantially all the risks

and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all

the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-

through arrangement, it evaluates if and, to what extent, it has retained the risks and rewards of ownership.

When it has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred

control of it, the asset is recognised to the extent of its continuing involvement in it. In that case, the Company

also recognises an associated liability. The transferred asset and the associated liability are measured on a basis

that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the

lower of the original carrying amount of the asset and the maximum amount of consideration that the Company

could be required to repay.

(b) Financial liabilities

Initial recognition and measurement. Financial liabilities are classified, at initial recognition, as financial

liabilities at fair value through profit or loss, loans and borrowings (bank debt), payables, or as derivatives

designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised

initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable

transaction costs. The Company’s financial liabilities include trade and other payables, loans and bank debt
including bank overdrafts, and derivative financial instruments.

The measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss. Financial liabilities at fair value through profit or
loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at
fair value through profit or loss. Financial liabilities are classified as held-for-trading if they are acquired for the
purpose of selling in the near term. This category includes derivative financial instruments entered into by the
Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Gains or
losses on liabilities held-for-trading are recognised in the statement of income or loss. Financial liabilities
designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IAS 39 are satisfied. The Company has not designated any financial
liabilities as at fair value through profit or loss.

Loans and borrowings (bank debt). After initial recognition, interest bearing loans and borrowings are

subsequently measured at amortised cost using the effective interest rate method. Gains and losses are
recognised in the statement of income or loss when the liabilities are derecognised as well as through the
effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included in finance costs in the statement of profit or loss.

• The Company has transferred its rights to receive cash flows from the asset or has assumed an

Financial guarantee contracts. Financial guarantee contracts issued by the Company are those contracts

that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails
to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts
are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to
the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the
expenditure required to settle the present obligation at the reporting date and the amount recognised less
cumulative amortisation.

Derecognition. A financial liability is derecognised when the obligation under the liability is discharged or

cancelled or expires. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability. The
difference in the respective carrying amounts is recognised in the statement of income or loss.

Derivative financial instruments and hedge accounting. We use currency exchange rate derivative contracts
and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on
income statement and cash flows. Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at fair value. The method of recognising the resulting
gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. We evaluate hedge effectiveness at inception and on an ongoing basis. If a derivative is no
longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is
recorded in income statement. Cash flows from derivative contracts are reported as operating activities in the
statements of cash flows.

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When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria

for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is
no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified
to profit or loss.

In order to minimize income statement and cash flow volatility resulting from currency exchange rate
changes, we enter into derivative instruments, principally forward currency exchange rate contracts. These
contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific
assets and liabilities and of some revenue. At inception of the forward contract, the derivative is designated as
either a freestanding derivative or a cash flow hedge. For derivative instruments that are designated and qualify
as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a
component of accumulated other comprehensive income (loss) and reclassed into income statement to offset
exchange differences originated by the hedged item or to adjust the value of operating income (expense). We do
not enter into currency exchange rate derivative contracts for speculative purposes.

We use interest rate derivative instruments designated as cash flow hedges to manage the exposure to
interest rate movements and to reduce the risk of increase of borrowing costs by converting floating-rate debt
into fixed-rate debt. Under these agreements, we agree to exchange, at specified intervals, the difference
between fixed and floating interest amounts calculated by reference to agreed-upon notional principal amounts.
The interest rate swaps are structured to mirror the payment terms of the underlying loan. The fair value of the
interest rate swaps is reported in the balance sheets financial assets or liabilities (current or non-current)
depending upon the gain or loss position of the contract and the maturity of the future cash flows of the fair
value of each contract. The effective portion of the gain or loss on these derivatives is reported as a component
of accumulated other comprehensive income (loss). The non-effective portion is reported in interest expense in
income statement.

Cash and Cash Equivalents. Cash and cash equivalents include all cash balances highly liquid investments

with an original maturity of three months or less, consisting of demand deposit accounts and money market
mutual funds, and are carried in the balance sheet at cost, which approximate their fair value.

Borrowing costs. General and specific borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised during the period of time that is required to
complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on qualifying assets is deducted from the
borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are
incurred.

Property, Plant and Equipment (“PP&E”). PP&E is carried at cost, less accumulated depreciation and any

accumulated impairment losses. Maintenance and repairs, and minor replacements are charged to expense as
incurred, while significant renewals and improvements are capitalised. We compute depreciation using the
straight-line method over estimated useful lives. Where an item of PP&E comprises several parts with different
useful lives, each part is recognised as a separate item and depreciated over its useful life. Useful life and
residual value of PP&E are reviewed at each period-end. As necessary, the occurrence of changes to the useful
life or residual value is recognised prospectively as a change in accounting estimates.

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When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria

for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is

recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is

no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified

to profit or loss.

In order to minimize income statement and cash flow volatility resulting from currency exchange rate

changes, we enter into derivative instruments, principally forward currency exchange rate contracts. These

contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific

assets and liabilities and of some revenue. At inception of the forward contract, the derivative is designated as

either a freestanding derivative or a cash flow hedge. For derivative instruments that are designated and qualify

as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a

component of accumulated other comprehensive income (loss) and reclassed into income statement to offset

exchange differences originated by the hedged item or to adjust the value of operating income (expense). We do

not enter into currency exchange rate derivative contracts for speculative purposes.

We use interest rate derivative instruments designated as cash flow hedges to manage the exposure to

interest rate movements and to reduce the risk of increase of borrowing costs by converting floating-rate debt

into fixed-rate debt. Under these agreements, we agree to exchange, at specified intervals, the difference

between fixed and floating interest amounts calculated by reference to agreed-upon notional principal amounts.

The interest rate swaps are structured to mirror the payment terms of the underlying loan. The fair value of the

interest rate swaps is reported in the balance sheets financial assets or liabilities (current or non-current)

depending upon the gain or loss position of the contract and the maturity of the future cash flows of the fair

value of each contract. The effective portion of the gain or loss on these derivatives is reported as a component

of accumulated other comprehensive income (loss). The non-effective portion is reported in interest expense in

income statement.

Cash and Cash Equivalents. Cash and cash equivalents include all cash balances highly liquid investments

with an original maturity of three months or less, consisting of demand deposit accounts and money market

mutual funds, and are carried in the balance sheet at cost, which approximate their fair value.

Borrowing costs. General and specific borrowing costs that are directly attributable to the acquisition,

construction or production of a qualifying asset are capitalised during the period of time that is required to

complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a

substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary

investment of specific borrowings pending their expenditure on qualifying assets is deducted from the

borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are

incurred.

Property, Plant and Equipment (“PP&E”). PP&E is carried at cost, less accumulated depreciation and any

accumulated impairment losses. Maintenance and repairs, and minor replacements are charged to expense as

incurred, while significant renewals and improvements are capitalised. We compute depreciation using the

straight-line method over estimated useful lives. Where an item of PP&E comprises several parts with different

useful lives, each part is recognised as a separate item and depreciated over its useful life. Useful life and

residual value of PP&E are reviewed at each period-end. As necessary, the occurrence of changes to the useful

life or residual value is recognised prospectively as a change in accounting estimates.

The estimated useful lives for our depreciable PP&E as of 31 December 2015 are as follow:

Building and building improvements
Equipment, furniture, fixtures

Lives in years
up to 10
up to 8

Where there are any internal or external indications that the value of an item of PP&E may be impaired, the

Intangible Assets. Intangible assets shown on the balance sheet are finite-lived assets that are carried at cost

less accumulated amortisation. We amortise our intangible assets over their useful lives using the straight-line
method. We evaluate our intangible assets each reporting period to determine whether events and circumstances
indicate either a different useful life or impairment. If we change our estimate of the useful life of an asset, we
amortize the carrying amount over the revised remaining useful life.

Impairment of Intangible Assets. The Company assesses at each reporting date whether there is an

indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset
is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher
of an asset’s CGU’s fair value less costs of disposal and its value in use. Where the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable
amount.

Revenue. Revenue largely consists of intercompany re-charges, services and management fees. Revenue is
measured at the fair value of the consideration received or receivable. The Company recognises revenue when
the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the
entity and specific criteria have been met.

Defined Benefit Pension Plans and Other Post-Employment Benefits. The Company sponsors various
retirement benefit plans, including defined benefit pension plans (pension benefits), defined contribution
savings plans and termination indemnity plans. The cost of providing benefits under the defined benefit plans is
determined separately for each plan using the projected unit credit method.

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding
amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding
amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance
sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur.
Re-measurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognised in profit or loss on the earlier of:
• The date of the plan amendment or curtailment, and

• The date on which the Company recognises related restructuring costs

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Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The
Company recognises the following changes in the net defined benefit obligation under ‘Net operating expenses’
in the statement of income (loss):

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and

non-routine settlements

• Net interest expense or income

Provision for severance indemnity (TFR) is mandatory for Italian companies and is considered:

•

a defined benefit plan with respect to amounts vested up to 31 December 2006 and amounts vesting as
from 1 January 2007 for employees who have chosen to maintain the TFR at the company, for
companies with 50 or fewer employees;

As a defined benefit plan, the TFR is measured using the unit credit projection method based on actuarial

assumptions (financial assumptions: discount rate, benefit growth rate). The increase in the present value of the
TFR is included in net operating expenses, with the exception of the revaluation of the net liability, which is
recorded among items of other comprehensive income. The cost of TFR accrued up to 31 December 2006 no
longer includes a component related to future salary increases. Payments of TFR, as a defined contribution plan,
are also included in personnel expense, and until they are settled financially, they have a balancing entry in the
statement of financial position in the form of current payables.

Share-Based Compensation

We grant share-based incentive awards to directors, officers, key employees and consultants during each

fiscal year. We measure the cost of employee services received in exchange for an award of equity instruments
based on the grant date fair market value of the award. The cost of equity-settled transactions is recognised in
employee benefits expense, together with a corresponding increase in equity (“Retained earnings (deficit)”)
over the period in which the service and the performance conditions are fulfilled (the vesting period). The
cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of
equity instruments that will ultimately vest. We issue new shares upon share option exercise, share appreciation
right (“SAR”) exercise, the award of restricted share and at our election, on vesting of a restricted share unit.
The social security contributions on employee share-based payment awards is accrued over the service period.

The following share-based incentive awards are offered by the Company:

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Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The

Company recognises the following changes in the net defined benefit obligation under ‘Net operating expenses’

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and

in the statement of income (loss):

non-routine settlements

• Net interest expense or income

Provision for severance indemnity (TFR) is mandatory for Italian companies and is considered:

•

a defined benefit plan with respect to amounts vested up to 31 December 2006 and amounts vesting as

from 1 January 2007 for employees who have chosen to maintain the TFR at the company, for

companies with 50 or fewer employees;

•

a defined contribution plan with respect to amounts vesting as from 1 January 2007 for employees who

have opted for supplementary pensions or who have chosen to maintain the TFR at the company, for

companies with more than 50 employees.

As a defined benefit plan, the TFR is measured using the unit credit projection method based on actuarial

assumptions (financial assumptions: discount rate, benefit growth rate). The increase in the present value of the

TFR is included in net operating expenses, with the exception of the revaluation of the net liability, which is

recorded among items of other comprehensive income. The cost of TFR accrued up to 31 December 2006 no

longer includes a component related to future salary increases. Payments of TFR, as a defined contribution plan,

are also included in personnel expense, and until they are settled financially, they have a balancing entry in the

statement of financial position in the form of current payables.

Share-Based Compensation

We grant share-based incentive awards to directors, officers, key employees and consultants during each

fiscal year. We measure the cost of employee services received in exchange for an award of equity instruments

based on the grant date fair market value of the award. The cost of equity-settled transactions is recognised in

employee benefits expense, together with a corresponding increase in equity (“Retained earnings (deficit)”)

over the period in which the service and the performance conditions are fulfilled (the vesting period). The

cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date

reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of

equity instruments that will ultimately vest. We issue new shares upon share option exercise, share appreciation

right (“SAR”) exercise, the award of restricted share and at our election, on vesting of a restricted share unit.

The social security contributions on employee share-based payment awards is accrued over the service period.

The following share-based incentive awards are offered by the Company:

• Share Options. Options granted under the Share Plans are service-based and typically vest annually

over four years, or cliff-vest in one year, following their date of grant, as required under the applicable
agreement establishing the award, and have maximum terms of 10 years. Share option grant prices are
set equal to the closing price of our ordinary shares on the day of the grant. When the share options are
exercised LivaNova issues new shares. There are no post-vesting restrictions on the shares issued. We
use the Black-Scholes option pricing methodology to calculate the grant date fair market value of share
option awards. We determine expected volatility based on the historic volatility of our share price over
a period equal to the expected term of the option.

• Market and Performance-Based Restricted Share and Performance-Based Restricted Share

Units. We may grant restricted share and restricted share units subject to market or performance
conditions that vest based on the satisfaction of the conditions of the award. The fair market values of
market condition-based awards are determined using the Monte Carlo simulation method. The Monte
Carlo simulation method is subject to variability as several factors utilised must be estimated,
including the derived service period, which is estimated based on our judgement of likely future
performance and our share price volatility. The fair value of performance-based awards is determined
using the market closing price on the grant date. Derived service periods and the periods charged with
compensation expense for performance-based awards are estimated based on our judgement of likely
future performance and may be adjusted in future periods depending on actual performance.

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Income Taxes. The tax expense for the period comprises current and deferred tax. Current and deferred tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income

based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the end of the reporting period. Management establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.

Deferred taxes are recognised by the liability method for temporary differences between the carrying
amount of assets and liabilities in the balance sheet and their tax base. They are measured at the tax rates that
are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted at the balance sheet date. Adjustments to deferred
taxes resulting from changes in tax rates are recognised in profit or loss. However, when the deferred tax relates
to items recognised in equity, the adjustment is also recognised in equity. A deferred tax asset is recognised for
all deductible temporary differences to the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilized. At each period-end, the Company reviews the
recoverable value of deferred tax assets of tax entities holding significant loss carryforwards. This value is
based on the strategy for recoverability of the tax loss carryforwards. Deferred taxes are charged or credited
directly to equity when the tax relates to items that are recognised directly in equity, such as gains and losses on
cash flow hedges and actuarial gains and losses on defined benefit plan obligations. Deferred tax assets and
liabilities are set off when they are levied by the same taxation authority and the entity has a legally enforceable
right of set off. Deferred taxes are recognised for all temporary differences associated with investments in
subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of
the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax balances are not discounted.

Leases. We account for leases that transfer substantially all benefits and risks incident to the ownership of
property as an acquisition of an asset and the incurrence of an obligation, and we account for all other leases as
operating leases. Certain of our leases provide for tenant improvement allowances that have been recorded as
deferred rent and amortized, using the straight-line method, over the life of the lease as a reduction to rent
expense. In addition, scheduled rent increases and rent holidays are recognised on a straight-line basis over the
term of the lease.

Equity. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Contingencies. The Company is subject to product liability claims, government investigations and other

legal proceedings in the ordinary course of business. Legal fees and other expenses related to litigation are
expensed as incurred and included in Selling, general and administrative expenses in the Statement of Income
(Loss). Contingent accruals are recorded when the Company determines that a loss is both probable and
reasonably estimable. Due to the fact that legal proceedings and other contingencies are inherently
unpredictable, our assessments involve significant judgement regarding future events.

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Income Taxes. The tax expense for the period comprises current and deferred tax. Current and deferred tax

Critical Estimates and Judgements. The preparation of our financial statements in conformity with IFRS

is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive

income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in

equity, respectively.

The income tax expense or credit for the period is the tax payable on the current period’s taxable income

based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to

temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at

the end of the reporting period. Management establishes provisions where appropriate on the basis of amounts

expected to be paid to the tax authorities.

Deferred taxes are recognised by the liability method for temporary differences between the carrying

amount of assets and liabilities in the balance sheet and their tax base. They are measured at the tax rates that

are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and

tax laws) that have been enacted or substantively enacted at the balance sheet date. Adjustments to deferred

taxes resulting from changes in tax rates are recognised in profit or loss. However, when the deferred tax relates

to items recognised in equity, the adjustment is also recognised in equity. A deferred tax asset is recognised for

all deductible temporary differences to the extent that it is probable that taxable profit will be available against

which the deductible temporary difference can be utilized. At each period-end, the Company reviews the

recoverable value of deferred tax assets of tax entities holding significant loss carryforwards. This value is

based on the strategy for recoverability of the tax loss carryforwards. Deferred taxes are charged or credited

directly to equity when the tax relates to items that are recognised directly in equity, such as gains and losses on

cash flow hedges and actuarial gains and losses on defined benefit plan obligations. Deferred tax assets and

liabilities are set off when they are levied by the same taxation authority and the entity has a legally enforceable

right of set off. Deferred taxes are recognised for all temporary differences associated with investments in

subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of

the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable

future. Deferred tax balances are not discounted.

Leases. We account for leases that transfer substantially all benefits and risks incident to the ownership of

property as an acquisition of an asset and the incurrence of an obligation, and we account for all other leases as

operating leases. Certain of our leases provide for tenant improvement allowances that have been recorded as

deferred rent and amortized, using the straight-line method, over the life of the lease as a reduction to rent

expense. In addition, scheduled rent increases and rent holidays are recognised on a straight-line basis over the

term of the lease.

Equity. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Contingencies. The Company is subject to product liability claims, government investigations and other

legal proceedings in the ordinary course of business. Legal fees and other expenses related to litigation are

expensed as incurred and included in Selling, general and administrative expenses in the Statement of Income

(Loss). Contingent accruals are recorded when the Company determines that a loss is both probable and

reasonably estimable. Due to the fact that legal proceedings and other contingencies are inherently

unpredictable, our assessments involve significant judgement regarding future events.

requires management to make estimates and judgements that affect the amounts reported in such financial
statements and accompanying notes. These estimates and judgements are based on management’s best
knowledge of current events and actions we may undertake in the future. Actual results could differ materially
from those estimates. Application of the following accounting policies requires certain judgements and
estimates that have the potential for the most significant impact on our financial statements:

• Commitments and Contingencies. We record accruals for contingencies when it is probable that a
liability has been incurred and the amount can be reliably estimated. These accruals are adjusted
periodically as assessments change or additional information becomes available. Expected legal
defense costs are accrued when the amount can be reliably estimated. Provisions relating to estimated
future expenditure for liabilities do not usually reflect any insurance or other claims or recoveries,
since these are only recognized as assets when the amount is reasonably estimable and collection is
virtually certain.

• Retirement and Other Post-Employment Benefit Plans. We sponsor pension and other post-

employment benefit plans in various forms that cover a significant portion of our current and former
associates. For post-employment plans with defined benefit obligations, we are required to make
significant assumptions and estimates about future events in calculating the expense and the present
value of the liability related to these plans. These include assumptions about the interest rates we apply
to estimate future defined benefit obligations and net periodic pension expense as well as rates of
future pension increases. In addition, our actuaries provide management with historical statistical
information such as withdrawal and mortality rates in connection with these estimates. Assumptions
and estimates used by the Company may differ materially from the actual results we experience due to
changing market and economic conditions, higher or lower withdrawal rates, and longer or shorter life
spans of participants among other factors. For more information on obligations under retirement and
other post-employment benefit plans and underlying actuarial assumptions, see ‘‘Note 16. Employee
Retirement Plans’’.

• Taxes. We prepare and file our tax returns based on an interpretation of tax laws and regulations, and

• Share-based payments. Estimating fair value for share-based payment transactions requires

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• Exceptional items. Exceptional items are expense or income items recorded in a period which have
been determined by management as being material and non-recurring in nature and are presented
separately within the results of the Company. The determination of which items are disclosed as
exceptional items will affect the presentation of profit measures and requires a degree of judgement.
Details relating to exceptional items reported during the period are set out in “Note 22. Exceptional
items”.

Note 3. Financial Risk Management

Management of financial risk

Increasing market fluctuations may result in significant earnings and cash flow volatility risk for the
Company. The Company’s operating business as well as its investment and financing activities are affected
particularly by changes in foreign exchange rates, interest rates and concentration of procurement suppliers. The
Company seeks to manage and control these risks primarily through its regular operating and financing
activities, and uses derivative financial instruments when deemed appropriate.

The Company’s CFO oversees the management of these risks. The CFO is supported by a senior financial

management team that advises on financial risks and the appropriate financial risk governance framework for
the Company. The senior financial management team provides assurance to the Company’s senior management
that the Company’s financial risk activities are governed by appropriate policies and procedures and that
financial risks are identified, measured and managed in accordance with group policies and group risk appetite.
All derivative activities for risk management purposes are carried out by specialist teams that have the
appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for
speculative purposes may be undertaken. Intercompany financing or investments of operating units are
preferably carried out in their functional currency or on a hedged basis. The Board of Directors reviews and
agrees policies for managing each of these risks.

Liquidity risk

Liquidity risk results from the Company’s inability to meet its financial liabilities. The Company follows a
deliberated financing policy that is aimed towards a balanced financing portfolio, a diversified maturity profile
and a comfortable liquidity cushion. The Company mitigates liquidity risk by the implementation of an effective
working capital and centralised cash management and arranged credit facilities with highly rated financial
institutions. In addition, the Company constantly monitors funding options available in the capital markets, as
well as trends in the availability and costs of such funding, with a view to maintaining financial flexibility and
limiting repayment risks.

The following tables reflect the undiscounted cash outflows related to settlement and repayments, of the

Company's financial liabilities at a balance sheet date. The disclosed expected undiscounted net cash outflows
from derivative financial liabilities are determined based on each particular settlement date of an instrument and
based on the earliest date on which the Company could be required to pay. Cash outflows for financial liabilities
(including interest) without fixed amount or timing are based on the conditions existing at respective balance
sheet date.

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been determined by management as being material and non-recurring in nature and are presented

separately within the results of the Company. The determination of which items are disclosed as

exceptional items will affect the presentation of profit measures and requires a degree of judgement.

Details relating to exceptional items reported during the period are set out in “Note 22. Exceptional

items”.

Note 3. Financial Risk Management

Management of financial risk

Increasing market fluctuations may result in significant earnings and cash flow volatility risk for the

Company. The Company’s operating business as well as its investment and financing activities are affected

particularly by changes in foreign exchange rates, interest rates and concentration of procurement suppliers. The

Company seeks to manage and control these risks primarily through its regular operating and financing

activities, and uses derivative financial instruments when deemed appropriate.

The Company’s CFO oversees the management of these risks. The CFO is supported by a senior financial

management team that advises on financial risks and the appropriate financial risk governance framework for

the Company. The senior financial management team provides assurance to the Company’s senior management

that the Company’s financial risk activities are governed by appropriate policies and procedures and that

financial risks are identified, measured and managed in accordance with group policies and group risk appetite.

All derivative activities for risk management purposes are carried out by specialist teams that have the

appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for

speculative purposes may be undertaken. Intercompany financing or investments of operating units are

preferably carried out in their functional currency or on a hedged basis. The Board of Directors reviews and

agrees policies for managing each of these risks.

Liquidity risk

Liquidity risk results from the Company’s inability to meet its financial liabilities. The Company follows a

deliberated financing policy that is aimed towards a balanced financing portfolio, a diversified maturity profile

and a comfortable liquidity cushion. The Company mitigates liquidity risk by the implementation of an effective

working capital and centralised cash management and arranged credit facilities with highly rated financial

institutions. In addition, the Company constantly monitors funding options available in the capital markets, as

well as trends in the availability and costs of such funding, with a view to maintaining financial flexibility and

limiting repayment risks.

The following tables reflect the undiscounted cash outflows related to settlement and repayments, of the

Company's financial liabilities at a balance sheet date. The disclosed expected undiscounted net cash outflows

from derivative financial liabilities are determined based on each particular settlement date of an instrument and

based on the earliest date on which the Company could be required to pay. Cash outflows for financial liabilities

sheet date.

• Exceptional items. Exceptional items are expense or income items recorded in a period which have

Contractual undiscounted cash outflows at 31 December 2015 (in thousands):

DUE WITHIN
1 YEAR

1-2 YEARS

2-5 YEARS

OVER 5
YEARS

TOTAL

Non-derivative
financial instruments
Trade payables
$
Financial liabilities
Other liabilities

Total
Financial derivative
liabilities
- on exchange risk
- on rate risk

Total

10,186 $
709,961
—

720,147 $

708 $

1,090
1,798 $

— $

18,070
4,423
22,493 $

— $
858
858 $

— $

54,245
—
54,245 $

— $
918
918 $

— $

120,060
—

120,060 $

— $
10
10 $

10,186
902,336
4,423
916,945

708
2,876
3,584

Foreign Currency Exchange Rate Risk

Foreign exchange risk is the risk that reported financial performance of the fair value of future cash flows
of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company operates in
many countries and currencies and therefore currency fluctuations may impact the Company’s financial results.
In the ordinary course of business the Company is exposed to foreign currency exchange rate fluctuations,
particularly between the U. S. dollar, the Euro, Pound Sterling and Japanese Yen. The Company is exposed to
currency risk in the following areas:

• Transaction exposures, related to anticipated sales and purchases and on-balance-sheet receivables/

payables resulting from such transactions

• Translation exposure of foreign-currency intercompany and external debt

• Translation exposure of foreign-currency denominated equity invested in the Company's subsidiaries

It is the Company’s policy to reduce the potential year on year volatility caused by foreign-currency
movements on its net earnings by hedging the anticipated net exposure of foreign currencies resulting from
foreign-currency sales and purchases. The Company is prohibited from borrowing or investing in foreign
currencies on a speculative basis.

Based on an exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the U.S.

dollar had uniformly weakened or strengthened by 10% against the Pound Sterling and the Euro the effect on
our unrealised income or expense for our derivatives outstanding at 31 December 2015 would have been
approximately $2.3 million.

Any gains and losses on the fair value of derivative contracts would generally be offset by gains and losses

(including interest) without fixed amount or timing are based on the conditions existing at respective balance

on the underlying transactions. These offsetting gains and losses are not reflected in the above analysis.

With regard to financial instruments denominated in currencies other than the currency of account of the
companies holding them, the currencies involving the greatest exposure are the U. S. dollar, the Euro, Pound
Sterling and Japanese Yen as indicated below (in thousands):

209

Assets
Cash and cash equivalents
in foreign currency

Financial assets in foreign
currency
Other assets in foreign
currency
Total assets

Liabilities
Trade payables in foreign
currency
Financial liabilities in
foreign currency
Other liabilities in foreign
currency
Total liabilities

EUR

USD

31 December 2015
GBP
JPY

OTHER

TOTAL

3,179

806

1,287

362

5,718

—

372
456

9,626

4,745

—

10,387

24,758

(100)
12,705

—
5,551

353
1,640

—
10,749

625
31,101

125

1,248

423,752

101,938

—
423,877

—
103,186

—

—
—

643

649

2,665

4,418

67,393

597,501

2,361
7,422

—
68,042

2,361
602,527

Net exposure

(423,421) $

(90,481) $

5,551

(5,782) $

(57,293 ) $

(571,426)

Financial derivative
liabilities
- not for hedging (1)

Total

— $
—

(147)

(567) $

(567)

603 $
603

(111)

— $
Total net exposure
(1) for hedging transactions that do not meet the requirements for hedge accounting

(147) $

— $

(567) $

603 $

(111)

Interest Rate Risk

The Company’s main interest rate risk arises from long-term debt with variable rates, which expose the

Company to cash flow interest rate risk. The Company decides, case by case, to hedge interest rate risk on
medium-long term loans bearing floating interest rates, from a floating rate to a fixed rate, against a potential
increase of interest rates which would negatively impact LivaNova net earnings.

During the period from inception to 31 December 2015 the Company’s debt held with banks at variable

interest rate was denominated only in Euro. The Company manages a portion of its interest rate risk with
contracts that swap floating-rate interest payments for fixed rate interest payments.

As at 31 December 2015, the Company had outstanding derivative contracts to hedge against the risk of
interest rate fluctuations for a notional amount of $79.6 million, equal to about 52% of financial liabilities at 31
December 2015.

210

Assets

Cash and cash equivalents

in foreign currency

Financial assets in foreign

currency

Other assets in foreign

currency

Total assets

Liabilities

currency

Trade payables in foreign

Financial liabilities in

foreign currency

Other liabilities in foreign

currency

Total liabilities

Financial derivative

liabilities

- not for hedging (1)

Total

Total net exposure

Interest Rate Risk

EUR

USD

JPY

GBP

OTHER

TOTAL

31 December 2015

3,179

806

1,287

362

5,718

—

372

456

9,626

4,745

—

10,387

24,758

(100)

12,705

—

5,551

353

1,640

—

10,749

625

31,101

125

1,248

643

649

2,665

423,752

101,938

4,418

67,393

597,501

—

423,877

103,186

2,361

7,422

—

68,042

2,361

602,527

—

Net exposure

(423,421) $

(90,481) $

5,551

(5,782) $

(57,293 ) $

(571,426)

— $

—

— $

—

— $

(147)

(567) $

(567)

603 $

603

(111)

(147) $

(567) $

603 $

(111)

(1) for hedging transactions that do not meet the requirements for hedge accounting

The Company’s main interest rate risk arises from long-term debt with variable rates, which expose the

Company to cash flow interest rate risk. The Company decides, case by case, to hedge interest rate risk on

medium-long term loans bearing floating interest rates, from a floating rate to a fixed rate, against a potential

increase of interest rates which would negatively impact LivaNova net earnings.

During the period from inception to 31 December 2015 the Company’s debt held with banks at variable

interest rate was denominated only in Euro. The Company manages a portion of its interest rate risk with

contracts that swap floating-rate interest payments for fixed rate interest payments.

As at 31 December 2015, the Company had outstanding derivative contracts to hedge against the risk of

interest rate fluctuations for a notional amount of $79.6 million, equal to about 52% of financial liabilities at 31

December 2015.

At 31 December 2015, if interest rates on Euro-denominated bank debt had been 10 basis points higher/
lower with all other variables held constant, the calculated post-tax profit for the period would have been US
$74 thousand lower/ higher, mainly as a result of higher/ lower interest expense on floating rate debt; other
components of equity would have been US $219 thousand lower and US $223 thousand higher mainly as a
result of decrease/ increase in the fair value of fixed rate interest rate swaps (derivatives designated for hedge
accounting).

The following assumptions were used for the sensitivity analysis as at 31 December 2015:

Interest-bearing assets: change of +0.25% -0.05% in short-term rates at 31 December;

•
• Unhedged financial liabilities: change of +0.5% - 0.05% in the rate curve at 31 December relative to

euro and not euro denominated rates;

• Hedged financial liabilities: change of +0.5% - 0.05% in the rate curve at 31 December relative to

euro rate.

Credit Risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or

customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating
activities and from its financing activities, including deposits with banks and financial institutions, foreign
exchange transactions and other financial instruments.

The Company's trade receivables balances due from the subsidiaries and third parties represent potential

concentrations of credit risk. Refer to "Note 10. Trade Receivables and Allowance for Bad Debt" for more
details. Although we do not currently foresee a concentrated credit risk associated with these receivables,
repayment is dependent on the financial stability of a respective subsidiary.

The maximum theoretical credit risk exposure for the Company is an aggregate carrying amount of

financial assets at each reporting period date (in thousands):

Other assets
Trade receivables
Other receivables
Other financial assets
Cash and cash equivalents
Guarantees

Total

31 December 2015

4,288
3,847
12,207
88,054
10,102
11,427
129,925

The risk related to bank accounts, financial assets and assets for financial derivatives is limited since all

bank and financial counterparties have a high rating.

The guarantees issued by the Company are primarily due to regulatory requirements (security issued to
credit institutions to back guarantees issued by them for competitive bidding procedures), and thus, the related
risk is remote as also seen on a historical basis.

211

For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ (or

equivalent) are accepted.

For external customers, if there is no independent rating, risk control assesses the credit quality of the
customer, taking into account its financial position, past experience and other factors. Individual risk limits are
set based on internal or external information in accordance with limits set by the Company’s Treasury Group.
The compliance with and authorisation of credit limits by customers is regularly monitored by line
management. Additionally, the Company established a Bad Debt Policy, which provides the methodology to be
used to calculate an addition to the provision for uncollectible receivables for past-due receivables for each
LivaNova company and the ageing of each receivable.

Capital management

The Company maintains a sufficient amount of capital to meet its development needs, fund its subsidiaries'

operations and ensure the Company continues to be a going concern. The equilibrium of sources of funding,
which is also aimed at minimising overall capital costs, is achieved by balancing risk capital contributed on a
permanent basis by shareholders, and debt capital, which is in turn diversified and structured with several due
dates and in many currencies. To this end, changes in debt levels in relation to both equity and operating profit,
and the generation of cash by the business units are constantly kept under control.

Note 4. Fair Value Measurements

We follow the guidance on fair value measurements and disclosures with respect to assets and liabilities
that are measured at fair value on both a recurring and nonrecurring basis. Under this guidance, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market
participants would use in valuing the asset or liability, based on market data obtained from sources independent
of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would
use in valuing the asset or liability developed based upon the best information available in the circumstances.
The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three
levels defined as follows:

• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted
prices) that are observable for the asset or liability, either directly or indirectly

• Level 3 - Inputs are unobservable for the asset or liability

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

212

For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ (or

The following table provides information by level for assets and liabilities that are measured at fair value on

equivalent) are accepted.

a recurring basis as at 31 December 2015 (in thousands):

For external customers, if there is no independent rating, risk control assesses the credit quality of the

customer, taking into account its financial position, past experience and other factors. Individual risk limits are

set based on internal or external information in accordance with limits set by the Company’s Treasury Group.

The compliance with and authorisation of credit limits by customers is regularly monitored by line

management. Additionally, the Company established a Bad Debt Policy, which provides the methodology to be

used to calculate an addition to the provision for uncollectible receivables for past-due receivables for each

LivaNova company and the ageing of each receivable.

Capital management

The Company maintains a sufficient amount of capital to meet its development needs, fund its subsidiaries'

operations and ensure the Company continues to be a going concern. The equilibrium of sources of funding,

which is also aimed at minimising overall capital costs, is achieved by balancing risk capital contributed on a

permanent basis by shareholders, and debt capital, which is in turn diversified and structured with several due

dates and in many currencies. To this end, changes in debt levels in relation to both equity and operating profit,

and the generation of cash by the business units are constantly kept under control.

Note 4. Fair Value Measurements

We follow the guidance on fair value measurements and disclosures with respect to assets and liabilities

that are measured at fair value on both a recurring and nonrecurring basis. Under this guidance, fair value is

defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs

used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable

inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market

participants would use in valuing the asset or liability, based on market data obtained from sources independent

of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would

use in valuing the asset or liability developed based upon the best information available in the circumstances.

The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the

lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three

levels defined as follows:

• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices

for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted

prices) that are observable for the asset or liability, either directly or indirectly

• Level 3 - Inputs are unobservable for the asset or liability

No assets or liabilities are classified as Level 1. Financial assets and liabilities that are classified as Level 2

include derivative instruments, primarily forward and option currency contracts and interest rate swaps contracts,

which are valued using standard calculations and models that use readily observable market data as their basis.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Fair Value as of Fair Value Measurements Using Inputs Considered
31 December
2015

Level 1

Level 2

Level 3

Liabilities:
Derivative Liabilities - for
hedging (interest rates)
Derivative Liabilities - not for
hedging (exchange rates)
Total Liabilities

Level 2

2,876

708
3,584 $

—

—
— $

2,876

708
3,584 $

—

—
—

To measure the fair value of derivative transactions, we calculate the mark-to-market of each transaction

using prices quoted in active markets (e.g., the spot exchange rate of a currency for forward exchange
transactions) and observable market inputs processed for the measurement (e.g., the fair value of an interest rate
swap using the interest rate curve), or the measurement of an exchange rate option (with the processing of listed
prices and observable variables such as volatility).

- For forward exchange rate transactions, fair value is calculated using the forward market exchange rate on

the reporting date for each contract: the difference calculated between this amount and the contractual forward
rate is discounted (present value) to the same reporting date;

- For interest rate swaps, the fair value is calculated taking into account the present value of interest flows

calculated on the notional amount of each contract using the forward interest rate curve applicable on the
reporting date.

Transfers

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe
valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
Our policy is to recognise transfers into and out of levels within the fair value hierarchy at the end of the fiscal
quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no
transfers between Level 1, Level 2, or Level 3 during the periods from Inception to 31 December 2015. When a
determination is made to classify an asset or liability within Level 3, the determination is based upon the
significance of the unobservable inputs to the overall fair value.

Assets and Liabilities that are measured at Fair Value on a Non-recurring Basis

213

Non-financial assets such as investments in subsidiaries, that are accounted for using the cost method
intangible assets, and property, plant, and equipment are measured at fair value when there is an indicator of
impairment and recorded at fair value only when impairment is recognised. The fair values of these non-
financial assets are based on our own judgements about the assumptions that market participants would use in
pricing the asset and on observable market data, when available. We classify these measurements as Level 3
within the fair value hierarchy.

Financial Instruments Not Measured at Fair Value

The carrying values of the Company's cash and cash equivalents, accounts receivable, accounts payable and

accrued liabilities approximate their fair values due to the short-term nature of these items.

The carrying value of our long and short-term debt, as of 31 December 2015 was $902.3 million which we

believe approximates fair value.

Note 5. Financial Instruments

The Company uses several instruments to fund its operating activities including: short and long-term debt

from credit institutions and other lenders, short-term bank loans and loans from LivaNova subsidiaries. The
Company’s other financial instruments consist of trade payables and receivables resulting from operating
activities, assets and liabilities for financial derivatives (primarily interest rate swaps and forward foreign
currency contracts) and other receivables and payables other than those related to staff, tax authorities and
welfare agencies.

Classification of financial instruments

With regard to classification of financial instruments on the basis of the types as specified in IAS 39, the

following should be noted:

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate exchange

risk on imports and exports are classified under “Hedging derivatives” when they meet the
requirements for being recognised as hedge accounting instruments and under “Financial
assets/liabilities at fair value through profit or loss” when these requirements are not met.

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate interest
rate risk are classified under “Hedging derivatives” when they meet the requirements for being
recognised as hedge accounting instrument and under “Financial assets/liabilities at fair value
through profit or loss” when these requirements are not met.

214

Non-financial assets such as investments in subsidiaries, that are accounted for using the cost method

intangible assets, and property, plant, and equipment are measured at fair value when there is an indicator of

impairment and recorded at fair value only when impairment is recognised. The fair values of these non-

financial assets are based on our own judgements about the assumptions that market participants would use in

pricing the asset and on observable market data, when available. We classify these measurements as Level 3

within the fair value hierarchy.

Financial Instruments Not Measured at Fair Value

The carrying values of the Company's cash and cash equivalents, accounts receivable, accounts payable and

accrued liabilities approximate their fair values due to the short-term nature of these items.

The carrying value of our long and short-term debt, as of 31 December 2015 was $902.3 million which we

believe approximates fair value.

Note 5. Financial Instruments

The Company uses several instruments to fund its operating activities including: short and long-term debt

from credit institutions and other lenders, short-term bank loans and loans from LivaNova subsidiaries. The

Company’s other financial instruments consist of trade payables and receivables resulting from operating

activities, assets and liabilities for financial derivatives (primarily interest rate swaps and forward foreign

currency contracts) and other receivables and payables other than those related to staff, tax authorities and

welfare agencies.

Classification of financial instruments

following should be noted:

With regard to classification of financial instruments on the basis of the types as specified in IAS 39, the

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate exchange

risk on imports and exports are classified under “Hedging derivatives” when they meet the

requirements for being recognised as hedge accounting instruments and under “Financial

assets/liabilities at fair value through profit or loss” when these requirements are not met.

• Assets and liabilities for financial derivatives related to contracts entered into to mitigate interest

rate risk are classified under “Hedging derivatives” when they meet the requirements for being

recognised as hedge accounting instrument and under “Financial assets/liabilities at fair value

through profit or loss” when these requirements are not met.

Classification of financial instruments at 31 December 2015

CLASSIFICATION

CARRYING AMOUNT

FINANCIAL
ASSETS/LIABILIT
IES AT FAIR
VALUE
THROUGH
PROFIT OR LOSS

RECEIVABLES
AND LOANS

FINANCIAL
LIABILITIES AT
AMORTISED
COST

HEDGING
DERIVATIVES

TOTAL

CURRENT
PORTION

NON-CURRENT
PORTION

FAIR VALUE

Assets
Financial assets

— $

—

3,847

18,783

88,054

10,102

—

3,847

—

3,847

18,783

14,495

4,288

18,783

88,054

10,102

—

88,054

10,102

—

120,786

—

120,786

116,498

4,288

120,786

Trade receivables

Other receivables

Other financial
assets
Cash and cash
equivalents

Total financial
assets

Liabilities

Financial liabilities $

—

210,438

—

210,438

18,063

192,375

210,852

Trade payables

Other payables

Financial
derivative
liabilities
Other financial
liabilities

Total financial
liabilities

—
—

708

—

—
—

—

10,186
4,423

—
—

10,186
4,423

—
—

10,186
4,423

—

2,876

3,584

1,798

1,786

3,584

691,898

—

691,898

—

691,898

708

—

916,945

2,876

920,529

726,368

194,161

920,943

Note 6. Property, Plant and Equipment

At 31 December 2015

Gross amount
Accumulated depreciation
and impairment
Net amount

Building and
building
improvements

Equipment, other,
furniture, fixtures

Total

267 $

(68)
199 $

2,994 $

(2,759)
235 $

3,261

(2,827)
434

215

Changes during the year in the net amount of each category of property, plant and equipment are indicated

below:

Building and
building
improvements

Equipment, other,
furniture, fixtures

Total

Net amount at Inception

Purchases
Acquisitions
Depreciation
Currency translation gains/losses

Net amount at 31 December 2015

— $
90
117
(3)
(5)
199 $

— $
2
260
(16)
(11)
235 $

—
92
377
(19)
(16)
434

Note 7. Intangible Assets

At 31 December 2015

Gross amount
Accumulated amortisation
and impairment
Net amount

Patents

Trademarks
and trade
names

Software

Total

7,230 $

1,302 $

5,224 $

13,756

(7,230)
— $
The changes in the net carrying value of each class of intangible assets during the year are indicated below:

(4,167)
1,057 $

(1,273)
29 $

(12,670)
1,086

Patents

Inception

Purchases
Acquisitions
Amortisation
Currency translation gains/losses

Net amount at 31 December 2015

Trademarks
and trade
names

Software

Total

— $
—
—
—
—
— $

— $
—
34
(3)
(2)
29 $

— $
227
982
(110)
(42)
1,057 $

—
227
1,016
(113)
(44)
1,086

Amortisation costs charged to the statement of income (loss) totaled $0.1 million and was recorded within

net operating expenses for the period from inception to 31 December 2015.

The amortisation periods for our finite-lived intangible assets as of 31 December 2015:

Trademarks and trade names
Software

216

Minimum
Life in
years

Maximum
life in
years

4
3

4
5

Changes during the year in the net amount of each category of property, plant and equipment are indicated

below:

Building and

building

improvements

Equipment, other,

furniture, fixtures

Total

Net amount at Inception

Purchases

Acquisitions

Depreciation

Currency translation gains/losses

Net amount at 31 December 2015

— $

117

(3)

(5)

199 $

— $

260

(16)

(11)

235 $

—

377

(19)

(16)

434

Note 7. Intangible Assets

At 31 December 2015

Gross amount

Accumulated amortisation

and impairment

Net amount

Patents

Software

Total

Trademarks

and trade

names

7,230 $

1,302 $

5,224 $

13,756

(7,230)

— $

(1,273)

29 $

(4,167)

1,057 $

(12,670)

1,086

The changes in the net carrying value of each class of intangible assets during the year are indicated below:

Inception

Purchases

Acquisitions

Amortisation

Currency translation gains/losses

Net amount at 31 December 2015

Patents

Software

Total

Trademarks

and trade

names

— $

—

— $

—

(3)

(2)

— $

227

982

(110)

(42)

29 $

1,057 $

—

227

1,016

(113)

(44)

1,086

Amortisation costs charged to the statement of income (loss) totaled $0.1 million and was recorded within

net operating expenses for the period from inception to 31 December 2015.

Note 8. Investments in Subsidiaries

(in thousands)

Beginning balance at Inception date

Additions
Disposals
Impairment

Net amount at 31 December 2015

(in thousands)

Gross amount
Accumulated impairment

Net book value

Cost

—
3,476,708
—
—
3,476,708

31 December 2015

3,476,708
—
3,476,708

The detail of investments in subsidiary undertakings as at 31 December 2015 is shown as follows (in

thousands):

Sorin CRM SAS
Sorin Group International SA
Sorin Group Nederland NV
Sorin Group USA Inc.
LivaNova Canada Corp.
LIVN UK Holdco Ltd
LIVN US 1 LLC (US FINCO)
LIVN Luxco Sarl
LIVN Irishco 1 UC
Sorin Group Italia Srl
Sorin Site Management Srl

% Ownership

31 December
2015

100.00 $
100.00
100.00
100.00
100.00
49.00
100.00
100.00
100.00
90.37
86.42

264,441
6,312
61,287
886,268
111,013
217,878
147,330
3,000
1,000,000
761,605
17,574
3,476,708

The amortisation periods for our finite-lived intangible assets as of 31 December 2015:

The Company had the following directly and indirectly owned subsidiaries as of 31 December 2015:

During the Mergers in October 2015 the Company issued its shares to the Cyberonics and Sorin

shareholders in exchange for Cyberonics shares and Sorin net assets. For further details of these transactions
refer to discussion in "Note 1. Nature of Operations.”

Trademarks and trade names

Software

Minimum

Maximum

Life in

years

life in

years

LivaNova PLC (Italian Branch)

Alcard Indústria Mecânica Ltda

REG. OFFICE

FUNCTIONAL
CURRENCY

Italy

Brazil

EUR

BRL

217

%
CONSOLIDATED
GROUP
OWNERSHIP

NAME

% OWNERSHIP

100

Sorin Group
Italia SRL

100

Caisson Interventional LLC

California Medical Laboratories (CalMed) Inc.

Cardiosolutions Inc.

USA

USD

100

Sorin Group
USA Inc.
Sorin Group
USA Inc.
Sorin Group
USA Inc.
Sorin Group

Cellplex PTY LTD

Australia

AUD

100

Australia PTY
LTD

Cyberonics Europe BV / BA

Cyberonics France SARL

Cyberonics Holdings LLC

Cyberonics Inc.

Cyberonics Latam SRL

Belgium

France
USA

USA

Costa Rica

EUR

USD

CRC

Cyberonics Netherlands CV

Netherlands

EUR

Cyberonics Spain SL

Enopace Biomedical Ltd

Highlife SAS

Imthera Medical, Inc

La Bouscare S.C.I.

LivaNova Canada Corp

Livn Irishco 2 UC

Livn Irishco Unlimited Company

Livn Luxco Sarl

Livn Luxco 2 Sarl

Livn UK Holdco Limited

Livn UK Limited 2 Co

Livn UK Limited 3 Co

Livn US Holdco, Inc.

Livn US Lp

Livn US 1, LLC

Livn US 3 LLC

Spain

Israel

France
USA

France
Canada

Ireland
Ireland
Luxembourg

EUR

USD

EUR

USD

EUR

CAD

EUR

Luxembourg

EUR

United Kingdom EUR

United Kingdom EUR
USD
USA

USA

USD

LMTB - Laser - und Medizin - Technologie Gmbh

Germany

EUR

218

100

Cyberonics
Spain SL
Cyberonics

100
Europe BVBA
100 Cyberonics Inc.
LIVN US

Holdco Inc.
Cyberonics
Spain SL
Cyberonics

100

Holdings LLC
Cyberonics Inc

CYBX

100

Netherlands CV

100

Sorin CRM SAS

Sorin CRM

Holdings SAS

100
100

Sorin Group
100
France SAS
100 Livanova PLC
LIVN UK
Holdco Ltd

100
100
100 Livanova PLC
LIVN UK
Holdco Ltd

100

LIVN UK 2 CO.

Ltd
Livanova PLC
Livn US 1 LLC
(US FINCO)

100

100
Livn US LP
100 Livn US LP

Livn UK LTD 3
Co.

100 Livn US 3 LLC
Sorin Group
USA Inc.
100 Livanova PLC
Sorin Group
USA Inc.

100

SORIN GROUP
DEUTSCHLAN
D GMBH

100

100
100

100

1
99

100

50
100

100

51
49

100

100
56

44
17

83
100

100

Caisson Interventional LLC

California Medical Laboratories (CalMed) Inc.

Cardiosolutions Inc.

Cellplex PTY LTD

Australia

AUD

Cyberonics Netherlands CV

Netherlands

EUR

Cyberonics Europe BV / BA

Cyberonics France SARL

Cyberonics Holdings LLC

Cyberonics Inc.

Cyberonics Latam SRL

Cyberonics Spain SL

Enopace Biomedical Ltd

Highlife SAS

Imthera Medical, Inc

La Bouscare S.C.I.

LivaNova Canada Corp

Livn Irishco 2 UC

Livn Irishco Unlimited Company

Livn Luxco Sarl

Livn Luxco 2 Sarl

Livn UK Holdco Limited

Livn UK Limited 2 Co

Livn UK Limited 3 Co

Livn US Holdco, Inc.

Livn US Lp

Livn US 1, LLC

Livn US 3 LLC

USA

Belgium

France

USA

Costa Rica

Spain

Israel

France

USA

France

Canada

Ireland

Luxembourg

EUR

United Kingdom EUR

USA

USD

EUR

USD

CRC

EUR

USD

EUR

USD

EUR

CAD

EUR

USD

LMTB - Laser - und Medizin - Technologie Gmbh

Germany

EUR

Sorin Group

100

USA Inc.

Sorin Group

100

USA Inc.

Sorin Group

100

USA Inc.

Sorin Group

Australia PTY

100

LTD

Cyberonics

100

Spain SL

Cyberonics

100

Europe BVBA

100 Cyberonics Inc.

LIVN US

100

Holdco Inc.

Cyberonics

100

Spain SL

Cyberonics

100

Holdings LLC

Cyberonics Inc

CYBX

100

Netherlands CV

100

Sorin CRM SAS

Sorin CRM

100

Holdings SAS

100

Sorin Group

France SAS

100

100 Livanova PLC

LIVN UK

Holdco Ltd

100

100 Livanova PLC

LIVN UK

Holdco Ltd

100

LIVN UK 2 CO.

100

Ltd

Livanova PLC

Livn US 1 LLC

100

(US FINCO)

100

Livn US LP

100 Livn US LP

Livn UK LTD 3

Co.

100 Livn US 3 LLC

Sorin Group

USA Inc.

100 Livanova PLC

Sorin Group

100

USA Inc.

SORIN GROUP

DEUTSCHLAN

100

D GMBH

100

MD Start I KG

MD Start SA

MicroPort Sorin CRM (Shanghai) Co. Ltd

Reced Indústria Mecânica Ltda

Respicardia, Inc

Sobedia Energia

Sorin CP Holding S.r.l.

Sorin CRM Holding SAS

Sorin CRM SAS

Sorin CRM USA

Germany

Suisse

China

Brazil

USA

Italy

France
France

USA

SorinCardio - Comercialização e Distribuição de
Equipamentos Medicos, Lda

Portugal

Sorin Group Asia Pte Ltd

Asia

EUR

CHF

CNY

BRL

USD

EUR

USD

EUR

USD

Sorin Group Australia PTY Limited

Australia

AUD

Sorin Group Austria GmbH

Sorin Group Belgium SA

Sorin Group Colombia Sas

Austria

Belgium

Colombia

EUR

COP

Sorin Group Czech Republic

Czech Republic EUR

Sorin Group Deutschland GmbH

Sorin Group DR, S.r.l.

Sorin Group Espana S.L.

Sorin Group Finland OY

Sorin Group France SAS

Sorin Group India Private Limited

Sorin Group International SA

Sorin Group Italia S.r.l.

Germany
Dominican
Republic

Spain

Finland

France

India
Suisse

Italy

EUR

USD

EUR

INR

EUR

219

SORIN GROUP
DEUTSCHLAN
D GMBH

100

SORIN GROUP
ITALIA SRL

100

SORIN CRM
HOLDING SAS
SORIN GROUP
ITALIA SRL
SORIN CRM

100

SAS

100

SORIN GROUP
ITALIA SRL
SORIN SITE
MANAGEMEN
T SRL

100

SORIN GROUP
ITALIA SRL
SORIN CRM

SAS

100
100 Livanova PLC
Sorin Group
USA Inc.
SORIN CRM

100

SAS

SORIN GROUP
ITALIA SRL

100

LivaNova

100

Nederland NV

LivaNova

100

Nederland NV

LivaNova

100

Nederland NV
SORIN GROUP
ITALIA SRL
SORIN GROUP
ITALIA SRL
SORIN GROUP
ITALIA SRL
SORIN CRM

100

SAS

100

LivaNova

Nederland NV
SORIN CRM
SAS

100

SORIN GROUP
ITALIA SRL
SORIN CRM

100

SAS

LivaNova

100
Nederland NV
100 Livanova PLC
Livanova PLC -
Italian Branch
Sorin Site
Management
SRL

100

Sorin CRM SAS

100

100
100

100

100
100

Sorin Group Japan K.K

Sorin Group Nederland

Sorin Group Norway AS

Sorin Group Polska Sp. Z.o.o.

Sorin Group Rus LLC

Sorin Group Scandinavia AB

Sorin Group UK Limited

Sorin Group USA Inc.

Sorin Medical Devices (Suzhou) Co. Ltd

Sorin Medical (Shanghai) Co. Ltd

Japan
Netherlands

Norway

Poland

Russia

JPY

EUR

NOK

PLN

RUB

Scandinavia

EUR

United Kingdom EUR
USD
USA

China

CNY

LivaNova

Nederland NV

100
100

SORIN GROUP
SCANDINAVI
A AB
LivaNova

Nederland NV
SORIN GROUP
ITALIA SRL
SORIN GROUP
ITALIA SRL

100

LivaNova

100
Nederland NV
100 Livanova PLC
SORIN CP

100

HOLDING SRL

SORIN CP

100

HOLDING SRL

LIVANOVA
PLC - ITALIAN
BRANCH

SORIN GROUP
ITALIA SRL

100

100
100

100

Sorin Site Management S.r.l.

Italy

EUR

100

Note 9. Other Financial Assets

Our current financial assets in the balance sheet include receivables from subsidiaries. These represent

loans and current receivable balances due from LivaNova with our subsidiaries and are repayable on demand.

(in thousands)

Financial receivables due from subsidiaries
Other

Note 10. Trade Receivables and Allowance for Bad Debt

Trade receivables consisted of the following (in thousands):

Trade receivables due from third parties
Trade receivables due from LivaNova subsidiaries
Allowance for bad debt

31 December 2015

88,600
(546)
88,054

31 December 2015

257
3,840
(250)
3,847

220

Sorin Group Japan K.K

Sorin Group Nederland

Sorin Group Norway AS

Sorin Group Polska Sp. Z.o.o.

Sorin Group Rus LLC

Sorin Group Scandinavia AB

Sorin Group UK Limited

Sorin Group USA Inc.

Sorin Medical Devices (Suzhou) Co. Ltd

Sorin Medical (Shanghai) Co. Ltd

Japan

Netherlands

Norway

Poland

Russia

USA

China

JPY

EUR

NOK

PLN

RUB

USD

CNY

Scandinavia

EUR

United Kingdom EUR

Sorin Site Management S.r.l.

Italy

EUR

LivaNova

100

Nederland NV

100

SORIN GROUP

SCANDINAVI

100

A AB

LivaNova

100

Nederland NV

SORIN GROUP

100

ITALIA SRL

SORIN GROUP

100

ITALIA SRL

LivaNova

100

Nederland NV

100 Livanova PLC

SORIN CP

100

HOLDING SRL

SORIN CP

100

HOLDING SRL

LIVANOVA

PLC - ITALIAN

100

BRANCH

SORIN GROUP

ITALIA SRL

100

257

3,840

(250)

3,847

Note 9. Other Financial Assets

Our current financial assets in the balance sheet include receivables from subsidiaries. These represent

loans and current receivable balances due from LivaNova with our subsidiaries and are repayable on demand.

(in thousands)

Other

Financial receivables due from subsidiaries

31 December 2015

88,600

(546)

88,054

Note 10. Trade Receivables and Allowance for Bad Debt

Trade receivables consisted of the following (in thousands):

Trade receivables due from third parties

Trade receivables due from LivaNova subsidiaries

Allowance for bad debt

Trade receivables are reported net of the allowance for bad debt provision, the changes in which are

provided below (in thousands):

Beginning at inception date

Additions
Currency translation gains/losses

End of period

31 December 2015

—
261
(11)
250

Note 11. Derivative Financial Instruments

We enter into derivative instruments, principally foreign exchange forward and interest rate swaps contracts

for the purpose of hedging the risk of fluctuations in foreign exchange and interest rates. For additional details
refer to our accounting policy “Derivatives” included within “Note 2. Basis of Preparation, Use of Accounting
Estimates and Significant Accounting Policies”.

Freestanding derivative forward contracts

Freestanding derivative forward contracts are used to offset the exposure to the change in value of our
foreign currency denominated financial intercompany transactions (current accounts and loans) of certain long-
term loans and the hedging of net revenues denominated in JPY and GBP of LivaNova subsidiaries. The gross
notional amount of these contracts not designated as hedging instruments, outstanding at 31 December 2015
was $321.3 million.

The amount and location of the gains (losses) in the statements of income (loss) related to derivative
instruments, not designated as hedging instruments, for the period from inception to 31 December 2015 are as
follows:

(in thousands)

Derivatives Not Designated as
Hedging Instruments
Foreign currency exchange rate
contracts

Location

From Inception to 31 December
2015

Foreign exchange

(11,974)

Foreign currency exchange differences include the losses, realised and unrealised, related to the forward

contracts, not qualifying for hedge accounting, put in place, for the hedging of the following:

•

intercompany financial accounts and loans not denominated in U.S. dollars, recording a loss for $5.1

31 December 2015

million;

•

short and long-term loans denominated in Euro, recording a loss for the amount of $7.9 million, of

which $4.8 million relates to a foreign exchange derivative arrangement on the EIB long-term loan. Such
derivative arrangements have been discontinued in January 2016;

•

revenues denominated in British pounds and Japanese yen for the period from date of the Mergers to

31 December 2015, recording a gain for $1.1 million.

The foreign currency exchange losses on the above mentioned forward contracts are mainly due to the

revaluation of the U.S. dollar against the euro and other currencies.

221

Interest rate swaps

As discussed in "Note 13. Financial Liabilities" upon successful completion of the Mergers, the Company
assumed the long-term loan from a European Investment Bank (“EIB”) that bears floating-rate interest rate. To
minimize the impact of changes in interest rates on its interest payments under the EIB loan, the Company
entered into interest rate swap agreements to swap floating-rate interest payments for fixed-rate interest
payments. The outstanding notional amount at 31 December 2015 is Euro 73.3 million (equivalent to $79.6
million). The interest rate swap agreements mature in June 2021 and have periodic interest settlements. The
interest rate swap agreements were designated as a cash flow hedge of the variability of interest payments under
the EIB long-term loan agreement due to changes in the floating interest rates by converting from Euribor 3
month floating-rate to a fixed-rate loan.

The swaps fixed rates were structured to mirror the payment terms of the loan. The effective portion of the

gain or loss on these derivatives is reported as a component of accumulated other comprehensive income. On
interest rate swap contracts we the Company had an effective portion equivalent at $83,000 in after-tax net
unrealised gains, and an ineffective portion for the amount of $25,000 reported in the line item interest expense
in statement of income (loss).

Presentation in Financial Statements

The amount of gains (losses) and location of the gains (losses) in the statements of income and accumulated

other comprehensive income (“OCI”) related to interest rate swap derivative instruments designated as cash
flow hedges for the period from inception to 31 December 2015 are as follows:

(in thousands)

Derivatives in Cash Flow Hedging
Relationships
Interest rate swap contracts

Total

Gross Gains
Recognised in OCI

on Effective Portion of
Derivative

Effective Portion of Gains (Losses) on
Derivative Reclassified from:

Amount

Location
124 Interest expense
124

Amount

124
124

The following tables summarize the location and fair value amounts of derivative instruments reported in
the Company's balance sheet as of 31 December 2015. The fair value amounts are presented on a gross basis
and are segregated between derivatives that are designated and qualify as hedging instruments and those that are
not, and are further segregated by type of contract within those two categories.

222

Interest rate swaps

(in thousands)

Liability Derivatives

As discussed in "Note 13. Financial Liabilities" upon successful completion of the Mergers, the Company

assumed the long-term loan from a European Investment Bank (“EIB”) that bears floating-rate interest rate. To

minimize the impact of changes in interest rates on its interest payments under the EIB loan, the Company

entered into interest rate swap agreements to swap floating-rate interest payments for fixed-rate interest

payments. The outstanding notional amount at 31 December 2015 is Euro 73.3 million (equivalent to $79.6

million). The interest rate swap agreements mature in June 2021 and have periodic interest settlements. The

interest rate swap agreements were designated as a cash flow hedge of the variability of interest payments under

the EIB long-term loan agreement due to changes in the floating interest rates by converting from Euribor 3

month floating-rate to a fixed-rate loan.

The swaps fixed rates were structured to mirror the payment terms of the loan. The effective portion of the

gain or loss on these derivatives is reported as a component of accumulated other comprehensive income. On

interest rate swap contracts we the Company had an effective portion equivalent at $83,000 in after-tax net

unrealised gains, and an ineffective portion for the amount of $25,000 reported in the line item interest expense

in statement of income (loss).

Presentation in Financial Statements

The amount of gains (losses) and location of the gains (losses) in the statements of income and accumulated

other comprehensive income (“OCI”) related to interest rate swap derivative instruments designated as cash

flow hedges for the period from inception to 31 December 2015 are as follows:

Gross Gains

Recognised in OCI

(in thousands)

Derivatives in Cash Flow Hedging

Relationships

Interest rate swap contracts

Total

on Effective Portion of

Effective Portion of Gains (Losses) on

Derivative

Derivative Reclassified from:

Amount

Location

Amount

124 Interest expense

124

The following tables summarize the location and fair value amounts of derivative instruments reported in

the Company's balance sheet as of 31 December 2015. The fair value amounts are presented on a gross basis

and are segregated between derivatives that are designated and qualify as hedging instruments and those that are

not, and are further segregated by type of contract within those two categories.

Derivatives designated as hedging instruments

Interest rate contracts

Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments

Foreign currency exchange rate contracts

Total derivatives not designated as hedging instruments
Total derivatives

Note 12. Equity

Share capital.

The Company's authorised share capital is as follows:

Balance Sheet
Location

Non-current financial
derivative liabilities
Current financial
derivative liabilities

Current financial
derivative liabilities
Current financial
derivative liabilities

Fair Value

1,786

1,090
2,876

1,547

(839 )
708
3,584

(in number of shares)

31 December 2015

Authorised share capital, ordinary shares of £1 each, unlimited shares authorized
Issued - fully paid
Outstanding

48,868,305
48,868,305

Merger relief reserve. On 19 October 2015 pursuant to the Mergers the merger relief reserve of US

$2,649.6 million was recorded in respect of the excess of Sorin and Cyberonics mergers with and into the
Company. Further information relating to the Mergers is detailed in “Note 1. Nature of Operations”.

223

Comprehensive income.

The table below presents the change in each component of accumulated other comprehensive income
(loss), net of tax and the reclassifications out of accumulated other comprehensive income into net earnings.

Change in
unrealised
gain (loss) on
derivatives

Foreign
currency
translation
adjustments

Revaluation of
net liability
(asset) for
defined
b

fit

Total

Balance from Inception

—

Reclassification of (gain)/loss from
accumulated other comprehensive
income, before tax
Tax effect

Reclassification of (gain)/loss from
accumulated other comprehensive
income, after tax
Net current-period other comprehensive
income (loss), net of tax
Ending Balance - 31 December 2015

Note 13. Financial Liabilities

124

(41)

(22,665)
—

(8)
3

(22,549)

(38)

(22,665)

(5)

(22,587)

—
83 $

—

(22,665 ) $

(5 ) $

(22,587 )

The outstanding principal amount of long-term debt at 31 December 2015 consisted of the following (in

thousands, except interest rates):

Principal Amount at
31 December 2015

Maturity

Effective Interest
Rate

European Investment Bank
Loans payable to LivaNova
subsidiaries
Total long-term facilities
Less current portion of long-term
debt
Total long-term debt

99,426 June 2021

1.15%

111,012
210,438

18,063
192,375

The outstanding principal amount of short-term debt as of 31 December 2015 consisted of the following (in

thousands, except interest rates):

224

Comprehensive income.

The table below presents the change in each component of accumulated other comprehensive income

(loss), net of tax and the reclassifications out of accumulated other comprehensive income into net earnings.

Change in

unrealised

gain (loss) on

derivatives

Foreign

currency

translation

adjustments

Revaluation of

net liability

(asset) for

defined

fit

Total

Balance from Inception

—

Reclassification of (gain)/loss from

accumulated other comprehensive

income, before tax

Tax effect

Reclassification of (gain)/loss from

accumulated other comprehensive

income, after tax

Net current-period other comprehensive

income (loss), net of tax

Ending Balance - 31 December 2015

Note 13. Financial Liabilities

thousands, except interest rates):

124

(41)

(22,665)

—

(8)

(22,549)

(38)

—

(22,665)

(5)

(22,587)

—

83 $

(22,665 ) $

(5 ) $

(22,587 )

The outstanding principal amount of long-term debt at 31 December 2015 consisted of the following (in

European Investment Bank

99,426 June 2021

1.15%

Principal Amount at

31 December 2015

Maturity

Effective Interest

Rate

Loans payable to LivaNova

subsidiaries

Total long-term facilities

Less current portion of long-term

debt

Total long-term debt

111,012

210,438

18,063

192,375

The outstanding principal amount of short-term debt as of 31 December 2015 consisted of the following (in

thousands, except interest rates):

Intesa San Paolo Bank
BNL BNP Paribas
Unicredit Banca
Other short-term facilities
Loans payable to LivaNova subsidiaries

Total short-term facilities
Current portion of long-term debt
Total current debt

Principal Amount at
31 December 2015

Effective Interest
Rate

0.25%
0.27%
0.45%

20,630
18,459
15,201
146
637,462
691,898
18,063
709,961

During the Mergers the Company assumed the loan from the European Investment Bank (“EIB”) loan that

was previously provided to Sorin to support research and development projects in Italy and France related to the
development of new products or improvements in Sorin’s products in cardiac surgery, cardiac rhythm
management and new therapeutic solutions aimed at treating heart failure and mitral valve regurgitation. The
loan was originally issued in July 2014, has a seven-year term with interest paid in quarterly installments. The
loan is guaranteed by Sorin Group Italia S.r.l. and Sorin CRM SAS, subsidiaries of LivaNova. In December
2015, we paid our scheduled semi-annual $9.0 million principal payment.

The EIB loan is subject to the various terms and conditions:

•

certain financial ratios calculated based on the LivaNova Consolidated financial statements;

subordination clauses, based on which the loan cannot be subordinated to other loans, with the

exception of loans given preference deriving from legal obligations;

• negative pledge clauses that place limits on the issue of collateral;

• other customary clauses for loans of this type, including limits on LivaNova’s asset disposals.

LivaNova PLC, in the management of LivaNova centralized treasury and acting as in-house bank of the
Group, receives excess cash and deposit from subsidiaries which generate cash. The amount of the short-term
intercompany deposits received, together with the current accounts balance in favor of its subsidiaries,
amounted US $214 million at 31 December 2015.

In December 2015 LivaNova PLC has issued a promissory note in favor of LIVN UK Holdco, of the
amount of US $111 million for the settlement of the purchase price of LivaNova Canada Corp. ; the promissory
note bears a fixed interest rate of 0.56% p.a. and has a maturity of more than 12 months with an expiry date on
31 December 2016.

In December 2015 LivaNova PLC has issued a promissory note to Sorin Group Italia srl, for Euro 390
million (US $423.5 million at 31 December 2015), for the settlement of the purchase price of Sorin Group USA
Inc.; the promissory note bears a fixed interest rate of 1.5% p.a. and has a maturity of 12 months with an expiry
date on 15 December 2016.

The total amount of the loans payable to LivaNova subsidiaries is US$ 748.5 million at 31 December 2015.

225

Note 14. Other Payables

(in thousands)

Accrued expenses- employee-related charges
Other accrued expenses
Other current liabilities with subsidiaries
Other current liabilities
Other amounts due to health and social security institution
Amounts due to employees
Deferred income

Total

Note 15. Share-Based Incentive Plans

Share-Based Incentive Plans

Sorin awards exchanged for LivaNova awards

31 December 2015

1,605
2,219
3,860
563
186
1,037
1
9,471

Prior to the Mergers, the Sorin Board of Directors adopted the Long-Term Incentive 2012-2014 (the “2012-

2014 Plan), 2013-2015 (the “2013-2015 Plan”) and 2014-2016 (the “2014-2016 Plan”) share grant plans in
April 2012, April 2013 and April 2014, respectively. The share grant plans authorised the issuance of share
appreciation rights (2014-2016 Plan only), performance share units and restricted share units. The awards under
these share grant plans were converted into LivaNova awards pursuant to the terms of the Mergers as described
below and were accounted for as equity settled. Refer to “Note 1. Nature of Operations” for details related to
the Mergers.

Pursuant to the Mergers, 3,815,824 share appreciation rights outstanding (2014-2016 Plan) and 3,365,931
restricted share units (2013-2015 and 2014-2016 Plans) and performance share units (2012-2014 Plan) that were
unvested immediately prior to the Mergers were accelerated and vested upon the close of the Mergers and were
converted into 180,076 LivaNova share appreciation rights and 158,716 LivaNova ordinary shares, respectively,
in a manner designed to preserve the intrinsic value of such awards.

226

Note 14. Other Payables

(in thousands)

Accrued expenses- employee-related charges

Other accrued expenses

Other current liabilities with subsidiaries

Other current liabilities

Other amounts due to health and social security institution

Amounts due to employees

Deferred income

Total

Note 15. Share-Based Incentive Plans

Share-Based Incentive Plans

Sorin awards exchanged for LivaNova awards

31 December 2015

1,605

2,219

3,860

563

186

1,037

9,471

Prior to the Mergers, the Sorin Board of Directors adopted the Long-Term Incentive 2012-2014 (the “2012-

2014 Plan), 2013-2015 (the “2013-2015 Plan”) and 2014-2016 (the “2014-2016 Plan”) share grant plans in

April 2012, April 2013 and April 2014, respectively. The share grant plans authorised the issuance of share

appreciation rights (2014-2016 Plan only), performance share units and restricted share units. The awards under

these share grant plans were converted into LivaNova awards pursuant to the terms of the Mergers as described

below and were accounted for as equity settled. Refer to “Note 1. Nature of Operations” for details related to

the Mergers.

Pursuant to the Mergers, 3,815,824 share appreciation rights outstanding (2014-2016 Plan) and 3,365,931

restricted share units (2013-2015 and 2014-2016 Plans) and performance share units (2012-2014 Plan) that were

unvested immediately prior to the Mergers were accelerated and vested upon the close of the Mergers and were

converted into 180,076 LivaNova share appreciation rights and 158,716 LivaNova ordinary shares, respectively,

in a manner designed to preserve the intrinsic value of such awards.

In addition, pursuant to the Mergers, 2,617,490 unvested performance share units granted under the 2014-

2016 Plan and 2013-2015 Plan which were held by Sorin employees upon close of the Mergers were converted
into 123,456 LivaNova ordinary shares in a manner designed to preserve the intrinsic value of such awards. For
awards not yet earned based on performance achieved as of the date of the Mergers, a service requirement was
added to the remaining awards and the performance conditions were removed, resulting in a modification to the
award (see below for further details). A portion of the service awards vested on the date of the Mergers and of
the remaining awards, 50% were paid on 26 February 2016 and 50% will be paid on 26 February 2017, in each
case subject to continued employment. The awards will continue to be governed in accordance with the terms
and conditions as were applicable immediately prior to the completion of the Mergers, with the exception of the
modified terms pursuant to the Mergers. The modifications made to the performance share units granted under
the 2014-2016 Plan and 2013-2015 Plan constituted modifications under the authoritative guidance for
accounting for share compensation. The modification resulted in $8.6 million incremental costs of which $0.9
million was recognised on the acquisition date and the remaining $7.7 million will be recognised over the
remaining service period of the award. The Company recognised $1.4 million share-based compensation
expense related to these modifications from the date of the acquisition through the period ended 31 December
2015.

Further, pursuant to the Mergers, 1,721,530 deferred bonus shares held by Sorin employees that were

outstanding immediately prior to the Mergers were accelerated and became vested upon the close of the
Mergers, and were converted to 81,251 LivaNova ordinary shares in a manner designed to preserve the intrinsic
value of such awards. The accelerated vesting and share conversion constituted a modification under the
authoritative guidance for accounting for share-based compensation. This guidance requires the Company to
revalue the award upon the transaction close and allocate the revised fair value between consideration paid and
post-combination expense based on the ratio of service performed through the transaction date over the total
service period of the award. The revised fair value allocated to post-combination services resulted in $0.3
million of incremental costs which was recognised on the acquisition date.

Cyberonics awards exchanged for LivaNova awards

Prior to the Mergers, Cyberonics issued share options and restricted share awards under its Amended and

Restated New Employee Equity Inducement Plan and 2009 Share Plan. All of the awards under these plans
were accounted for as equity settled and were accelerated and vested as a result of the Mergers. Cyberonics
share options (except as described below) and restricted shares were converted into 813,794 LivaNova share
options and 209,043 LivaNova ordinary shares, respectively, in a manner designed to preserve the intrinsic
value of such awards. The share options will continue to become exercisable in accordance with the terms and
conditions as were applicable immediately prior to the completion of the Mergers. Additionally, 146,105
Cyberonics share options held by executive officers that were outstanding immediately prior to the Mergers
were settled in cash in the amount of $5.0 million.

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LivaNova awards

On 16 October 2015, the sole shareholder of LivaNova approved the adoption of the Company’s 2015

Share-Based Compensation

Amounts of share-based compensation recognised in the statement of income (loss) by expense category

are as follows (in thousands):

Net operating expenses
Total share-based compensation expense

From Inception to 31
December 2015

$
$

1,764
1,764

Amounts of share-based compensation expense recognised in the statement of income (loss) by type of

arrangement are as follows, (in thousands):

Service-based share appreciation rights
Service-based restricted and restricted share unit awards

Total share-based compensation expense

From Inception to 31
December 2015

523
1,241
1,764

The expense for the period from inception to 31 December 2015 related to awards was accounted for as

equity settled.

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