LivaNova Annual Report 2017

FY2017 Annual Report · LivaNova

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2017 UK Annual Report

This UK Annual Report of LivaNova PLC comprises the Strategic Report, Directors’ Report, and Directors’ Remuneration
Report and the LivaNova PLC consolidated and company UK GAAP Financial Statements in respect of the year ended 31
December 2017 contained herein.

This UK Annual Report has been prepared to satisfy the reporting requirements of the Companies Act 2006 and will be
included in the 2018 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, LivaNova 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.

• Trademarks for LivaNova’s VNS therapy systems, the VNS Therapy® System, the VITARIA®TM System and
LivaNova’s proprietary Pulse generators products: Model 102 (PulseTM), Model 102R (Pulse DuoTM), Model 103
(Demipulse®), Model 104 (Demipulse Duo®), Model 105 (AspireHC®), Model 106 (AspireSR®) and Model 1000
(SenTiva™).

• Trademarks for LivaNova’s Oxygenators product systems: InspireTM, HeartlinkTM and ConnectTM.

• Trademarks for LivaNova’s line of surgical tissue and mechanical valve replacements and repair products:
MitroflowTM, Crown PRTTM, Solo SmartTM, PercevalTM, Top HatTM, Reduced Series Aortic ValvesTM,
Carbomedics Carbo-SealTM, Carbo-Seal ValsalvaTM, Carbomedics StandardTM, OrbisTM and OptiformTM, and
Mitral valve repair products: Memo 3DTM, Memo 3D ReChordTM, AnnuloFloTM and AnnuloFlexTM.

• Trademarks for LivaNova’s implantable cardiac pacemakers and associated services: REPLY 200TM, ESPRITTM,

KORA 100TM, KORA 250TM, SafeRTM, the REPLY CRT-PTM, the remedé® System.

• Trademarks for LivaNova’s Implantable Cardioverter Defibrillators and associated technologies: the INTENSIATM,

PLATINIUMTM, and PARADYM® product families.

• Trademarks for LivaNova’s cardiac resynchronisation therapy devices, technologies services: SonR®, SonRtipTM,
SonR CRTTM, the INTENSIATM, PARADYM RFTM, PARADYM 2TM and PLATINIUMTM product families and
the Respond CRTTM clinical trial.

• Trademarks for heart failure treatment product: Equilia®TM.

• Trademarks for LivaNova’s bradycardia leads: BEFLEXTM (active fixation) and XFINETM (passive fixation).

These trademarks and trade names are the property of LivaNova or the property of LivaNova’s consolidated subsidiaries and are
protected under applicable intellectual property laws. Solely for convenience, LivaNova’s trademarks and trade names referred to
in this Annual Report may appear without the ® or TM symbols, but such references are not intended to indicate in any way that
LivaNova will not assert, to the fullest extent under applicable law, LivaNova’s rights to these trademarks and trade names.

STRATEGIC REPORT
— Introduction

TABLE OF CONTENTS

— I.
— II.

Overview
Business
— A. LivaNova’s Strategy
— B. Business Franchises and the New Ventures – Business Model
— C. Research and Development
— D. Acquisitions and Investments
— E.
Patents and Licenses
— F. Markets and Distribution Methods
— G. Customers, Competition and Industry
— H.
— I.
— J. Working Capital Practices
— K. Employees
— L.
— M. Seasonality
— N.
— O. Anti-Bribery and Corruption

Production Quality Systems and Availability of Raw Materials
Government Regulation and Other Considerations

Environment and Other Social Matters

Properties

Introduction

— III. Business Review
— A.
— B. Key Performance Indicators
— C. Results of Operations
— D. Liquidity and Capital Resources
— E. Quantitative and Qualitative Disclosures about Market Risk
Principal Risks and Uncertainties

— IV.

DIRECTORS’ REPORT
REMUNERATION REPORT

— Statement from the Chairman of the Compensation Committee
— 2017 Remuneration Report

FINANCIAL STATEMENTS

— Independent Auditor’s Report on Group Financial Statements
— Table of Contents: Consolidated Financial Statements
— Consolidated Statements of Income
— Consolidated Statements of Comprehensive Income
— Consolidated Balance Sheet
— Consolidated Statements of Changes in Equity
— Consolidated Statements of Cash Flows
— Notes to the Consolidated Financial Statements
— Independent Auditor’s Report on Parent Company Financial Statements
— Table of Contents: Parent Company
— Company Statement of Income
— Company Statement of Comprehensive Income
— Company Balance Sheet
— Company Statement of Changes in Equity
— 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.

Overview

LivaNova PLC, headquartered in London, 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 our global team of medical professionals in the fields of Cardiac Surgery and Neuromodulation, 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.

We were organized under the laws of England and Wales on 20 February 2015 for the purpose of facilitating the business combination
of Cyberonics, Inc., a Delaware corporation and Sorin S.p.A., a joint stock company organized under the laws of Italy. The business
combination of Cyberonics and Sorin became effective on 19 October 2015, at which time LivaNova’s Ordinary Shares were listed
for trading on the Nasdaq Global Market and the London Stock Exchange under the trading symbol “LIVN.” On 5 April 2017, we
delisted from the LSE and are currently only listed for trading on the Nasdaq and are thus now a "quoted company" (rather than a
"traded company") for English company law purposes.

II.

Business

LivaNova’s Strategy

LivaNova is a focused medical innovator concentrating our portfolio around the head and the heart. Our goals are to:

•

Improve the quality of patients’ lives

• Leverage our leadership positions in neuromodulation and cardiac surgery

• Target underserved and high-growth market segments

During 2017, we commenced a project to divest our Cardiac Rhythm Management business to better focus on areas where we have
market leadership and ensure that our portfolio is optimally positioned to deliver long-term value.

We believe that our innovative technologies and disciplined portfolio management provides us with the following near-term growth
drivers:

• Neuromodulation. We operate in the $4.1 billion neuromodulation market where our Vagus Nerve Stimulation devices help
patients suffering from drug-resistant epilepsy and treatment-resistant depression. In 2017, we obtained indications for MRI
compatibility and pediatric expansion to patients as young as four years of age. We also launched our latest generation VNS
device, Sentiva, which senses and responds to bradycardia and tachycardia while providing a next generation programmer
and wireless wand.

• Heart Lung Machines. For the last 40 years we have been the leader in heart-lung machines . Our S5 HLM reduces transfusions

and minimises recovery time for patients.

• Oxygenators. Our Inspire oxygenator provides clinicians with personalised perfusion options for their patients. To date,

more than 750,000 patients have been treated with Inspire.

•

Perceval. With 10 years of clinical use, Perceval, our sutureless valve, optimises surgical approach to aortic valve
replacement.

In addition to our near-term revenue drivers, we have established strategic initiatives with the potential to drive significant growth
in the following areas:

•

Treatment resistance depression. Depression is a leading cause of disability worldwide and VNS may provide better outcomes
for patients suffering from TRD. As reimbursement coverage becomes available in key countries, we expect to increase the
number of patients that we treat and drive further adoption.

Transcatheter mitral valve replacement. In 2017, we acquired Caisson which provides us with a unique investigational
device that allows for transseptal mitral valve replacement. We are early in the development of this product but believe that
the market opportunity could be several times the size of the aortic market opportunity.

• Chronic heart failure. Today, heart failure is a leading cause of morbidity and mortality. We have developed a novel delivery
of Autonomic Regulation Therapy that may improve regulation of cardiovascular function. Clinical trials are currently
ongoing.

• Obstructive sleep apnoea - with our acquisition of ImThera, we now have an implantable pulse generator that opens the
airway during sleep and provide patients with a solution to OSA that does not require the use of continuous positive airway
pressure devices.

We are a disciplined acquirer of companies that we believe will create value for our portfolio and our shareholders. We look for
companies that align with our existing portfolio, provide access to adjacent markets, and allow us to leverage our existing capabilities
to better serve patients.

LivaNova is in the process transforming our organization and driving growth through a culture of continuous improvement. We have
organized our priorities around the following four pillars:

• Growth. Our teams are focused on creating the tools and standard work to drive demand for our products, build out our
product pipelines and expand our portfolio. Key areas of focus are sales force effectiveness, standardising our new product
development processes and incorporating user centric design principles.

• Profitability. Our goal is to support our growth and make key investments by building better, spending better and pricing
better. Key areas of focus are establishing a culture of lean with our manufacturing teams, rationalising SKUs and creating
greater pricing consistency.

•

Talent. Our aspirations of growth require that we develop existing talent and create an environment that will attract new
talent. We are focused on programs that develop our existing employees, reward our top performers and provide enhanced
opportunities for our best employees.

• Culture. We are focused on a creating a performance based culture that is built on the concepts of continuous improvement,
accountability, discipline and teamwork. We believe that with a strong culture and team, we will be able to support our
growth and fulfil our mission of improving patients’ lives.

Business franchises and the New Ventures – Business Model

LivaNova is comprised of two principal business franchises, which are also our reportable segments: Cardiac Surgery and
Neuromodulation, corresponding to our primary therapeutic areas. Other corporate activities include corporate business development
and New Ventures, focused on new growth platforms and identification of other opportunities for expansion.

On 20 November 2017, we entered into a Letter of Intent to sell our CRM to MicroPort Scientific Corporation and on 8 March 2018,
we entered into a definitive Stock and Purchase Agreement to sell the CRM business franchise to MicroPort Cardiac Rhythm B.V.
for $190.0 million in cash. Completion of the transaction is subject to receipt of relevant regulatory approvals, including fulfilling
the requirements of the Hong Kong Stock Exchange’s Major Transaction requirements, and other customary closing conditions. We
expect the transaction to close in the second quarter of 2018. Accordingly, the results of operations of the CRM business franchise
are reflected as discontinued operations for all periods presented in this Annual Report and related assets and liabilities are presented
as held for sale as of 31 December 2017.

Cardiac Surgery

Our Cardiac Surgery business franchise is engaged in the development, production and sale of cardiac surgery products, including
oxygenators, heart-lung machines, perfusion tubing systems, cannulae and other accessories used for extracorporeal circulation,
systems for autologous blood transfusion and blood washing, as well as a complete line of surgical tissue and mechanical heart valve
replacements and repair products.

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. Our 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. Our primary cardiopulmonary products
include:

Heart-lung machines

The HLM 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, includes
the Inspire systems. The Inspire range of products, comprised of 12 models, provides perfusionists with a customizable approach
for the benefit of patients.

Connect

Connect is our perfusion charting system. Focused on real time and retrospective calculations and trending tools, Connect assists
perfusionists with data management during and after cardiopulmonary bypass.

Heartlink

Heartlink is our goal-directed perfusion system linking the Connect perfusion charting system with the Inspire oxygenator to achieve
a better outcome by adapting adequacy of perfusion to the patient, thus reducing post-operative complications and Intensive Care
Unit and hospital length of stay. Inspire, Heartlink and Connect products can all be integrated with our HLM machines to deliver a
unique perfusion solution combining hardware components, disposable devices and data management systems and can all be integrated
with our HLM machines to deliver a unique perfusion solution.

Autotransfusion systems

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

Cannulae

Our cannulae product family, part of the oxygenator product group, is used to connect the extracorporeal circulation to the heart of
the patient during cardiac surgery.

Heart Valves and Repair Products

We offer 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. Our heart valves and repair product offerings
include:

Tissue heart valves

Our tissue valves include the Mitroflow aortic pericardial tissue valve with phospholipid reduction treatment which is designed to
mitigate valve calcification, and the Crown PRT and Solo Smart aortic pericardial tissue valves. CROWN PRT 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 PRT enables intuitive intraoperative handling through a short rinse time,
enhanced ease of implant through visible markers and improved radiographic visualization through dedicated X-ray markers. Our
Solo Smart aortic pericardial tissue valve is an innovative, completely biological aortic heart valve with no synthetic material and a
removable stent. Solo Smart provides the ease of implantation of a stented valve with the hemodynamic performance of a stentless
valve.

Self-anchoring tissue heart valves

Perceval 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. Perceval incorporates a unique technology that
allows 100% 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.

Mechanical heart valves

Our wide range of mechanical valve offerings includes the Carbomedics Standard, Top Hat and Reduced Series Aortic Valves, as
well as the Carbomedics Carbo-Seal and Carbo-Seal Valsalva aortic prostheses. We also offer the Carbomedics Standard, Orbis and
Optiform mechanical mitral valves and Bicarbon Slimline, Bicarbon Fitline and Bicarbon Overline aortic and 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. We offer a
wide range of mitral valve repair products, including the Memo 3D and Memo 3D ReChord, AnnuloFlo and AnnuloFlex.

Neuromodulation

Our Neuromodulation business franchise designs, develops and markets neuromodulation-based medical devices for the treatment
of epilepsy and depression.

Neuromodulation Products

Our seminal neuromodulation product, the VNS Therapy® System, is an implantable device authorized 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 for epilepsy, 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 with a depleted
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 therapy for the treatment of epilepsy

Globally, there are several broad types of treatment available to persons with epilepsy: 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 U.S., our VNS Therapy System was the first medical device treatment approved by the U.S. Food and Drug Administration
in 1997 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, hand-
held magnet provided with our VNS Therapy System to activate or inhibit stimulation manually. We sell a number of VNS product
4

models for the treatment of epilepsy, including our Model 102 (PulseTM), Model 102R (Pulse DuoTM), Model 103 (Demipulse®),
Model 104 (Demipulse Duo®), Model 105 (AspireHC®) and Model 106 (AspireSR®) and the Model 1000 (SenTivaTM) pulse
generators. To date, an estimated 110,000 patients have been treated with our VNS Therapy System for epilepsy.

Our AspireSR generator provides the benefits of VNS Therapy, with an additional feature: automatic stimulation in response to
detection of changes in heart rate potentially 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, which are
adjustable. 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. In October 2017, we obtained FDA
approval to market our SenTiva VNS Therapy System, which consists of the SenTiva implantable generator and the next-generation
VNS Therapy Programming System. The SenTiva generator is the smallest and lightest device capable of delivering responsive
therapy for epilepsy. The SenTiva VNS Therapy Programming System features a wireless wand and a new user interface on a small
tablet. Together, these components offer patients with drug-resistant epilepsy a physician-directed, customizable therapy with smart
technology that reduces the number of seizures, lessens the duration of seizures and enables a faster recovery.

In June 2017, the FDA approved our VNS Therapy device for use in patients who are at least four years of age and have partial onset
seizures that are refractory to antiepileptic medications. VNS Therapy is the first and only FDA-approved device for drug-resistant
epilepsy in this pediatric population. Previously, VNS Therapy was approved by the FDA for patients 12 years or older.

In addition, in June 2017, we received FDA approval, and in August 2017, we received CE Mark approval, for our VNS Therapy
device for expanded magnetic resonance imaging labelling affirming VNS Therapy as the only epilepsy device approved by the FDA
for MRI scans. Currently, SenTiva, AspireHC and AspireSR models of VNS Therapy technology provide for this expanded MRI
access.

VNS for the treatment of depression

In July 2005, the FDA approved the VNS Therapy System for the adjunctive treatment of chronic or recurrent depression for patients
18 years or older who are experiencing a major depressive episode and have not had an adequate response to four or more antidepressant
treatments. In May 2007, the Centres for Medicare and Medicaid Services issued a national determination of non-coverage within
the United States 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, we have not engaged in significant
commercial efforts with respect to TRD in any of our markets. 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 publications in peer-reviewed journals, we submitted
a formal request to CMS for reconsideration of VNS therapy for TRD. CMS declined our request for reconsideration in May 2013.
In October 2013, two Medicare beneficiaries appealed the lack of coverage by Medicare through the Departmental Appeals Board
of the Department of Health and Human Services. 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.

Discontinued Operations Cardiac Rhythm Management business franchise

CRM, presented as discontinued operations in this Annual Report, develops, manufactures and markets products for the diagnosis,
treatment, and management of heart rhythm disorders and heart failure.

Corporate Activities and New Ventures

Corporate activities include shared services for finance, legal, human resources and information technology, corporate business
development and New Ventures.

The New Ventures group evaluates growth opportunities and new potential areas of investment for the Company to expand our
product portfolio to meet emerging patient needs. In particular, New Ventures focuses on innovative technologies to treat three main
pathologies: heart failure, sleep apnea and mitral valve regurgitation, areas of unmet clinical need where there is no optimal therapeutic
solution for the majority of patients. New Ventures partners with public and private institutions and medical start-ups to develop
future therapeutic solutions in these areas.

Research and Development

The markets in which we participate are subject to rapid technological advances. Product improvement and innovation are necessary
to maintain market leadership. Our R&D efforts are directed toward maintaining or achieving technological leadership in each of
the markets we serve to help ensure that patients using our devices and therapies receive the most advanced and effective treatment
possible. We remain 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 us to initiate and participate
in many clinical trials each fiscal year as the demand for clinical and economic evidence remains high.
We also expect our development activities to help reduce patient care costs and the length of hospital stays in the future.

Approximately 20% of our employees work in R&D improving existing products and therapies, expanding their uses and applications
and developing new products. We continue to focus on optimising innovation and assessing the ability of our R&D programs to
deliver economic value to the customer. More specifically, our current R&D expenses consist of product design and development
efforts, clinical study programs and regulatory activities, which are essential to the Company’s strategic portfolio initiatives, including
TMVR, Treatment Resistant Depression and Heart Failure.

During the years ended 31 December 2017 and 31 December 2016, the transitional period 25 April 2015 to 31 December 2015, and
the year ended 24 April 2015, we spent $109.7 million, $82.5 million, $41.9 million and $42.2 million on R&D, respectively.

Acquisitions and Investments

Our 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 specialized 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 research and development efforts, we have historically relied, and expect to continue to rely, on acquisitions, investments
and alliances to provide access to new technologies in both new and existing markets.

We expect to further our strategic objectives and strengthen our existing businesses by making future acquisitions or investments in
areas that we believe we can acquire or 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 our previous or future acquisitions
will be successful or will not materially adversely affect our consolidated operations, financial condition and/or cash flows.

Caisson Interventional, LLC

On 2 May 2017, we acquired the remaining 51% equity interests in Caisson Interventional, LLC. Caisson , a clinical-stage medical
device company based in Maple Grove, Minnesota, is focused on the design, development and clinical evaluation of a novel
transcatheter mitral valve replacement implant device for treating mitral regurgitation through replacement of the native mitral valve
using a fully transvenous delivery system. The financial results of Caisson are included within New Ventures.

ImThera Medical, Inc.

On 16 January 2018, we acquired ImThera Medical, Inc. We previously held 14% of ImThera’s outstanding equity. Headquartered
in San Diego, Calif., ImThera was a privately held company focused on neurostimulation for the treatment of OSA. ImThera
manufactures an implantable device that stimulates multiple tongue muscles via the hypoglossal nerve, which opens the airway while
a patient is sleeping. The ImThera device is highly aligned with our Neuromodulation business franchise, and we plan to optimize
the technology. In the near term, we plan to focus on expanding ImThera’s current commercial presence in the European market,
while advancing enrolment in a U.S. Food and Drug Administration pivotal study.

TandemLife

On 18 February 2018, LivaNova entered into an agreement to acquire TandemLife, a privately held company focused on advanced
cardiopulmonary temporary support solutions. TandemLife offers four product systems, all built around a common pump and
controller. These systems, which include ExtraCorporeal Life Support and Percutaneous Mechanical Circulatory Support, are
complementary to LivaNova’s offerings in cardiac surgery. LivaNova has agreed to pay up to $250 million for TandemLife. Upfront
costs total $200 million, with up to $50 million in contingent considerations based on regulatory milestones. The transaction closed
on 4 April 2018.

Patents and Licenses

We rely on a combination of patents, trademarks, copyrights, trade secrets, and non-disclosure and non-competition agreements to
protect our intellectual property. We generally file patent applications in the U.S. and countries where patent protection for our
technology is appropriate and available. As of 31 December 2017, we held more than 1,900 issued patents worldwide, with
approximately 400 pending patent applications that cover various aspects of our technology, including CRM. Patents typically have
a 20-year term from the application filing date. In addition, we hold exclusive and non-exclusive licenses to a variety of third-party
technologies covered by patents and pending patent applications. There can be no assurance that pending patent applications will
result in the issuance of patents, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or
that these patents will be found to be valid or sufficiently broad to protect our technology or to provide us with a competitive advantage.
We have also obtained certain trademarks and trade names for our products and maintain certain details about our processes, products
and strategies as trade secrets. In the aggregate, these intellectual property assets are considered to be of material importance to our
business segments and operations. We regularly review third-party patents and patent applications in an effort to protect our intellectual
property and avoid disputes over proprietary rights.

We rely on non-disclosure and non-competition agreements with employees, consultants and other parties to protect, in part, trade
secrets and other proprietary technology. There can be no assurance that these agreements will not be breached, that we will have
adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties
will not otherwise gain access to our trade secrets and proprietary knowledge.

Markets and Distribution Methods

The three largest markets for our medical devices are Europe, the United States and Japan. Emerging markets are an area of increasing
focus and opportunity. We sell most of our medical devices through direct sales representatives in the United States and a combination
of direct sales representatives and independent distributors in markets outside the United States.

Our marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products to a diverse group of customers
worldwide, including perfusionists, neurologists, neurosurgeons and other physicians, hospitals and other medical institutions and
healthcare providers. To achieve this objective, we maintain a highly knowledgeable and dedicated sales staff that is able to foster
strong relationships with such a range of customers. We maintain excellent working relationships with professionals in the medical
industry, which provides us with a detailed understanding of therapeutic and diagnostic developments, trends and emerging
opportunities, enabling us to respond quickly to the changing needs of providers and patients.

We actively participate in medical meetings and conduct comprehensive training and educational activities in an effort to enhance
our presence in the medical community, and we believe that these activities also contribute to healthcare professionals’ 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. Our customer base continues to evolve to reflect such economic changes across the geographic markets we serve.

Customers, Competition and Industry

We compete in the medical device market in more than 5,000 hospitals in more than 100 countries. This market is characterised by
rapid change resulting from technological advances and scientific discoveries. Our competitors across our product portfolio range
from large manufacturers with multiple business lines to small manufacturers offering a limited selection of specialized products.
In addition, we face competition from providers of alternative medical therapies, such as pharmaceutical companies and providers
of cannabis.

Product problems, physician advisories, safety alerts and publications about our 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, we may be increasingly required to compete on the basis of price. In order to continue

to compete effectively, we 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.

Cardiac Surgery

Our competitors include Terumo Medical Corporation, Maquet Medical Systems, Medtronic Plc, Haemonetics Corporation, Edwards
Lifesciences Corp. and Abbott Laboratories, Inc. (formerly St. Jude Medical, Inc.), although not all competitors are present in all
product lines.

Neuromodulation

Our primary medical device competitors in the Neuromodulation product group are NeuroPace, Inc. and Medtronic Plc.

Production Quality Systems and Availability of Raw Materials

We manufacture a majority of our products at 10 manufacturing facilities located in Italy, Germany, the United States, Canada, Brazil
and Australia. We purchase raw materials and many of the components used in our manufacturing facilities from numerous suppliers
in various countries. For quality assurance, sole source availability or cost effectiveness purposes, we may procure certain components
and raw materials from a sole supplier. We work closely with our suppliers to ensure continuity of supply while maintaining high
quality and reliability.

The quality systems we utilize in the design, production, warehousing and distribution of our products are designed to ensure that
our products are safe and effective. Some of the governmental agencies and quality system regulations with which we are required
to comply are as follows:

• The FDA’s Quality System Regulation under section 520 of the federal Food, Drug and Cosmetic Act and its implementing

regulations at 21 C.F.R. Part 820.

• The International Standards Organization - EN ISO 13485:2012, Medical devices - Quality management systems.

• The independent certification bodies, DEKRA, LNE/G-MED and TUV SUD, which act as our notified bodies to ensure

that our manufacturing quality systems comply with ISO 13485:2003.

• The European Council Directives 93/42/EEC and 90/385/EEC, ISO 13485, which relates to medical devices and active

implantable medical devices.

In addition, we utilize environmental management systems and safety programs to protect the environment and our employees. Some
of the regulations and governmental agencies with which we comply are as follows:

• The U.S. Environmental Protection Agency

• The Occupational Health and Safety Assessment System

• The European Union Registration, Evaluation, Authorization and Restriction of Chemicals

•

Italian regulations under the Integrated Environmental Authorization acts

ISO 14001 certification

The continuous improvement embodied by the ISO 14001 standard has been a key mechanism by which the Company has measured
its environmental performance. The Company measures its improvements through energy cost reduction programs, transportation
and car policies, real estate choices, waste management, raw materials management, among others Our Clamart and Munich sites
have been ISO 14001 certified, and our Saluggia and Mirandola sites are in the process of working towards such certification. The
Company does not have global policies because the ISO 14001 standard is believed to provide a more appropriate standard. Due
diligence is conducted in the context of the annual audits associated with the ISO 14001 certification. As noted in our greenhouse
gas reporting in the Directors' Report, one of our key key performance indicators is kg CO2 per full time employee.

Government Regulation and Other Considerations

Our medical devices are subject to regulation by numerous government agencies, including the FDA and counterpart agencies outside
the United States. To varying degrees, each of these agencies require us to comply with laws and regulations governing the research,
development, testing, manufacturing, labelling, pre-market clearance or approval, marketing, distribution, advertising, promotion,
record keeping, reporting, tracking, and importing and exporting of medical devices. Our 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 our business are described below.

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

United States

Each medical device we seek to distribute commercially in the United States must first receive 510(k) clearance or pre-market
approval from the FDA, unless specifically exempted by the agency. The FDA groups medical devices 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 lower risk are categorized as either Class I or II, which requires the
manufacturer to submit to the FDA a 510(k) pre-market notification requesting clearance for commercial distribution of the device
in the United States. Some low-risk devices are exempted from this requirement. Devices deemed by the 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 categorized as Class III, requiring approval of an application for pre-market approval.

510(k) Clearance Process

To obtain 510(k) clearance, LivaNova must submit a pre-market notification to the FDA demonstrating that the proposed device is
substantially equivalent to a previously-cleared 510(k) device, a device that was in commercial distribution before May 28, 1976 for
which the 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 FDA’s 510(k) clearance
process usually takes three to twelve months from the date the application is submitted and filed with the 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 FDA requires significant clinical data to support substantial equivalence, which may significantly prolong the
review process.

After a device receives 510(k) clearance, any subsequent device modification 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 FDA
requires each manufacturer to make this determination initially, but the FDA may review any such decision and may disagree with
a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer
to cease marketing and/or recall the modified device until the manufacturer obtains a 510(k) clearance or approval of a PMA
application. In addition, the 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) clearances and additional
requirements that may significantly impact the process.

Pre-market Approval Process

Manufacturers must submit a PMA application for all Class III medical devices (although the FDA has the discretion to continue to
allow certain pre-amendment Class III devices to use the 510(k) process) and all other medical devices that cannot be cleared through
the 510(k) process. A PMA application typically must be supported by, among other things, extensive technical, pre-clinical and
clinical study data, and manufacturing and labelling data to demonstrate the safety and effectiveness of the device to the FDA’s
satisfaction.

After a manufacturer files a PMA application, the FDA begins an in-depth review process, which typically takes between one and
three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification
of information already provided. Also during the review period, the FDA often convenes an advisory panel of experts from outside
the FDA to review and evaluate the application and provide recommendations to the FDA as to the approval of the device. In addition,
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the 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 related to the design and
manufacturing process. The 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 the approval. Failure to comply with the conditions of
approval can result in a materially adverse enforcement action, including, among other things, the loss or withdrawal of the approval.
Manufacturers must submit a new PMA application or a PMA supplement for approval of significant modifications to the design,
indications, labelling or manufacturing process of a PMA-approved device. 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 extensive clinical data as extensive as the
original PMA application, the convening of an advisory panel or pre-approval inspections.

Clinical Studies

One or more clinical studies may be required to support a 510(k) application and are almost always required to support a PMA
application. Manufacturers must conduct clinical studies of unapproved or uncleared medical devices or devices intended for uses
for which they are not approved or cleared (investigational devices) in compliance with FDA requirements. If human clinical studies
of a device are required and the device presents a significant risk, the sponsor of the study must file an investigational device
exemption , application prior to commencing the study. 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 FDA and one or more institutional review boards,
human clinical studies may begin at a specific number of institutional investigational sites with the specific number of patients
approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical study after obtaining
approval for the study by one or more IRBs without separate approval from the FDA. During the study, the sponsor must comply
with the FDA’s IDE requirements including, for example, investigator selection, monitoring of the clinical study sites, adverse event
reporting and record keeping. The investigators must obtain patient informed consent, follow the investigational plan and study
protocol, control the disposition of investigational devices and comply with reporting and record keeping requirements. We, the FDA
and the IRB at each institution at which a clinical study is being conducted may suspend a clinical study 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 United States, numerous and pervasive regulatory requirements continue
to apply, and we will continue to be subject to periodic inspections by the 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 United States, to register with the FDA;

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

• 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 requires reporting to the 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 FDCA caused by the device that may present a risk to health;

•

Statutory and regulatory requirements for Unique Device Identifiers on devices and submission of certain information about
each device to the 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 FDA of such
performance results.

The FDA enforces these requirements by inspection and market surveillance. The FDA periodically inspects our manufacturing
facilities, which potentially includes our suppliers. If the FDA observes conditions that may constitute violations, we must correct
the conditions or satisfactorily demonstrate the absence of the violations. The FDA also has the authority to request repair, replacement
or refund of the cost of any device manufactured or distributed by us. We continue to expend resources to maintain compliance with
our obligations under the FDA’s regulations. Failure to comply with applicable regulatory requirements may result in enforcement
action by the 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 our products;

•

administrative detention or banning of our products;

operating restrictions, partial suspension or total shutdown of production;

refusing our 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.

Outside the United States

Outside the United States, we are subject to government regulation in the countries in which we operate. Although many of the
regulations applicable to our products in these countries are similar to those of the 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 our products may be longer or shorter than the time required in the United States, and requirements for such approvals may
differ from FDA requirements.

In the European Economic Area, or EEA, (which is composed of the 28 Member States of the European Union plus Norway,
Liechtenstein and Iceland), 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, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its
classification. Except for low-risk medical devices, 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 organization accredited by a Member State of the EEA to conduct conformity
assessments by a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body typically audits
and examines the technical file and the quality system for the manufacture, design and final inspection of the manufacturer’s devices.
Following successful completion of a conformity assessment procedure, the Notified Body issues a certificate 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 applicable directives and 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 studies for medical devices usually require the approval of an Ethics Committee and approval by or notification
to the national competent 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.

The national competent authorities of the EEA countries, generally in the form of their ministries or departments of health, oversee
the clinical research for medical devices and are responsible for market surveillance of products once they are placed on the market.
We are 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.

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 (the “Medical Devices Regulation”). Unlike the Directives that must be implemented into national laws, the Regulation
would be directly applicable in all EEA Member States and so is intended to eliminate current national differences in regulation of
medical devices.

In October 2013, the European Parliament approved a package of reforms to the European Commission’s proposals. Under the
revised proposals, only designated “special notified bodies” would be entitled to conduct conformity assessments of high-risk devices,
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 Medical Devices Coordination Group, (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 our existing medical devices, or a longer or more burdensome assessment of our new products. In May 2016, a political
agreement was reached and the tentatively agreed upon text was published in June 2016. In April 2017, Regulation 2017/745 on
medical devices was published, beginning a three-year transition period. At the end of this transition period, national competent
authorities, Notified Bodies and manufacturers must implement and ensure compliance with the changes enacted in the Reg MDR.
Among other things, this new regulation imposes additional reporting requirements on manufacturers of high risk medical devices,
imposes an obligation on manufacturers to appoint a “qualified person” responsible for regulatory compliance, and provides for
stricter clinical evidence requirements. We have initiated activities to ensure compliance with the MDR by the end of the transition
period.

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 Ministry of Health, Labour and Welfare, regulates medical
devices under the Pharmaceutical Affairs Law. Oversight for medical devices is conducted with participation by the Pharmaceutical
and Medical Devices Agency, a quasi-government organization performing many of the review functions for MHLW. Penalties for
a company’s non-compliance with PAL can be severe, including revocation or suspension of a company’s business license and
criminal sanctions. MHLW and PMDA also assess the quality management systems of the manufacturer and product conformity to
the requirements of the PAL. We are subject to compliance inspections by these agencies.

Many countries in which we operate (outside of the EU, United States and Japan) have their own regulatory requirements for medical
devices. Most countries outside of the EU, United States and Japan require that product approvals be recertified on a regular basis,
generally every five years. The recertification process requires that we evaluate 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 our products in those countries. Because
export control and economic sanctions laws and regulations are complex and constantly changing, we cannot ensure that laws and
regulations may not be enacted, amended, enforced or interpreted in a manner materially impacting our ability to sell or distribute
our products.

Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and
complexity of obtaining regulatory approvals for our 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 harmonization of global regulations has
been pursued, requirements continue to differ significantly among countries. We expect that this global regulatory environment will
continue to evolve, which could impact our ability to obtain future approvals for our products, or could increase the cost and time
to obtain such approvals in the future. We cannot provide assurance that any new medical devices we develop will be approved in
a timely or cost-effective manner, or approved at all.

Promotional Restrictions

Both before and after we release a product for commercial distribution, we have ongoing responsibilities under various laws and
regulations governing medical devices. In addition to FDA regulatory requirements, the FDA and other U.S. regulatory bodies
(including the Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the
Department of Justice and various state Attorneys General) monitor the manner in which we promote and advertise our products.
Although physicians are permitted to use their medical judgement to employ medical devices for indications other than those cleared
or approved by the FDA, we are prohibited from promoting products for such “off-label” uses and can only market our products for
cleared or approved uses.

Governmental Trade Regulations

The sale and shipment of our products and services across international borders, as well as the purchase of components and products
from international sources, subjects us 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 public health, national security, regional stability, antiterrorism and other reasons.
Some governments may also impose economic sanctions against certain countries, persons or entities. In certain circumstances,
governmental authorities may require that we obtain an approval before we export or re-export goods, technology or services to
certain destinations, to certain end-users and for certain end-uses. Because we are subject to extensive regulations in the countries
in which we operate, we are subject to the risk that laws and regulations could change in a way that would expose us to additional
costs, penalties or liabilities. These laws and regulations govern, among other things, our import and export activities.

We also sell and provide goods, technology and services to agents, representatives and distributors who may export such items to
customers and end-users, and if these third parties violate applicable export control and economic sanctions laws and regulations
when engaging in transactions involving our products, we may be subject to varying degrees of liability depending on the extent of
our participation in the transaction. The activities of these third parties may cause disruption or delays in the distribution and sales
of our products, or result in restrictions being placed on our international distribution and sales of products, which may materially
impact our 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 our clinical research activities, as well as product offerings that involve transmission or use
of clinical data. We will continue our efforts to comply with those requirements and to adapt our business processes to those standards.

In the United States, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information
Technology and Clinical Health Act 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. We
potentially operate as a business associate to covered entities in a limited number of instances. In those cases, the patient data that
we receive may include protected health information, as defined under HIPAA. Enforcement actions can be costly and interrupt
regular operations of our business. While we have not been named in any such actions, if a substantial breach or loss of data from
our records were to occur, we could become a target of such litigation.

In the EU, Regulation 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free
movement of such data comes into force on 25 May 2018. The GDPR replaces Directive 95/46/EC. While many of the principles
of the GDPR reflect those of the Data Protection Directive, for example in relation to the requirements relating to the privacy, security
and transmission of individually identifiable health information, there are a number of changes. In particular: (1) pro-active compliance
measures are introduced, such as the requirement to carry out a Privacy Impact Assessment and to appoint a Data Protection Officer
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where health data is processed on a “large scale”. Although “large scale” is not defined, it is likely that clinical trials involving
substantial numbers of patients (or healthy volunteers if applicable) would mean that such requirements apply to LivaNova; and (2)
the administrative fines that can be levied are significantly increased, the maximum being the higher of €20 million, or 4%, of the
total worldwide annual turnover of the group in the previous financial year.

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 programs,
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 utilization and contain costs. Hospitals, which purchase implants, are also
seeking to reduce costs through a variety of mechanisms, including, for example, creating centralized 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 that of physicians through employment and other arrangements, such as gainsharing, whereby a hospital agrees
with physicians to share certain realized cost savings resulting from the physicians’ collective change in practice patterns, such as
standardization of devices where medically appropriate, and participation in affordable care organizations. Such alignment has created
increasing levels of price sensitivity among customers for our 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, we 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 authorized in advance as a condition of coverage.

In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act (collectively, 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, an annual excise tax of 2.3% on any entity that manufactures or imports medical devices
offered for sale in the United States. Due to subsequent legislative amendments the excise tax has been suspended for the period 1
January 2016 to 31 December 2019, and, absent further legislative action, will be reinstated starting 1 January 2020.

In addition, the Affordable Care Act provided incentives to programs that increase the federal government’s comparative effectiveness
research. The Affordable Care Act also implemented payment system reforms including a national pilot program 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.

International examples of cost containment initiatives and healthcare reforms in markets significant to our business include Japan,
where the government reviews reimbursement rate benchmarks every two years. Such reviews may significantly reduce
reimbursement for procedures using our medical devices or result in the denial of coverage for those procedures. As a result of our
manufacturing efficiencies, cost controls and other cost-savings initiatives, we believe we are 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

Our worldwide business is subject to the U.S. Foreign Corrupt Practices Act of 1977, the United Kingdom Bribery Act of 2010 and
other anti-corruption laws and regulations applicable in the jurisdictions where we operate. The FCPA can be used to prosecute
companies in the United States for arrangements with physicians, or other parties outside the United States, if the physician or party
is a government official of another country and the arrangement violates the law of that country. The UK Bribery Act prohibits both
domestic and international bribery, as well as bribery across both public and private sectors There are similar laws and regulations
applicable to LivaNova outside the United States, all of which are subject to evolving interpretations.

Health Care Fraud and Abuse Laws

We are also subject to U.S. federal and state government healthcare regulation and enforcement and government regulations in non-
U.S. countries in which it conducts its business.

The Anti-Kickback Statute is subject to evolving interpretations. In the past, the U.S. government has enforced the Anti-Kickback
Statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with
physicians. The majority of states in the U.S. also have anti-kickback laws which establish similar prohibitions, and in some cases
may apply to items or services reimbursed by any third-party payor, including commercial insurers.

Additionally, violations of the False Claims Act can result in significant monetary penalties and treble damages. The federal
government is using the 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 USD
settlements under the False Claims Act, in addition to individual criminal convictions under applicable criminal statutes. Given the
significant size of actual and potential settlements, we anticipate that the government will continue to devote substantial resources
to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

HIPAA includes 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 payors; 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 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 additional 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 programs, 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 our operations are found to be in violation of any of such laws or any other governmental
regulations that apply to it, we 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 programs and
imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Environmental Health and Safety Laws

We are also subject to various environmental health and safety laws and regulations worldwide. Like other medical device companies,
our 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 our knowledge at this time, we do not
expect that compliance with environmental protection laws will have a material impact on our consolidated results of operations,
financial position or cash flows.

Working Capital Practices

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

Employees

As of 31 December 2017, we employed more than 4,500 employees worldwide, inclusive of approximately 900 employed by our
CRM business franchise, which is due to be divested in 2018. We have large populations of employees in Italy, France, Germany
and the United States. Our employees are vital to our success, and we are engaged in an ongoing effort to identify, hire, manage and
maintain the talent necessary to meet our business objectives. We believe that we have been successful in attracting and retaining
qualified personnel in a highly competitive labour market due, in large part, to our competitive compensation and benefits and our
rewarding work environment, fostering employee professional training and development and providing employees with opportunities
to contribute to our continued growth and success.

As set out under "LivaNova's Strategy", our priorities are organized around four pillars, one of which is our Talent Pillar. Our
employees are our most valuable asset, and the Talent Pillar guides our policies for developing this asset. We recruit world class
talent with an Employment Value Proposition that focuses on our rich pipeline of business opportunities, the opportunities for our
employees to grow and contribute to our future success, and the opportunities to serve the interests of society and our patients and
caregivers who benefit from our innovative medical technology. For example, we provide an opportunity for our employees to serve
the social interests of our patients and their caregivers by raising money through an independent, employee-operated charity, LivaNova
Cares which defines a key aspect of our EVP.

We monitor the success of our recruitment efforts through tools we are developing as a part of the LivaNova Business System,
including a Talent Acquisition Funnel Management tool. We are implementing a new human resources information system to support,
among other things, use of a robust suite of talent analytics that will enable sharp focus on the continuous improvement of our talent
acquisition success. We retain our employees through globally competitive compensation and benefits programs that include
harmonizing policies through our Global Total Rewards Centre of Expertise; identifying top talent and high potential employees
through performance development that differentiates performance and contribution to our success; working closely with our trade
unions and works councils to ensure that we are inclusive of the interests of our workers in our policies and decisions; establishing
retention incentives as a part of our change management programs in connection with reorganization of our business program model,
acquisition of new businesses, and divestiture of our CRM business; monitoring employee engagement through our LivaNova4YOU
engagement survey conducted in October 2017 and developing action plans based on the survey results to improve employee
engagement; and implementing and regularly updating individual development plans for our employees and succession plans for
our leadership.

We develop our talent through education and training. For example, we are developing and will launch in 2018 a Management
Development Program to train our entry-level managers. In addition, we are also developing and are launching in 2018 a Leadership
Development Program in collaboration with the London Business School for our senior leaders.

We have established policies and procedures to ensure the safety of our employees. We regularly train our employees on safety
procedures and monitor for conditions and trends that undermine safety, and we utilize environmental management systems and
safety programs to protect the environment and our employees. Some of the regulations and governmental agencies with which we
comply include:

• The U.S. Environmental Protection Agency,
• The Occupational Health and Safety Assessment System,
• The European Union Registration, Evaluation, Authorization and Restriction of Chemicals,
•
•

Italian regulations under the Integrated Environmental Authorization acts, and
ISO 14001 certification.

We are committed to human rights and the adoption and pursuit of compliance with the United Nations Guiding Principles on Human
Rights. Given the relatively early stage of our integration, our reorganization and the recent changes in our management structure,
we have not conducted the due diligence required to confirm our compliance with Principles; however, we are confident that we are
compliant or substantially compliant, with an intent to be fully compliant, with the Principles.

As a company that has existed for only 26 months, the last 12 of which has involved the recruitment of a new Chief Executive Officer,
a new Chief Financial Officer and four new executives for our executive leadership team, our policies and procedures, including the
LivaNova Business System, are still evolving. We do not yet have comprehensive analytics on the outcomes of our policies; however,
we are keenly focused on the continued development and rapid deployment of our policies and procedures, and we believe that the
improvement of our improved financial performance in 2017 demonstrates that our efforts to date have been successful.

We rely on non-disclosure and non-competition agreements with employees and other parties to protect, in part, trade secrets and
other proprietary technology. There is a risk that these agreements will be breached, enabling our competitors to have access to our
trade secrets and proprietary knowledge. We manage this risk through education, vigilance and layered controls on access to our
trade secrets and proprietary information.

Our employees’ failure to comply with rules relating to healthcare fraud and abuse, false claims and privacy and security laws may
subject us to penalties and adversely impact our reputation and business operations. Our 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. The principal laws implicated include:

the Anti-Kickback Statute of the U.S. False Claims Act;

•
• U.S. federal civil and criminal false claims laws;
•
•
•
•
•

the U.S. Civil Monetary Penalties Law;
the U.S. Health Insurance Portability and Accountability Act;
the U.S. Sunshine Act;
the U.S. Foreign Corrupt Practices Act; and
the UK Bribery Act.

We manage these risks by developing what we believe is a strong culture of compliance through regular and continuous training by
our Compliance professionals, an anonymous system for reporting compliance violations, and adequate systems of internal controls,
and we seek continuously to improve our systems of internal controls and to remedy any weaknesses identified.

The global medical technology industry is highly competitive, and we may be unable to compete effectively or retain the executives,
engineers, scientists and other qualified employees we need to grow and remain competitive. We manage this risk through the talent
acquisition, retention, and development efforts described above.

As at 31 December 2017:

• LivaNova had 9 members of its Board of Directors, of whom 7 (78%) were male and 2 (22%) were female

• LivaNova had 91 senior managers (consisting of the executive leadership team and vice-presidents), of whom 75 (82%)

were male and 16 (18%) were female; and

• LivaNova had 4,574 employees, of whom 1,970 (43%) were male and 2,604 (57%) were female.

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. We
report on scopes 1, 2 and 3 greenhouse gas emissions annually in our directors' report. We also report on the conflict minerals in our
supply chain; this report is filed on Form SD with the SEC and is available both on www.sec.gov and our own website,
www.livanova.com. In addition, we provide statements on our website in respect of the UK Modern Slavery Act and other transparency
legislation which requires such publication.

Seasonality

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

Properties

Our principal executive office is located in the UK and is leased by us. Our business franchises, corresponding to our main therapeutic
areas: Neuromodulation and Cardiac Surgery have headquarters located in United States and Italy, respectively. The locations in
Italy and United States are owned by us. Manufacturing and research facilities are located in Brazil, Canada, Germany, Italy, Australia

and the United States. Total facilities are approximately 1.3 million square feet. Approximately 25% of the manufacturing facilities
are located within the United States and approximately 90% are owned by us and the balance is leased.

We also maintain 16 primary administrative offices in 12 countries. Most of these locations are leased. We are using substantially
all of our currently available productive space to develop, manufacture, and market our products. Our facilities are in good operating
condition, suitable for their respective uses, and adequate for current needs.

Anti-Bribery and Corruption

Our board of directors has adopted a Corporate Code of Business Conduct and Ethics for all executive officers and other employees,
agents and representatives. This code was designed to deter wrongdoing and to promote honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full fair accurate, timely
and understandable disclosure in reports and documents that we file with, or submit to, the US Securities and Exchange Commission
and in other public communications made by us; compliance with applicable governmental laws, rules and regulations; the prompt
internal reporting of violations of the code to an appropriate person or persons identified in the code; and accountability for adherence
to the code. A copy of the code is available on our website at www.livanova.com. Any change to, or waiver from, the code will be
disclosed as required by applicable securities laws.

In support of our objective to continuously improve our compliance culture and systems of control, in 2017 we undertook several
measures to improve internal controls in respect of anti-corruption and anti-bribery compliance.

We established the foundation for our global compliance programme by creating and adopting our Compliance Policies and Procedures
Playbook. The Playbook provides guidance and support as to our expectation for appropriate interactions with healthcare
professionals, government officials and other third-party business partners and thereby mitigates the risk of violations of applicable
anti-corruption and anti-bribery laws and regulations. The Playbook also aligns with our Code of Conduct and Business Ethics. The
Playbook currently includes the following policies and procedures:

•
•
•
•
•
•
•
•
•
•
•
•

Anti-Bribery and Anti-Corruption Master Policy
Speak Up Policy and Procedure
Compliance Transparency Reporting Policy
Donations and Grants Policy and Procedure
Consulting Agreements Policy and Procedure
Interactions with Patient Groups and Patients Policy and Procedure
Business Meals with HealthCare Professionals and Government Officials
Gifts, Promotional Items, and Educational Items Policy
LivaNova Events with Healthcare Professionals and Government Officials Policy and Procedure
Evaluation and Demonstration Products Policy and Procedure
Selection, Due Diligence and Engagement of Sales and Marketing Intermediaries Policy and Procedure
Support for Conferences and other Third Party Organized Education Policy and Procedure

These policies also align with the self-regulated industry trade associations’ codes of conduct, with which we voluntarily comply,
including:

•
•
•
•

the Advanced Medical Technology Association (AdvaMed) for USA and China,
MedTech Europe,
Asia Pacific Medical Technology Association (APACMed) and
MecoMed for the member countries in Middle East and North Africa.

These policies were reviewed and approved by our corporate compliance committee comprised of our chief executive officer, chief
compliance officer, chief administration officer, chief financial officer and general counsel.

Throughout 2017, we also improved the due diligence measures taken with regard to third-party agent and distributor business
partners and merger and acquisition projects.

Pursuant to our Selection, Due Diligence and Engagement of Sales and Marketing Intermediaries Policy and Procedure, we conduct
due diligence on all third-party distributors and agents prior to engaging them in a contractual relationship. The diligence process
can take up to three months and can include up to six phases:

•

Sales management submits a business justification for the new agent or distributor to the senior vice president of
the applicable region.
The potential agent or distributor completes a sales and marketing intermediary questionnaire, which focuses on
all key risk areas of the business.
The regional due diligence committee, which includes senior representatives from compliance, legal, finance,
quality, regulatory, and commercial business teams, reviews the business justification and the related questionnaire
for risks relevant to our business to ensure that our high standards of compliance will be observed by the potential
agent or distributor.
We engage a third-party vendor to conduct diligence on the potential agent or distributor covering key risk areas
and the business and compliance reputation of the potential agent or distributor. This phase includes extended due
diligence where necessary to obtain clarity on any findings described in the vendor’s Due Diligence Report.
The due diligence committee conducts a final review of the related due diligence report, with specific emphasis
on the legal and compliance results.
If the due diligence committee approves engagement of the agent or distributor, we execute an agency or distribution
agreement.
Our compliance professionals hold a seat on the due diligence team for all mergers and acquisitions to support
oversight and diligence on anti-bribery and anti-corruption measures taken by the acquisition target.

With these policies and procedures, we have established firm foundation for our compliance programme, which strives to deliver
consistency in approach, understanding, and execution of each employee’s responsibility in managing compliance risk. The overall
objective of our compliance programme, in addition to ensuring compliance with laws and regulations, is to support a strong and
unified compliance culture.

Our compliance programme will continue to evolve in response to the ever-changing regulatory anti-corruption and anti-bribery
environment in which we operate, our continued growth in key markets and the internal auditing and monitoring of this newly
established program.

III.

Business Review

Introduction

LivaNova is reporting in its consolidated financial statements in this UK Annual Report the results from operations for the years
ended 31 December 2017 and 31 December 2016. The basis of presentation, critical accounting estimates and significant accounting
policies are set forth in Note 2 to the consolidated IFRS financial statements contained in this UK Annual Report. Additionally,
LivaNova reported US GAAP financial statements for the years ended 31 December 2017 and 31 December 2016 in the Annual
Report on Form 10-K filed with the SEC on 28 February 2018.

On 20 November 2017, we entered into a LOI to sell our CRM to MicroPort Scientific Corporation for $190.0 million in cash, and,
on 8 March 2018, we entered into a definitive Purchase Agreement. Completion of the transaction is subject to receipt of relevant
regulatory approvals, including fulfilling the requirements of the Hong Kong Stock Exchange’s Major Transaction requirements,
and other customary closing conditions. We expect the transaction to close in the second quarter of 2018. We concluded that the sale
of CRM represents a strategic shift and therefore qualifies as a discontinued operation under IFRS. Accordingly, the operating results
of the CRM business franchise are reflected as discontinued operations for all periods presented in this Annual Report and the related
assets and liabilities are presented as held for sale as of 31 December 2017.

LivaNova reported operating income from continuing operations of $87.7 million on net sales of $1,012.3 million for the year ended
31 December 2017 and operating income from continuing operations of $19.3 million on net sales of $964.9 million for the year
ended 31 December 2016. In the year ended 31 December 2017, LivaNova incurred $17.1 million of restructuring expenses and
$15.5 million of merger and integration expenses. These items totalled $32.6 million and are included in exceptional items in the
consolidated statements of income (loss). The year ended 31 December 2016 included $57.8 million in exceptional items, including
restructuring expenses of $37.4 million and merger and integration expenses of $20.4 million.

Key Performance Indicators

The directors of LivaNova consider that the most important KPIs for 2017 are those set out below.

• 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. Net
sales include revenue earned from customers from sales of products and services net of customer discounts and estimated sales
returns.

• Adjusted income from continuing 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 income

Net income, 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 from continuing operations

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

Continuing Operations

LivaNova's continuing operations are comprised of two principal business franchises: Cardiac Surgery and Neuromodulation,
corresponding to our main therapeutic areas. Corporate activities include corporate business development and New Ventures.

The Cardiac Surgery business franchise is engaged in the development, production and sale of cardiac surgery products, including
oxygenators, heart-lung machines, perfusion tubing systems, cannulae and other accessories used for extracorporeal circulation,
systems for autologous blood transfusion and blood washing, as well as a complete line of surgical tissue and mechanical heart valve
replacements and repair products.

The Neuromodulation segment designs, develops and markets neuromodulation therapy for the treatment of drug-resistant epilepsy
and treatment resistant depression. Through this segment, we market our proprietary implantable VNS Therapy® Systems that deliver
vagus nerve stimulation therapy for the treatment of epilepsy and depression.

Corporate activities include shared services for finance, legal, human resources and information technology, corporate business
development and New Ventures. New Ventures is focused on new growth platforms and identification of other opportunities for
expansion.

In this Annual Report, LivaNova and its consolidated subsidiaries report results for the years ended 31 December 2017 and 31
December 2016 as follows:

(In thousands, except per share amounts)

Net sales

Cost of sales

Exceptional items – product remediation

Gross profit

Operating expenses:

Selling, general and administrative

Research and development

Operating profit before exceptional items

Exceptional items

Operating income from continuing operations

Finance income

Finance expense

Gain on acquisition of Caisson Interventional, LLC

Impairment of cost-method investments

Foreign exchange and other – gain

Share of losses from equity method investments

Income (loss) from continuing operations before tax

Income tax benefit (expense)

Income (loss) from continuing operations

Discontinued operations:

Income (loss) from discontinued operations, net of tax

Impairment of discontinued operations, net of tax

Loss from discontinued operations

Income (loss) attributable to owners of the parent

Net Sales

Year Ended 31
December 2017
1,012,277
$

Year Ended 31
December 2016
964,858
$

360,045

7,254

644,978

409,749

114,983

120,246

32,584

87,662

1,318
(7,797)
39,428
(8,565)
1,084
(16,719)
96,411

9,985

106,396

4,538
(36,868)
(32,330)
74,066

376,503

37,534

550,821

384,751

89,014

77,056

57,754

19,302

1,698

(10,616)

—

3,140

(18,679)

(5,155)

(78,126)

(83,281)

(111,325)

—

(111,325)

(194,606)

The table below illustrates net sales by operating segment for the years ended 31 December 2017 and 31 December 2016 (in thousands):

Revenues

Cardiac Surgery
Neuromodulation
Other

Total

Cardiac Surgery

Year Ended 31
December 2017
635,517
$
374,976
1,784
1,012,277

Year Ended 31
December 2016
611,715
$
351,406
1,737
964,858

Cardiac Surgery net sales increased $23.8 million, or 3.9%, for the year ended 31 December 2017, as compared to the year ended 31
December 2016 due primarily to growth of $22.9 million in cardiopulmonary product revenue. Cardiopulmonary product sales
increased year over year due to continued progress towards upgrading customers from our S3 heart-lung machines to our current S5
device, strong sales of our Inspire oxygenator and favourable foreign currency exchange rate fluctuations. Heart valve sales increased
by $0.9 million for the year ended 31 December 2017 as compared to the year ended 31 December 2016, due to favourable foreign
currency exchange rate fluctuations, which more than offset continuing global declines in traditional tissue and mechanical heart
valves.

Neuromodulation

Neuromodulation net sales increased $23.6 million, or 6.7%, for the year ended 31 December 2017 as compared to the prior year
ended 31 December 2016 primarily due to strong demand for the AspireSR VNS Therapy System and the launch of the SenTiva
VNS Therapy System in October 2017.

The table below illustrates net sales by market geography for the years ended 31 December 2017 and 31 December 2016 (in thousands):

United States
Europe(1)
Rest of world
Total

Year Ended 31 December 2017

Cardiac Surgery

177,805
175,705
282,007
635,517

Neuromodulation
316,917
$
34,765
23,294
374,976

Other

Total

2
—
1,782
1,784

494,724
210,470
307,083
1,012,277

Year Ended 31 December 2016

Cardiac Surgery

182,105

172,772

256,838
611,715

Neuromodulation
298,453
$

31,942

21,011
351,406

Other

Total

— $

132

1,605
1,737

480,558

204,846

279,454
964,858

____________
(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 cost of sales and major expenses as a percentage of net sales:

Cost of sales
Product remediation
Gross profit
Selling, general and administrative
Research and development
Exceptional items

Cost of Sales

Year Ended 31
December 2017

Year Ended 31
December 2016

35.6%
0.7%
63.7%
40.5%
11.4%
3.2%

39.0%
3.9%
57.1%
39.9%
9.2%
6.0%

Cost of sales as a percentage of net sales was 35.6% for the year ended 31 December 2017; a decrease of 3.4% compared to the year
ended 31 December 2016. This decrease was primarily due to the decrease in amortization of inventory written-up in the Mergers
related to the Cardiac Surgery Segment of $25.2 million, which accounted for 2.6% of net sales for the year ended 31 December
2016.

Product Remediation

During the years ended 31 December 2017 and 31 December 2016, we recognized expenses of $7.3 million and $37.5 million for a
product remediation plan related to our 3T Heater Cooler device, representing 0.7% and 3.9% of net sales, respectively. Refer to
Note 19 — Provisions in our consolidated financial statements included in this Annual Report for additional information.

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 Plans initiated after the Mergers.

SG&A expenses as a percentage of net sales for the year ended 31 December 2017 increased 0.6% to 40.5% as compared to the prior
year ended 31 December 2016. This increase was largely attributable to litigation related to our 3T devices, costs associated with
acquisitions and other legal matters.

R&D Expenses

R&D expenses consist of product design and development efforts, clinical study programs and regulatory activities, which are
essential to the Company’s strategic portfolio initiatives, including TMVR, Treatment Resistant Depression and Heart Failure.

R&D expenses as a percentage of net sales for the year ended 31 December 2017 increased by 2.2% to 11.4% as compared to the
prior year ended 31 December 2016. The increase was primarily due to the acquisition of Caisson in May 2017, inclusive of $3.7
million in post-combination compensation expense recognized concurrent with the acquisition of Caisson, and $7.2 million in
compensation expense associated with the retention of the employees of Caisson. The additional increase as compared to the prior
year was due to increased investment in clinical and registries pertaining to TMVR and Heart Failure.

Exceptional Items

Items that are material either by size or incidence are classified as exceptional items. Further details on these items are included
below.

Merger and Integration Expenses

Merger and integration expenses consisted primarily of consulting costs associated with computer systems integration efforts,
organization structure integration, synergy and tax planning, as well as the integration of internal controls for the two legacy
organizations. In addition, integration expenses include retention bonuses, branding and renaming efforts and lease cancellation
penalties in Milan and Brussels.

Merger and integration expenses as a percentage of net sales decreased to 1.5% for the year ended 31 December 2017 as compared
to 2.1% for the year ended 31 December 2016 due to the continued decline in integration activities associated with the Mergers.

We reported these expenses as a part of Exceptional Items separately in the LivaNova’s consolidated statements of income (loss).

Restructuring Expenses

Our 2015 and 2016 Reorganization Plans were initiated October 2015 and March 2016, respectively, in conjunction with the
completion of the Mergers. The Plans included the Costa Rica manufacturing operation exit plan, initiated in December 2016 and
completed during 2017, and the Suzhou, China exit plan, initiated in March 2017. The Plans leverage economies of scale, eliminate
duplicate corporate expenses and streamline distributions, logistics and office functions in order to reduce overall costs. Restructuring
expenses are detailed in “Note 8. Restructuring Plans” in the consolidated financial statements in this Annual Report.

Restructuring expenses as a percentage of net sales decreased to 1.7% from 3.9% for the year ended 31 December 2017 as compared
to the year ended 31 December 2016 as our restructuring activities declined and continue to decline.

Interest Expense

We incurred interest expense of $7.8 million for the year ended 31 December 2017, as compared to $10.6 million for the year ended
31 December 2016. The decrease was primarily due a reduction in income tax related interest expense for our inter-company sale
of intellectual property for the year ended 31 December 2017, as compared to the prior year as a result of a reduction in the income
tax liability.

Gain on Caisson Acquisition

On 2 May 2017, we acquired the remaining 51% equity interests in Caisson, which we previously accounted for under the equity
method. On the acquisition date, we remeasured our notes receivable due from Caisson and our existing investment in Caisson at
fair value and recognized a pre-tax non-cash gain of $1.3 million and $38.1 million, respectively.

Impairment of Cost-Method Investments

During December 2017, we impaired our cost-method investments in Respicardia and Rainbow Medical, in the amounts of $5.5
million and $3.0 million, respectively. Refer to Note 11 - Investments in Associates, Joint Ventures and Subsidiaries in our consolidated
financial statements included in this Annual Report for additional information.

Foreign Exchange and Other

Due to the global nature of our continuing operations, we are exposed to foreign currency exchange rate fluctuations. Foreign exchange
and other gains were $1.1 million for the year ended 31 December 2017, consisting of net FX losses of $2.1 million associated with
intercompany debt and third-party financial assets and liabilities denominated in foreign currencies, net of the impact of foreign
currency derivative contracts established to hedge against exchange rate movements, offset by a $3.2 million gain on a sale of the
cost-method investment, Istituto Europeo di Oncologia S.R.L.

Foreign Exchange and Other consisted of net FX gains of $3.1 million for the year ended 31 December 2016, primarily the result
of our inter-company financing arrangements, and third-party financial assets and liabilities denominated in foreign currencies, net
of the impact of foreign currency derivative contracts established to hedge against exchange rate movements.

Income Taxes

LivaNova PLC is domiciled and resident in the UK. Our subsidiaries conduct operations and earn income in numerous countries
and are subject to the laws of taxing jurisdictions within those countries, and the income tax rates imposed in the tax jurisdictions
in which our subsidiaries conduct operations vary. As a result of the changes in the overall level of our income, the deployment of
various tax strategies and the changes in tax laws, our consolidated effective income tax rate may vary from one reporting period to
another.

During the years ended 31 December 2017 and 31 December 2016, we recorded income tax benefit (expense) from continuing
operations of $10.0 million and $(78.1) million, respectively, with effective income tax rates of (10.4)% and (1,515.5)%, respectively.

Our (10.4)% effective income tax rate for the year ended 31 December 2017 included the impact of various discrete tax items,
including the non-cash net benefit of $16.0 million recorded as a result of the U.S. Tax Cuts and Jobs Act and the acquisition of
Caisson, inclusive of the $38.1 million non-taxable gain recognized to re-measure our existing equity investments in Caisson at fair
value on the acquisition date.

Our (1,515.5)% effective income tax rate for the year ended 31 December 2016 included the impact of various discrete tax items,
primarily related to the gain recognized with the consolidation of our intellectual property into an entity organized under the laws
of England and Wales, operational income earned in jurisdictions with a higher tax rate than England and Wales, and taxation on
distributions.

U.S. Tax Reform

On 22 December 2017, the U.S. enacted the Tax Cuts and Jobs Act. The Act, significantly changes U.S. corporate income tax laws
by, among other things, reducing the U.S. corporate income tax rate to 21% commencing in 2018. In addition, the Act created a one-
time mandatory tax, a toll charge, on previously deferred foreign earnings of non-U.S. subsidiaries controlled by a U.S. corporation,
or in our case, a non-U.S. subsidiary controlled by one of our U.S. subsidiaries. We recorded no toll charge for the year ended 31
December 2017 as we had no previously deferred foreign earnings of U.S. controlled foreign subsidiaries as of the measurement
dates. As a result of the Act, we recorded a non-cash net benefit of $16.0 million during the fourth quarter of 2017, which is included
in “Income tax (benefit) expense” in the consolidated statements of (loss) income. This amount primarily consists of two components:
(i) $12.8 million relating to de-recognition of foreign tax credits, and (ii) a net benefit of $28.8 million resulting from the
remeasurement of our deferred tax assets and liabilities in the U.S. based on a change in the corporate income tax rate.

The Act also establishes various other new U.S. corporate income tax laws that will affect 2018, including, but not limited to, (1)
elimination of the corporate alternative minimum tax (2) the creation of the base erosion anti-abuse tax, a new minimum tax; (3) a
new provision designed to tax global intangible low-taxed income; (4) a new limitation on deductible interest expense; (5) the repeal
of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; and (7) limitations
on net operating losses generated after 31 December 2017, to 80 percent of taxable income. The extent to which these and other
provisions of the Act, or future legislation or regulations, could impact our consolidated effective income tax rate in future periods
depends on many factors including, but not limited to, the amount of profit generated by our subsidiaries operating in the U.S., the
impact of the Company’s current or contemplated tax planning strategies, the impact of new or amended tax laws or regulations by
countries outside the U.S., and other factors beyond our control.

Further regulations and notices and state conformity could be issued as a result of U.S. tax reform covering various issues that may
affect our tax position including, but not limited to, an increase in the corporate state tax rate and elimination of the interest deduction.
The content of any future legislation, the timing for regulations, notices, and state conformity, and the reporting periods that would
be impacted cannot be determined at this time. Although we believe the net benefit of $16.0 million is a reasonable estimate of the
impact of the income tax effects of the Act on us as of 31 December 2017, the estimate is provisional. Once we finalize certain tax
positions for our 2017 U.S. consolidated tax return, we will be able to conclude whether any further adjustments to our tax positions
are required.

Brexit

On 23 June 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit.” On
29 March 2017, the UK government gave formal notice of its intention to leave the EU, formally commencing the negotiations
regarding the terms of withdrawal between the UK and the EU. The withdrawal must occur within two years, unless the deadline is
extended. The negotiation process will determine the future terms of the UK’s relationship with the EU. The notification does not
change the application of existing tax laws, and does not establish a clear framework for what the ultimate outcome of the negotiations
and legislative process will be.

Various tax relief and exemptions that apply to transactions between EU Member States under existing tax laws may cease to apply
to transactions between the UK and EU Member States when the UK ultimately withdraws from the EU. It is unclear at this stage
if or when any new tax treaties between the UK and the EU or individual EU Member States will replace those relief and exemptions.
It is also unclear at this stage what financial, trade and legal implications will ensue from Brexit and how Brexit may affect us, our
customers, suppliers, vendors, or our industry.

Several of our wholly owned subsidiaries that are domiciled either in the UK, various EU Member States, or in the United States,
and our parent company, LivaNova PLC, are party to intercompany transactions and agreements under which we receive various
tax relief and exemptions in accordance with applicable international tax laws, treaties and regulations. If certain treaties applicable
to our transactions and agreements are not renegotiated or replaced with new treaties containing terms, conditions and attributes
similar to those of the existing treaties, Brexit may have a material adverse impact on our future financial results and results of
operations. During the two-year negotiation period, we will monitor and assess the potential impact of this event and explore possible
tax-planning strategies that may mitigate or eliminate any such potential adverse impact. We will not account for the impact of Brexit
in our income tax provisions until changes in tax laws or treaties between the UK and the EU or individual EU Member States with
the UK and/or the U.S. are enacted or the withdrawal becomes effective.

European Union State Aid Challenge

On 26 October 2017, the European Commission announced that an investigation will be opened with respect to the UK’s controlled
foreign company rules. The CFC rules under investigation provide certain tax exceptions to entities controlled by UK parent companies
that are subject to lower tax rates if the activities being undertaken by the CFC relate to financing. The EC is investigating whether
the exemption is a breach of EU State Aid rules. The investigation is in its early stages and is unlikely to be completed within the
next twelve months with an appeal process likely to follow. It is unclear as to whether the UK will be part of the EU once a decision
has been finalised due to Brexit and what impact, if any, Brexit will have on the outcome of the investigation or the enforceability
of a decision. Due to the many uncertainties related to this matter, including the preliminary state of the investigation, the pending
Brexit negotiations and political environment and the unknown outcome of the investigation and resulting appeals, no uncertain tax
position reserve has been recognized related to this matter and we are unable to reasonably estimate the potential liability.

Equity Method Investments

Losses from equity method investments were $16.7 million during the year ended 31 December 2017 were due to investee losses of
Highlife and Caisson and the impairment of our investment in, and notes receivable from Highlife of $13.0 million; consisting of
an investment impairment of $4.7 million and a notes receivable impairment of $8.3 million. In May 2017, we acquired the remaining
equity interests in Caisson and we began consolidating the results of Caisson as of the acquisition date.

We recognized equity method losses of $18.7 million for the year ended 31 December 2016 due to investee losses of Caisson, Highlife,
Microport and Respicardia and the impairment of our investment in Respicardia of $9.2 million. In November 2016, we terminated
our distributor agreement with Respicardia. The distributor agreement had been a key component in the determination of whether
our influence over Respicardia was significant, and as a result, we determined that we no longer had significant influence over
Respicardia and transferred the investment to our cost method investments.

Discontinued Operations

Additionally, we tested the long-lived assets of CRM for impairment and recognized an impairment to tangible and intangible assets
of $36.9 million, net of a $8.0 million tax benefit. The assets and liabilities of CRM are classified as assets (or liabilities) of discontinued
operations on the consolidated balance sheets at 31 December 2017 in this Annual Report.

The table below illustrates the results of discontinued operations (in thousands):

Discontinued Operations:

Income (loss from discontinued operations, net of tax

Impairment of discontinued operations, net of tax

Net loss from discontinued operations

Year Ended 31
December 2017

Year Ended 31
December 2016

4,538

(111,325)

(36,868)

—

(32,330) $

(111,325)

CRM develops, manufactures and markets products for the diagnosis, treatment and management of heart rhythm disorders and heart
failures. CRM products include high-voltage defibrillators, cardiac resynchronisation therapy devices and low-voltage pacemakers.
CRM has approximately 900 employees, with operations in Clamart, France; Saluggia, Italy; and Santo Domingo, Dominican
Republic.

Liquidity and Capital Resources

Based on our current business plan, we believe that our existing cash and cash equivalents and future cash generated from operations
will be sufficient to fund our expected operating needs, working capital requirements, R&D opportunities, capital expenditures and
debt service requirements over the next 12 months. We regularly review our capital needs and consider various investing and financing
alternatives to support our 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) in cash and cash equivalents

Operating Activities

Year Ended 31
December 2017

Year Ended 31
December 2016

91,339
(52,855)
11,294
4,048

53,826

90,152
(44,516)
(118,040)
(420)

(72,824)

Cash provided by operating activities for the year ended 31 December 2017 was $91.3 million, primarily due to net income of $74.1
million along with adjustments to net income of $165.5 million for non-cash items, which included depreciation and amortization
of $78.5 million and a non-cash loss of $44.9 million related to the impairment of tangible and intangible assets of our discontinued
operations, offset by utilization of cash for operating assets and liabilities of $101.7 million.

Cash provided by operating activities for the year ended 31 December 2016 was $90.2 million, primarily due to a net loss of $194.6
million offset by $334.3 million of non-cash items. Non-cash items were principally composed of $88.8 million in depreciation and
amortization, a $72.3 million impairment of CRM and $27.1 million in stock-based compensation.

Investing Activities

Cash used in investing activities was $52.9 million during the year ended 31 December 2017. We invested $34.1 million in property,
plant and equipment. We also utilized cash of $27.9 million related to our investments in privately held medical start-up companies,
which included the purchase of the 51% of the remaining interest in Caisson utilizing cash of $14.2 million, and investments in, and
loans to, our equity and cost method investees of $13.7 million.

Cash used in investing activities was $44.5 million during the year ended 31 December 2016, primarily due to $38.4 million invested
in property, plant and equipment and investments in, and loans to, our equity and cost method investees of $14.3 million. These
amounts were partially offset by the transfer of $7.0 million to cash and cash equivalents from short-term investments.

Financing Activities

Cash used in financing activities during the year ended 31 December 2017 was $11.3 million, which includes $32.4 million in
borrowings under our revolving credit facilities and repayment of long-term debt of $22.8 million. We also borrowed $2.0 million
in additional long-term debt.

Cash used in financing activities during the year ended 31 December 2016 was $118.0 million, which includes $54.5 million to re-
purchase shares, a $33.7 million reduction in revolving credit facilities, repayment of advances on customer receivables of $23.8
million and repayment of long-term debt of $21.1 million. We also borrowed $7.2 million in additional long-term debt.

Debt and Capital

Our capital structure consists of debt and equity. As of 31 December 2017 total debt of $146.0 million was 8.0% of total equity of
$1.8 billion.

Debt

During the year ended 31 December 2017, we increased our outstanding revolving credit facilities by $32.4 million, repaid $22.8
million of long-term debt obligations and borrowed $2.0 million in additional long-term debt.

During the year ended 31 December 2016, we reduced our outstanding revolving credit facilities by $33.7 million, repaid $21.1
million of long-term debt obligations and borrowed $7.2 million in additional long-term debt.

Factoring

During the year ended 31 December 2016, LivaNova reduced the obligation for advances on customer receivables by $24.5 million,
thereby eliminating this form of financing.

Contractual Obligations

We have various contractual commitments that we expect to fund from existing cash, future operating cash flows and borrowings
under our revolving credit facilities. The actual timing of the clinical commitment payments may vary based on the completion of
milestones which are beyond our control. The following table summarises our significant contractual obligations as of 31 December
2017 and the periods in which such obligations are due (in thousands):

Less Than
One Year

One to
Three Years

Three to
Five Years

Thereafter

Total
Contractual
Obligations

Principle payments on short-term debt

58,190

— $

Principle payments on long-term debt

Interest payments on long-term debt

Operating leases

Caisson deferred consideration
Inventory supply contract obligations

Derivative instruments

Other commitments
Total contractual obligations(1)

25,844

788

13,584

14,300
2,136

1,294

588

46,793

848

21,198

—
22,678

719

12,689

161

12,917

—
—

—

2,476

24,632

—
—

—

502

58,190

87,802

1,816

72,331

14,300
24,814

2,045

1,106

116,724

92,252

25,799

27,629

262,404

We have other commitments that we are contractually obligated to fulfil with cash under certain circumstances. These commitments
include letters of credit to guarantee our performance as it relates to our contract bidding, VAT tax, tax appeals, and other obligations
in various jurisdictions. Obligations under these guarantees are not normally called, as we typically comply with underlying
performance requirements. As of 31 December 2017, no liability has been recorded in the financial statements associated with these
obligations.

The following table summaries our guarantees as of 31 December 2017 (in thousands):

Guarantees on governmental bids(1)
Guarantees - commercial(2)
Guarantees to tax authorities(3)
Guarantees to third-parties(4)
Total guarantees

Less Than
One Year

One to
Three Years

Three to
Five Years

Thereafter

Total
Contractual
Obligations

17,574

8,193

5,431

962
242

—

3,165
1,291

—

29
10,833

—

863

481
—

153

32,061

4,637
12,366

153

18,778

12,649

16,293

1,497

49,217

____________
(1) Government bid guarantees include such items as unconditional bank guarantees, irrevocable letters of credit and bid bonds.
(2) Commercial guarantees include our lease and tenancy guarantees.
(3) The guarantees to the governmental tax authorities consist primarily of the guarantee issued to the Italian VAT Authority.
(4) Guarantees to third-parties consist primarily of irrevocable letters of credit and tenancy guarantees.

Quantitative and Qualitative Disclosures about Market Risk

LivaNova is exposed to certain market risks as part of its on-going 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 maintains
a foreign currency exchange rate risk management strategy that utilizes derivatives to reduce LivaNova’s exposure to unanticipated
fluctuations in forecast revenue and costs and fair values of debt, inter-company debt and accounts receivables caused by changes
in foreign currency exchange rates.

LivaNova mitigates its credit risk relating to counter-parties of LivaNova’s derivatives through a variety of techniques, including
transacting with multiple, high-quality financial institutions, thereby limiting LivaNova’s exposure to individual counter-parties and
by entering into International Swaps and Derivatives Association, Inc. Master Agreements, which include provisions for a legally
enforceable master netting agreement, with almost all of LivaNova’s derivative counter-parties. The terms of the ISDA agreements
may also include credit support requirements, cross default provisions, termination events, or set-off provisions. Legally enforceable
master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting
the closeout and netting of transactions with the same counter-party upon the occurrence of certain events.

Based on our exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the USD had uniformly
strengthened by 10% against the GBP and the Japanese Yen, in the year ended 31 December 2017, the effect on our unrealised
income, for our derivatives outstanding at 31 December 2017, would have been approximately $6.0 million; if the USD had uniformly
weakened by 10% against same currencies, the effect on our unrealized expenses, for our derivatives outstanding at 31 December
2017, would have been approximately $7.3 million. We did not engage in derivative contracts prior to the Mergers.

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.

If LivaNova was to incur a hypothetical 10 per cent adverse change in foreign currency exchange rates, net unrealized losses associated
with LivaNova’s foreign currency denominated assets and liabilities as of 31 December 2017, net of LivaNova’s hedging would not
be material to LivaNova’s consolidated balance sheet or consolidated statements of income (loss).

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 percent,
the effects on LivaNova’s consolidated income statement would not be material.

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

Our business and assets are subject to varying degrees of risk and uncertainty. An investor should carefully consider the risks described
below, as well as other information contained in this Annual Report and in our other filings with the SEC. Based on the information
currently known to us, we believe the following information identifies the most significant risk factors affecting us, but the below
risks and uncertainties are not the only ones related to our businesses and are not necessarily listed in the order of their significance.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect
our business.

Global healthcare policy changes, including U.S. healthcare reform legislation, may have a material adverse effect on us.

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 our
29

financial position and results of operations. These proposals have resulted in efforts to enact U.S. healthcare system reforms that
may lead to pricing restrictions, limits on the amounts of reimbursement available for our products and could limit the acceptance
and availability of our products.

In the United States, the federal government enacted legislation, including the Affordable Care Act of 2010, to overhaul the nation’s
healthcare system. Among other things, the Affordable Care Act imposes an annual excise tax of 2.3% on any entity that manufactures
or imports medical devices offered for sale in the United States. Due to subsequent legislative amendments, the excise tax has been
suspended for the period 1 January 2016 to 31 December 2019, and absent further legislative action, will be reinstated starting 1
January 2020. It also implements payment system reforms including a national pilot program 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.

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 programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable
readmissions and hospital-acquired conditions, and pilot programs 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. We cannot predict what healthcare programs and regulations
will be implemented at the global level or the U.S. federal or state level, or the effect of any future legislation or regulation; however,
any changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect our business
and results of operations

In 2015, the Italian Parliament introduced new rules for entities that supply goods and services to the Italian National Healthcare
System. This healthcare law impacts the business and financial reporting of medical technology sector companies 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 still considerable uncertainty about how
the law will operate and what the exact timeline will be for finalization. Our current assessment of the Italian Medical Device Payback
legislation 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 Medical Device Payback as a deduction
from revenue.

The success and continuing development of our products depend on maintaining strong relationships with physicians and
healthcare professionals.

If we fail to maintain our working relationships with physicians, our products may not be developed and marketed in line with the
needs and expectations of the professionals who use and support our products. Physicians assist us as researchers, marketing
consultants, product consultants, inventors and public speakers, and we rely on these professionals to provide us with considerable
knowledge and experience. If we are unable to maintain these strong relationships, the development and marketing of our products
could suffer, which could have a material adverse effect on our consolidated financial condition and results of operations.

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

Our ability to commercialize our products is dependent, in large part, on whether third-party payors, including private healthcare
insurers, managed care plans, governmental programs and others agree to cover the costs and services associated with our products
and related procedures in the United States and internationally.

Our products are purchased principally by healthcare providers that typically bill various third-party payors, such as governmental
programs (e.g., Medicare and Medicaid in the United States) and private insurance 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 is critical to
the success of medical technology companies. The availability of adequate reimbursement affects the decision as to which procedures
are performed, which products are purchased and what prices customers are willing to pay. After we develop a promising new product,
we may find limited demand for the product if reimbursement approval is not obtained from private and governmental third-party
payors. In addition, periodic changes to reimbursement methodologies could have an adverse impact on our business.

Outside the United States, 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, as a consequence, result in extended payment periods. If adequate levels of
reimbursement from third party payors outside of the United States are not obtained, international sales of our products may decline.

Patient confidentiality and federal and state privacy and security laws and regulations in the United States and around the world
may adversely impact our selling model.

U.S. 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 civil and criminal fines and penalties for covered entities or business
associates that fail to comply. If we fail to comply with the applicable regulations, we 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 U.S. state has enacted one or more laws to safeguard privacy, and these laws vary significantly
from state to state and change frequently. Because the operation of our business involves the collection and use of substantial amounts
of “protected health information,” we endeavour to conduct our business as a “covered entity” under HIPAA, and consistent with
state privacy laws, we obtain HIPAA-compliant patient authorisations where required to support our use and disclosure of patient
information. We also sometimes act as a “business associate” for a covered entity. Regardless, the Office for Civil Rights of the
Department of Health and Human Services or another government enforcement agency may determine that our business model or
operations are not in compliance with HIPAA or other related state laws, which could subject us to penalties, severely limit our ability
to market and sell our products under our existing business model and harm our business growth and consolidated financial position.

The EU’s GDPR, in force from 25 May 2018, protects the privacy and security of personal health information relating to individuals
within the EU. Like HIPAA, GDPR addresses the use and disclosure of individual healthcare information and the rights of patients
to understand and control how such information is used and disclosed. It will also subject us to a rigorous pro-active compliance
regime. If we fail to comply with GDPR, we could be sued for compensation by individuals who have suffered material or non-
material damage and could suffer administrative “effective, proportionate and dissuasive” administrative fines up to the higher of
€20 million, or 4%, of the total worldwide annual turnover of the group in the previous financial year. We may also be subject to
criminal sanctions.

Cyber-attacks or other disruptions to our information technology systems could lead to reduced revenue, increased costs, liability
claims, fines or harm to our competitive position.

We are increasingly dependent on sophisticated information technology systems to operate our business, and certain of our products
include integrated software and information technology. We rely on information technology systems to collect and process customer
orders, manage product manufacturing and shipping, and support regulatory compliance, and we routinely process, store, and transmit
large amounts of data, including sensitive personal information, protected health information, and business information. Many of
our products incorporate software and information technology that allow patients and physicians to be connected and collect data
regarding a patient and the therapy he or she is receiving, or that otherwise allow the products or services to operate as intended. We
could experience attempted or actual interference with the integrity of, and interruptions in, our technology systems, as well as data
breaches. We could also experience attempted or actual interference with the integrity of our products and data. These incidents could
materially harm our business and our reputation.

As is the case with other large enterprises, the size and complexity of our products and information technology systems can make
them vulnerable to cyber-attacks, breakdown, interruptions, destruction, loss or compromise of data, obsolescence or incompatibility
among systems, or other significant disruptions. Unauthorized persons routinely attempt to access our products or systems in order
to disrupt, disable or degrade such products or services, or to obtain proprietary or confidential information. Such unauthorized access
or interference with our products or services, if successful, could create issues with product functionality, which could pose a risk
to patient safety, and a risk of product recall or field activity.

We have programs, processes and technologies in place to attempt to prevent, detect, contain, respond to and mitigate security-related
threats and potential incidents. We undertake ongoing improvements to our systems, connected devices and information-sharing
products in order to minimize vulnerabilities, in accordance with industry and regulatory standards; however, because the techniques
used to obtain unauthorized access change frequently and can be difficult to detect, and because the integration of two global cross-
border companies takes time and entails risks pertaining to the integration of disparate information technology systems. anticipating,

identifying or preventing these intrusions or mitigating them if and when they occur is challenging and makes us more vulnerable
to cyber-attacks than other companies not similarly situated.

We also rely on third-party vendors to supply and/or support certain aspects of our information technology systems. Third-party
systems may contain defects in design or manufacture or other problems that could result in system disruption or could unexpectedly
compromise the information security of our own systems, and we are dependent on these third parties to provide reliable systems
and software and to deploy appropriate security programs to protect their systems.

In addition, we continue to grow in part through new business acquisitions. As a result of acquisitions, we may face risks due to
implementation, modification, or remediation of controls, procedures, and policies relating to data privacy and cybersecurity at the
acquired company. We continue to consolidate and over time integrate the number of systems we operate, and to upgrade and expand
our information system capabilities for stable and secure business operations.

If we are unable to maintain secure, reliable information technology systems and prevent disruptions, outages, or data breaches, we
may suffer regulatory consequences in addition to business consequences. Our worldwide operations mean that we are subject to
laws and regulations, including data protection and cyber-security laws and regulations, in many jurisdictions. For example, if we
are in breach of the GDPR’s requirement that we ensure a level of security, both in terms of technology and other organizational
measures, appropriate to the risk that the confidentiality, integrity or availability of personally identifiable data is compromised, we
could be subject to fines of up to €10 million or 2% of our annual worldwide group turnover, whichever is higher. Despite programs
to comply with such laws and regulations, there is no guarantee that we will avoid enforcement actions by governmental bodies.
Enforcement actions may be costly and interrupt regular operations of our business. In addition, there is a trend of civil lawsuits and
class actions relating to breaches of consumer data other cyber-attacks. While we have not been named in any such lawsuits, if a
substantial breach or loss of data occurs, we could become a target of civil litigation or government enforcement actions. Our
information technology systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing
systems and to develop new systems to keep pace with continuing changes in information processing technology, evolving legal and
regulatory standards, the increasing need to protect patient and customer information, and the information technology needs associated
with our changing products and services. There can be no assurance that our process of consolidating, protecting, upgrading and
expanding our systems and capabilities, continuing to build security into the design of our products, and developing new systems to
keep pace with continuing changes in information processing technology will be successful or that additional systems issues will
not arise in the future. Any significant breakdown, intrusion, interruption, corruption, or destruction of these systems, as well as any
data breaches, could have a material adverse effect on our business. If our information technology systems, products or sensitive
data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer a loss of product
functionality, and we could lose existing customers, have difficulty attracting new customers, have difficulty preventing, detecting,
and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians, and
other health care professionals, suffer regulatory sanctions or penalties under federal laws, state laws, or the laws of other jurisdictions,
experience increases in operating expenses or an impairment in our ability to conduct our operations, incur expenses or lose revenues
as a result of a data privacy breach, product failure, information technology outages or disruptions, or suffer other adverse consequences
including lawsuits or other legal action and damage to our reputation.

We are subject to extensive and dynamic medical device regulation, which may impede or hinder the approval or sale of our
products and in some cases, may ultimately result in an inability to obtain approval of certain products or may result in the recall
or seizure of previously approved products.

Our medical device products and operations are subject to extensive regulation by the 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; clinical studies; product safety; pre-market
clearance and approval; marketing, sales and distribution; reimbursement; and post-market surveillance. The pathway to obtaining
clearance from the FDA and comparable agencies in foreign countries for new products is described above in “Item 1. Business -
Government Regulation and Other Considerations.” Such processes can take a significant amount of time; require the expenditure
of substantial resources; involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance; require
changes to products; and result in limitations on the indicated uses of products.

In addition, exported devices are subject to the regulatory requirements of each country to which the device is exported. Some
countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently, regulatory
approval may first be obtained in a foreign country prior to application in the U.S. due to differing regulatory requirements; however,
other countries, such as China, for example, require approval in the country of origin or legal manufacturer as a condition for approval
in that country. Most countries outside of the U.S. require that product approvals be renewed or recertified on a regular basis, generally
every four to five years. The renewal or recertification process requires that we evaluate any device changes and any new regulations
32

or standards relevant to the device and conduct appropriate testing to document continued compliance. Where renewal or recertification
applications are required, they may need to be renewed and/or approved in order to continue selling our products in those countries.
There can be no assurance that we will receive the required approvals for new products or modifications to existing products on a
timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post-market study requirements.

Our global regulatory environment is becoming increasingly stringent, and unpredictable, which could increase the time, cost and
complexity of obtaining regulatory approvals for our products, as well as the clinical and regulatory costs of supporting those
approvals. Several countries that did not have regulatory requirements for medical devices have established such requirements in
recent years and other countries have expanded on existing regulations. Certain regulators are exhibiting less flexibility and are
requiring local preclinical and clinical data in addition to global data. While harmonization of global regulations has been pursued,
requirements continue to differ significantly among countries. We expect this global regulatory environment will continue to evolve,
which could impact our ability to obtain future approvals for our products, or could increase the cost and time to obtain such approvals
in the future.

The FDA and other worldwide regulatory agencies actively monitor compliance with local laws and regulations through review and
inspection of design and manufacturing practices, recordkeeping, reporting of adverse events, labelling and promotional practices.
The FDA can ban certain medical devices; detain or seize adulterated or misbranded medical devices; order repair, replacement or
refund of these devices; and require notification of health professionals and others with regard to medical devices that present
unreasonable risks of substantial harm to the public health. The FDA can take action against a company that promotes "off-label"
uses. Any adverse regulatory action, depending on its magnitude, may restrict a company from effectively marketing and selling its
products, may limit a company's ability to obtain future premarket clearances or approvals, and could result in a substantial
modification to the company's business practices and operations. International sales of U.S. manufactured medical devices that are
not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA
export requirements.

Regulations regarding the development, manufacture and sale of medical devices are evolving and subject to future change. We
cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could
have a material adverse effect on our business, financial condition and results of operations. Later discovery of previously unknown
problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances or approvals, seizures
or recalls of products, physician advisories or other field actions, operating restrictions and/or criminal prosecution. We may also
initiate field actions as a result of a failure to strictly comply with our internal quality policies. The failure to receive product approval
clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products, physician advisories or other field
actions, or the withdrawal of product approval by the FDA or by comparable agencies in foreign countries could have a material
adverse effect on our business, financial condition or results of operations.

Modifications to our marketed products may require new clearances or approvals, and may require us to cease marketing or
recall the modified products until required clearances or approvals are obtained.

An element of our strategy is to continue to upgrade our products, add new features and expand clearance or approval of our current
products to new indications. In the United States, any modification to a PMA-approved device generally requires an additional
approval by the FDA. Similarly, any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or
that would constitute a major change in its intended use, technology, materials, packaging and certain manufacturing processes, may
require a new 510(k) clearance or, possibly, PMA approval. The FDA requires every manufacturer to make the determination regarding
the need for a new 510(k) clearance or PMA approval in the first instance; but the FDA may (and often does) review the manufacturer’s
decision, and, where the FDA does not agree, may retroactively require the manufacturer to submit a 510(k) or PMA, and may require
a recall of the affected device until clearance or approval is obtained. We have made modifications to our products in the past and
may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. No
assurance can be given that the FDA will agree with any of our decisions not to seek 510(k) clearance or PMA approval.

If the FDA requires us to cease marketing and to recall a modified device until we obtains a new 510(k) clearance or PMA approval,
our business, financial condition, operating results and future growth prospects could be materially adversely affected. Any recall
or FDA requirement that we seek additional clearances or approvals could result in significant delays, fines, increased costs associated
with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.

Furthermore, the FDA’s ongoing review of the 510(k) clearance process may make it more difficult for us to make modifications to
our previously cleared products, either by imposing stricter requirements as to when a new 510(k) notification for a modification to
a previously cleared product must be submitted, or by applying more onerous review criteria to such submissions.

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

The 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 with material deficiency. We have initiated voluntary product recalls in the past. A future
recall announcement in the United States, EEA or elsewhere could harm our reputation with customers and negatively affect our
revenue.

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

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

In the EEA, our 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 EEA Member States. 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 EEA 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 harmonized implementation of Field Safety Corrective Action, across the EEA 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.

If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical
device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA MDR regulations, we are required to report to the FDA any incident in which our products have or may have caused
or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely
cause or contribute to death or serious injury. If we fail to report these events to the FDA within the required timeframes, or at all,
the FDA could take enforcement action against us. Any adverse event involving our products could result in future voluntary corrective
actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action.
Any corrective action, whether voluntary or involuntary, or litigation, will require the dedication of our time and capital, distract
management from operating the business, and may harm our reputation and financial results.

Product liability claims could adversely impact our consolidated financial condition and our earnings and impair our reputation.

Our business exposes us to potential product liability risks that are inherent in the design, manufacture and marketing of medical
devices. In addition, many of the medical devices we manufacture and sell 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 we manufacture or sell 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 our products. We have elected to self-insure with respect to a portion of our product liability risks and hold global
insurance policies in amounts we believe are adequate to cover future losses. Product liability claims or product recalls in the future,
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regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract
and retain customers for our products, and losses from product liability claims in the future could exceed our product liability insurance
coverage and lead to a material adverse effect on our financial condition.

We currently are involved in litigation that could adversely affect our business and financial results, divert management’s attention
from our business, and subject us to significant liabilities.

As described under “Note 24. Commitments and Contingencies - Litigation” in our consolidated financial statements included in
this Annual Report, we are involved in various litigation, which may adversely affect our financial condition and may require us to
devote significant resources to our defense of these claims.

Such litigation involves a class action complaint in the U.S. District Court for the Middle District of Pennsylvania, federal multi-
district litigation in the U.S. District Court for the Middle District of Pennsylvania and cases in various state courts and jurisdictions
outside the U.S. relating to our 3T heater-cooler product. As of 27 February 2017, we are involved in approximately 110 claims
worldwide, with the majority of the claims in various federal or state courts throughout the United States. The complaints generally
seek damages and other relief based on theories of strict liability, negligence, breach of express and implied warranties, failure to
warn, design and manufacturing defect, fraudulent and negligent misrepresentation/concealment, unjust enrichment, and violations
of various state consumer protection statutes.

Although we are defending these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other
litigation matter, and there can be no assurance as to the ultimate outcome of any litigation or proceeding. Litigation may have a
material adverse effect on us because of potential adverse outcomes, defense costs, the diversion of our management's resources,
availability of insurance coverage and other factors.

Our insurance policies may not be adequate to cover future losses.

Our insurance policies (including general and products liability) provide insurance in such amounts and against such risks we have
reasonably determined to be prudent in accordance with industry practices or as is required by law or regulation. Although, based
on historical loss trends, we believe that our insurance coverage will be adequate to cover future losses, we 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 our consolidated earnings, financial condition, and/or cash flows.

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

We and certain of our third-party manufacturers are required to comply with the FDA’s current Good Manufacturing Practice (“GMP”)
requirements, as embodied in the QSR, which covers the design, testing, production, control, quality assurance, labelling, packaging,
sterilization, storage and shipping of medical device products in the United States. We and certain of our suppliers also are subject
to the regulations of foreign jurisdictions regarding the manufacturing process for products marketed outside of the United States.
The FDA enforces the QSR through periodic announced (routine) and unannounced (for cause or directed) inspections of
manufacturing facilities, during which the FDA may issue Forms FDA-483 listing inspectional observations which, if not addressed
to the FDA’s satisfaction, can result in further enforcement action. Similar inspections are carried out in the EEA by Notified Bodies
and EEA Competent Authorities. Our failure, or the failure of one of our suppliers, to comply with applicable statutes and regulations
administered by the 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 our products; or

•

civil penalties or criminal prosecution.

Any of these actions could impair our ability to produce our products in a cost-effective and timely manner in order to meet customers’
demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue
and ability to generate profits. Furthermore, our 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 or in the required
quantities, if at all.

Quality problems with our processes, goods, and services could harm our reputation for producing high-quality products and
erode our competitive advantage, sales, and market share.

Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Our quality
certifications are critical to the marketing success of our goods and services. If we fail to meet these standards, our reputation could
be damaged, we could lose customers, and our revenue and results of operations could decline. Aside from specific customer standards,
our success depends generally on our ability to manufacture to exact tolerances precision-engineered components, subassemblies,
and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards,
our reputation as a manufacturer of high-quality components will be harmed, our competitive advantage could be damaged, and we
could lose customers and market share.

We are subject to substantial post-market government regulation and any adverse regulatory action may materially adversely
affect our financial condition and business operations.

Our medical devices remain subject to regulation by numerous government agencies following clearance or approval, including the
global device regulatory bodies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing
manufacturing, labelling, marketing, distribution, reporting, importing and exporting of our medical devices. In recent years, the
FDA in particular has significantly increased its oversight of companies subject to its regulations, including medical device companies,
by hiring new investigators and stepping up inspections of manufacturing facilities. The FDA has recently also significantly increased
the number of warning letters issued to companies.

Device manufacturers are permitted to promote products solely for the uses and indications set forth in the approved product labelling.
A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses, including actions
alleging that federal healthcare program reimbursement of products promoted for “off-label” uses are false and fraudulent claims to
the government. The failure to comply with “off-label” promotion restrictions can result in significant administrative obligations
and costs, and potential penalties from, and/or agreements with, the federal government.

We use many distributors, agents and independent sales representatives in certain territories and thus rely on their compliance with
applicable laws and regulations, such as the FCPA, the U.S. Anti-Kickback Statute, the U.S. False Claims Act, the U.S. Sunshine
Act, similar laws in countries located outside the United States and other applicable federal, state or applicable international laws.
If a global regulatory body were to conclude that we are not in compliance with applicable laws or regulations, or that any of our
medical devices are ineffective or pose an unreasonable health risk, it could ban the medical devices, detain or seize adulterated or
misbranded medical devices, order a recall, repair, replacement, or refund of the devices, refuse to grant pending pre-market approval
applications or require certificates of foreign governments for exports, and/or require us to notify healthcare professionals and others
that the devices present unreasonable risks of substantial harm to public health. The global device regulatory bodies may also impose
operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct resulting in violations of applicable law
pertaining to medical devices, and assess civil or criminal penalties against, or recommend prosecution of, our officers, employees,
or our company itself. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and
selling our products.

We are also subject to various environmental laws and regulations worldwide. Our operations involve the use of substances regulated
under environmental laws, primarily those used in manufacturing and sterilization processes. We cannot provide assurance that a
potential non-compliance with environmental protection laws and regulations will not have a material impact on our consolidated
earnings, financial condition, and/or cash flows.

Finally, any governmental law or regulation imposed in the future may have a material adverse effect on us. From time to time,
legislation is drafted and introduced that could significantly change the statutory provisions governing the clearance or approval,
manufacture and marketing of medical devices. In addition, global regulatory bodies’ regulations and guidance can be revised or
reinterpreted in ways that may significantly affect our business and products. It is impossible to predict whether legislative changes
will be enacted or regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.

Our failure to comply with rules relating to healthcare fraud and abuse, false claims and privacy and security laws may subject
us to penalties and adversely impact our reputation and business operations.

Our 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 United States, for example, federal government
healthcare laws apply when a customer submits a claim for an item or service that is reimbursable under a U.S. federal government-
funded healthcare program, such as Medicare or Medicaid. The principal U.S. federal laws implicated include:

•

the 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
programs, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the
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 Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the 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 payors that
are false or fraudulent. Actions under the False Claims Act can be brought by the Attorney General or as qui-tam actions
by private individuals acting in the name of the government. Such private 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 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 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 program or making false
statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to
have actual knowledge of the statute or specific intent to violate it to have committed a violation;

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

security and privacy of protected health information.

•

the U.S. Sunshine Act, which requires manufacturers of drugs, devices, biologic 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, podiatrist and chiropractors) and teaching hospitals, and requires applicable manufacturers
and group purchasing organizations 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. 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;

the FCPA, which prohibits corporations and individuals from paying, offering to pay or authorizing 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 payor, 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 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 our business
activities, including our relationships with surgeons and other healthcare providers, some of whom recommend, purchase and/or
prescribe our devices, group purchasing organizations and our independent sales agents and distributors, could be subject to challenge
under one or more of such laws. We are also exposed to the risk that our employees, independent contractors, principal investigators,
consultants, vendors, independent sales agents and distributors may engage in fraudulent or other illegal activity. While we have
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 unauthorized activity that violates FDA regulations, including those laws
that require the reporting of true, complete and accurate information to the 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 our employees
and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us 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 us outside the United States, all of which are subject to evolving interpretations.
Global enforcement of anti-corruption laws, including but not limited to the UK Bribery Act, the Brazil Clean Companies Act, and
continued enforcement in the Europe, Middle East and Asia Pacific 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. Our operations create the risk of unauthorized
payments or offers of payments by one of our employees, consultants, sales agents, or distributors because these parties are not
always subject to our control. It is our policy to implement safeguards to discourage these practices; however, our existing safeguards
and any future improvements may prove to be less than effective, and our employees, consultants, sales agents, or distributors may
engage in conduct for which we might be held responsible. Any alleged or actual violations of these regulations may subject us to
government scrutiny, severe criminal or civil sanctions and other liabilities, including exclusion from government contracting or
government healthcare programs, and could negatively affect our business, reputation, operating results, and financial condition. In
addition, a governmental authority may seek to hold us liable for successor liability violations committed by any companies in which
we invest or that we acquire.

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

While we believe we have a strong culture of compliance and adequate systems of control, and we seek continuously to improve
our systems of internal controls and to remedy any weaknesses identified, there can be no assurance that the policies and procedures
will be followed at all times or will effectively detect and prevent violations of the applicable laws by one or more of our employees,
consultants, agents or partners and, as a result, we may be subject to penalties and material adverse consequences on our business,
financial condition or results of operations.

Laws and/or collective bargaining agreements relating to employees may impact our flexibility to redefine and/or strategically
reposition our activities.

In many of the countries where we operate, employees are covered by various laws and/or collective bargaining agreements that
endow them, through their local or national representatives, with the right to be consulted in relation to specific issues, including the
downsizing or closing of departments and staff reductions. The laws and/or collective bargaining agreements that are applicable to
these agreements could have an impact on our flexibility, as they apply to programs to redefine and/or strategically reposition our
activities. Our ability to implement staff downsizing programs or even temporary interruptions of employment relationships is

predicated on the approval of government entities and the consent of labour unions. Union-organized work stoppages by employees
could have a negative impact on our business.

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

We operate in an industry characterised by extensive patent litigation. Physician customers have historically moved quickly to new
products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role
in product development and differentiation; however, intellectual property litigation is inherently complex and unpredictable and
appellate courts can overturn lower court decisions. Furthermore, as our business increasingly relies on technology systems and
infrastructure, our intellectual property, other proprietary technology and other sensitive data are potentially vulnerable to loss,
damage or misappropriation.

Competing parties in our industry frequently file multiple lawsuits to leverage patent portfolios across product lines, technologies
and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same
proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently
drive settlement not only of individual cases, but also of a series of pending and potentially related and unrelated cases. In addition,
although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion
of the proceedings. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify.

Third parties have asserted, and may in the future assert, that our current and former product offerings infringe patents owned or
licensed by them. We have similarly asserted, and may in the future assert, that products sold by our competitors infringe patents
owned or licensed by us. Adverse outcomes in one or more of the proceedings against us could limit our ability to sell certain products
in certain jurisdictions, or reduce our operating margin on the sale of these products and could have a material adverse effect on our
financial condition, results of operations or liquidity.

We also rely on a combination of patents, trade secrets, and non-disclosure and non-competition agreements to protect our proprietary
intellectual property, and we will continue to do so. While we intend to defend against any threats to our intellectual property, these
patents, trade secrets, or other agreements may not adequately protect our intellectual property. Further, pending patent applications
may not result in patents being issued to us. Patents issued to or licensed by us 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 our technology
and may limit our competitive advantage. Third parties could obtain patents that may require us to negotiate licenses to conduct our
business, and the required licenses may not be available on reasonable terms or at all. We also rely on non-disclosure and non-
competition agreements with certain employees, consultants, and other parties to protect, in part, trade secrets and other proprietary
rights. We cannot be certain that these agreements will not be breached, that we will have 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 our trade secrets or proprietary knowledge.

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

Furthermore, our intellectual property, other proprietary technology and other sensitive data are potentially vulnerable to loss, damage
or misappropriation from system malfunction, computer viruses, unauthorized access to our data or misappropriation or misuse
thereof by those with permitted access, and other events. While we have invested to protect our intellectual property and other data,
and continue to work diligently in this area, there can be no assurance that our precautionary measures will prevent breakdowns,
breaches, cyber-attacks or other events. Such events could have a material adverse effect on our reputation, business, financial
condition or results of operations.

Our research and development efforts rely on investments and investment collaborations, and we cannot guarantee that any
previous or future investments or investment collaborations will be successful.

Our strategy to provide a broad range of therapies to restore patients to fuller, healthier lives requires a wide variety of technologies,
products, and capabilities. The rapid pace of technological development in the medical industry and the specialized expertise required
in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions. As a

result, we also rely on investments and investment collaborations to provide us access to new technologies both in areas served by
our existing or legacy businesses as well as in new areas.

We expect to make future investments where we believe that we can stimulate the development of, or acquire new technologies and
products to further our strategic objectives and strengthen our existing businesses. Investments and investment collaborations in and
with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments or
investment collaborations will be successful or will not materially adversely affect our consolidated earnings, financial condition
and/or cash flows.

Our products are the subject of clinical studies conducted by us, our competitors, or other third parties, the results of which may
be unfavourable, or perceived as unfavourable, and could have a material adverse effect on our business, financial condition,
and results of operations.

As a part of the regulatory process of obtaining marketing clearance or approval for new products and modifications to or new
indications for existing products, we conduct and participate in numerous clinical studies with a variety of study designs, patient
populations, and trial endpoints. Unfavourable or inconsistent clinical data from existing or future clinical studies conducted by us,
by our competitors, or by third parties, or the market’s or global regulatory bodies’ perception of this clinical data, may adversely
impact our ability to obtain product clearances or approvals, our position in, and share of, the markets in which we participate, and
our business, financial condition, and results of operations. Success in pre-clinical testing and early clinical studies does not always
ensure that later clinical studies will be successful, and we cannot be sure that later studies will replicate the results of prior studies.
Clinical studies must also be conducted in compliance with Good Clinical Practice requirements administered by the FDA and other
foreign regulatory authorities, and global regulatory bodies may undertake enforcement action against us based on a failure to adhere
to these requirements. Any delay or termination of our clinical studies will delay the filing of product submissions and, ultimately,
our ability to commercialize new products or product modifications. It is also possible that patients enrolled in clinical studies will
experience adverse side effects that are not currently part of the product’s profile, which could inhibit further marketing and
development of such products.

Consolidation in the healthcare industry could have an adverse effect on our 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 we produce. Increasing pricing pressures as a result of industry consolidation could have an
adverse effect on our revenue, results of operations, financial position and cash flows.

The global medical device industry is highly competitive and LivaNova may be unable to compete effectively.

In the product lines in which we compete, we face a mixture of competitors ranging from large manufacturers with multiple business
lines to small manufacturers that offer a limited selection of specialized products. Development by other companies of new or
improved products, processes, or technologies, as discussed above, may make our products or proposed products less competitive.
In addition, we face competition from providers of alternative medical therapies such as pharmaceutical companies. We face increasing
competition for our indication specific patents for certain products. Competitive factors include:

•
•
•
•
•
•
•
•

product quality, reliability and performance;
product technology;
breadth of product lines and product services;
ability to identify new market trends;
customer support;
price;
capacity to recruit engineers, scientists and other qualified employees; and
reimbursement approval from governmental payors and private healthcare insurance providers.

Shifts in industry market share can occur in connection with product issues, physician advisories, safety alerts, and publications
about our products reflecting the importance of product quality, product efficacy, and quality systems in the medical device industry.
In the current environment of managed care, consolidation among healthcare providers, increased competition, and declining
reimbursement rates, we are increasingly required to compete on the basis of price. In order to continue to compete effectively, we
must continue to create, invest in, or acquire advanced technology, incorporate this technology into our proprietary products, obtain
regulatory approvals in a timely manner, and manufacture and successfully market our products. Additionally, we may experience
40

design, manufacturing, marketing or other difficulties that could delay or prevent our development, introduction or marketing of
new products or new versions of our existing products. As a result of such difficulties and delays, our development expenses may
increase and, as a consequence, our results of operations could suffer.

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

We maintain manufacturing operations in six countries located throughout the world and purchase many of the components and raw
materials used in manufacturing these products from numerous suppliers in various countries. Any problem affecting a supplier
(whether due to external or internal causes) could have a negative impact on us.

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 we work closely with our
suppliers to ensure supply continuity, we cannot guarantee that our efforts will always be successful. Moreover, due to strict standards
and regulations governing the manufacture and marketing of our products, we may not be able to quickly locate new supply sources
in response to a supply reduction or interruption, with negative effects on our ability to manufacture our products effectively and in
a timely fashion.

We manufacture our products at production facilities in Italy, Germany, the United States, Canada, Brazil and Australia, 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 we have implemented what we believe 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 our performance cannot be excluded.

Natural disasters, war, acts of terrorism and other events could adversely affect our future revenue and operating income.

Natural disasters (including pandemics), war, terrorism, labour disruptions and international conflicts, and actions taken by
governmental entities or by our customers or suppliers in response to such events, could cause significant economic disruption and
political and social instability in the areas in which we operate. These events could result in decreased demand for our products,
adversely affect our manufacturing and distribution capabilities, or increase the costs for or cause interruptions in the supply of
materials from our suppliers.

We are subject to the risks of international economic and political conditions.

Our international operations are subject to risks that are inherent in conducting business overseas and under foreign laws, regulations
and customs. These risks include possible nationalization, exit from the European Union, expropriation, importation limitations,
violations of U.S. or local laws, including, but not limited to, the U.S. FCPA, pricing restrictions, and other restrictive governmental
actions. Following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU for example,
the UK government is expected to initiate a process to withdraw from the EU and begin negotiating the terms of the UK’s future
relationship with the EU. A withdrawal could, among other outcomes, result in the deterioration of economic conditions, volatility
in currency exchange rates, and increased regulatory complexities. Any significant changes in the competitive, political, legal,
regulatory, reimbursement or economic environment where we conduct international operations may have a material impact on our
business and our consolidated financial condition or results of operations.

Deterioration in the global economy could have a significant impact on our business. Customers and vendors may experience financial
difficulties or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products
or to pay for our products on a timely basis, if at all. As with our customers and vendors, these economic conditions make it more
difficult for us to accurately forecast and plan future business activities. In addition, a significant amount of our trade receivables
are either with third party intermediaries marketing, selling and distributing our products or with national healthcare systems in many
countries, and repayment of these receivables is dependent upon the financial stability of the economies of those countries.

In light of these global economic fluctuations, we continue to monitor the creditworthiness of all of our customers worldwide. Failure
to receive payment of all or a significant portion of receivables could adversely affect results of operations and cash flows. Deterioration
in the creditworthiness of the Eurozone countries, the withdrawal of one or more member countries from the EU or the failure of
the Euro as a common European currency could adversely affect our revenue, financial condition or results of operations.

We intend to continue to pursue growth opportunities in sales worldwide, including in emerging markets outside Europe and the
United States, which could expose us to greater risks associated with sales and operations in these regions. Emerging economies
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have less mature product regulatory systems and can have more volatile financial markets. Our profitability and operations are, and
will continue to be, subject to a number of risks and potential costs, including:

local product preferences and product requirements;
longer-term receivables than are typical in the EU or the United States;
fluctuations in foreign currency exchange rates;
less intellectual property protection in some countries outside the EU or the United States;
trade protection measures and import and export licensing requirements;

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• workforce instability; and
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political and economic instability.

We are exposed to foreign currency exchange risk.

We transact business in numerous countries around the world and expect that a significant portion of our business will continue to
take place in international markets. Consolidated financial statements are prepared in our functional currency, while the financial
statements of each of our subsidiaries are prepared in the functional currency of that entity.

Accordingly, fluctuations in the exchange rate of the functional currencies of our foreign currency entities against our functional
currency will impact our results of operations and financial condition. Although we may elect to hedge certain foreign currency
exposure, we cannot be certain that the hedging activity will eliminate our currency risk.

In many of the international markets in which we do business, including certain parts of Europe, Asia and Latin America, we
sell our products through distributors who may misrepresent our products.

Selling our products through distributors, particularly in public tenders, may expose us to a higher degree of risk. Our agents and
distributors are independent contractor third parties retained by us to sell our products in different markets. If they misrepresent our
products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed,
and we could be subject to fines, sanctions or both.

We have risks related to access to financial resources.

The credit lines provided by our 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 authorizes the lender banks to demand the immediate
repayment of the facilities, making it difficult to obtain alternative resources.

Changes in our 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 we operate. We expect
to generate the resources needed to repay maturing indebtedness and fund scheduled investments from the cash flow produced by
our operations, our available liquidity, the renewal or re-financing of bank borrowings and possibly, access to the capital markets.
Even under current market conditions, we expect that our 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 our debt instruments will require us to comply with certain affirmative covenants and specified financial covenants
and ratios.

Certain restrictions in our debt instruments could affect our ability to operate and may limit our ability to react to market conditions
or to take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect our ability
to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance capital needs.
Additionally, our ability to comply with these covenants and restrictions may be affected by events beyond our control, such as
prevailing economic, financial, regulatory and industry conditions. If any of these restrictions or covenants is breached, we could
be in default under one or more of our 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 our
lenders’ security interests and/or force us into bankruptcy or liquidation, which could have a material adverse effect on our financial
condition and results of operations.

As an English public limited company, certain capital structure decisions will require shareholder approval which may limit our
flexibility to manage its capital structure.

We are a public limited company incorporated under the laws of England and Wales. English law provides that a board of directors
may only allot shares (or rights to subscribe for or convertible into shares) with the prior authorization of shareholders, such
authorization being up to the aggregate nominal amount of shares and for a maximum period of five years, each as specified in the
articles of association or relevant shareholder resolution. This authorization needs to be renewed by our shareholders prior to or upon
its expiration (i.e., at least every five years). Our articles of association authorize the allotment of additional shares for a period of
five years from the date of the adoption of our articles up to an aggregate nominal amount of 9,764,463 Ordinary Shares, representing
20% of the number of shares in our capital as of 19 October 2015, the date of the adoption of the our articles, which authorization
will need to be renewed upon expiration but may be sought more frequently for additional five-year terms (or any shorter period)
and/or may be sought to allot a larger number of shares than specified in the existing authorization.

English law also generally provides shareholders with pre-emptive rights when new shares are issued for cash; however, it is possible
for our articles, or shareholders in general meeting, to exclude or dis-apply pre-emptive rights. Such an exclusion or dis-application
of pre-emptive rights may be for a maximum period of up to five years from the date of adoption of our articles, if the exclusion is
contained in our articles, or from the date of the shareholder resolution, if the exclusion is by shareholder resolution; in either case,
this exclusion would need to be renewed by our shareholders prior to or upon its expiration (i.e., at least every five years). Our articles
exclude pre-emptive rights in relation to an allotment of shares for cash pursuant to the authority referred to above for a period of
five years following the date of the adoption of the our articles, which exclusion will need to be renewed upon expiration (i.e., at
least every five years) to remain effective, but may be sought more frequently for additional five-year terms (or any shorter period)
and/or may be sought to apply a larger number of shares than specified in the existing, dis-application authority.

English law also generally prohibits a public company from re-purchasing its own shares without the prior approval of shareholders
by ordinary resolution, being a resolution passed by a simple majority of votes cast, and other formalities. Such approval may be
valid for a maximum period of up to five years.

Our inability to integrate recently acquired businesses or to successfully complete future acquisitions could limit our future growth
or otherwise be disruptive to our ongoing business.

From time to time, we acquire and expect to pursue acquisitions in support of our strategic goals. In connection with any such
acquisitions, we face 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 we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. Our success
in implementing this strategy will depend to some degree on the ability of management to identify, complete and successfully integrate
commercially viable acquisitions. Acquisition transactions may disrupt our 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 our ability to properly assess
and value the potential business opportunity or to successfully integrate any businesses we may acquire into our existing business.
The integration of the operations of acquired businesses requires significant efforts, including the coordination of information
technologies, human resources, research and development, sales and marketing, operations, manufacturing, legal, compliance 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 manage and coordinate the growth of the combined company successfully could also have an
adverse impact on our business. In addition, we cannot be certain that our investments, alliances and acquired businesses will become
profitable or remain so. If our investments, alliances or acquisitions are not successful, we may record unexpected impairment
charges.

We have and will continue to incur certain transaction and merger-related costs in connection with the Merger between Sorin
and Cyberonics.

We have incurred and expect 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. During the years ended 31
December 2017 and 31 December 2016, we incurred $15.5 million and $20.4 million in merger and integration expenses, respectively.
In the transitional period, 25 April 2015 to 31 December 2015, we incurred $55.8 million in merger and integration expenses. We
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expect additional expenses in the future for the integration of the two merged businesses. Integration expenses related to systems
integration, organization structure integration, finance, synergy and tax planning, transitioning of accounting methodologies, certain
re-branding efforts, and restructuring efforts related to our intent to leverage economies of scale, eliminate overlapping corporate
expenses and streamline distributions, logistics and office functions in order to reduce overall costs. While we assumed a certain
level of expenses in connection with the terms of the Transaction Agreement, there are many factors beyond our control, including
unanticipated costs that could affect the total amount or the timing of these expenses. Although we expect 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.

We may incur goodwill impairments for goodwill recorded at the Mergers.

During the year ended 31 December 2016, we recorded a pre-tax, non-cash loss on impairment of our Cardiac Rhythm Management
reporting unit goodwill of $18.3 million, which was included within discontinued operations in the consolidated statements of income
(loss). As of 31 December 2017, the carrying value of our goodwill totalled $784.2 million, which represented 31.3% of our total
assets.

We test goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment
exists. The goodwill impairment test requires us to identify reporting units, perform a qualitative assessment of the likelihood that
a reporting unit’s carrying value exceeds its estimated fair value, and in certain circumstances estimate each reporting unit's fair value
as of the testing date. Our calculation of the fair value of our reporting units is based on estimates of future discounted cash flows,
which reflect management's judgments and assumptions regarding the appropriate risk-adjusted discount rate, as well as future
operating performance and our business outlook, including expected sales, operating costs, capital requirements, growth rates and
terminal values for each of our reporting units. If the aggregate fair value of our reporting units exceeds our market capitalization,
we evaluate the reasonableness of the implied control premium.

The estimates used to determine the fair value of our reporting units reflect management's best estimates of inputs and assumptions
that a market participant would use. Future declines in any one of our reporting units’ operating performance or our anticipated
business outlook may reduce the estimated fair value of a reporting unit and result in an impairment of goodwill. Factors that could
have a negative impact on the fair value of our reporting units include, but are not limited to:

• The ability of our sales force to effectively market and promote our products, and the extent to which those products gain

market acceptance;
the existence and timing of any approvals, changes, or non-coverage determinations for reimbursement by third-party payors;
the rate and size of expenditures incurred on our clinical, manufacturing, sales, marketing and product development efforts;
our ability to obtain and retain personnel;
the availability of key components, materials and contract services, which depends on our ability to forecast sales, among
other things;
investigations of our business and business-related activities by regulatory or other governmental authorities;
variations in timing and quantity of product orders;
temporary manufacturing interruptions or disruptions;
the timing and success of new product and new market introductions, as well as delays in obtaining domestic or foreign
regulatory approvals for such introductions;
increased competition, patent expirations or new technologies or treatments;
product recalls or safety alerts;
litigation, including product liability, patent, employment, securities class action, stockholder derivative, general commercial
and other lawsuits;
the financial health of our customers, and their ability to purchase our products in the current economic environment;
other unusual or non-operating expenses, such as expenses related to mergers or acquisitions, may cause operating result
variations;
increases in the market-participant risk-adjusted Weighted Average Cost of Capital; and
declines in anticipated growth rates.

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Adverse changes in one or more of these factors could result in a goodwill impairment in future periods.

As our shares have been delisted from the London Stock Exchange, the City Code on Takeovers and Mergers no longer applies
to us and our shareholders and we will therefore not have the benefit of the protections that the Code affords.

On 23 February 2017, we announced that we had made applications (i) to the UK Financial Conduct Authority for cancellation of
the standard listing of our Ordinary Shares of £1 per share on the Official List of the UK Listing Authority and (ii) to the LSE to
cancel the admission to trading of the Shares on the main market of the LSE. In connection with the Cancellation, we also decided
to terminate our UK domestic depositary interest facility. Trading of our shares on the LSE ceased from and after the close of business
on 4 April 2017.

The Panel on Takeovers and Mergers determined that the City Code on Takeovers and Mergers no longer applies to us indicating
among other things that we and our shareholders would not have the benefit of the protections the Code affords, including, but not
limited to, the requirement that a person who acquires an interest in Shares carrying 30% or more of the voting rights in us must
make a cash offer to all other shareholders at the highest price paid in the 12 months before the offer was announced.

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

We are subject to income taxes as well as non-income based taxes, in the United States, the UK, the EU and various other jurisdictions.
We are also subject to ongoing tax audits in various foreign jurisdictions. Tax authorities may disagree with certain positions we
have taken and assess additional taxes. We believe that our accruals reflect the probable outcome of known contingencies. However,
there can be no assurance that we will accurately predict the outcomes of ongoing audits, and the actual outcomes of these audits
could have a material impact on our consolidated statements of income (loss) or financial condition. Changes in tax laws or tax
rulings could materially impact our effective tax rate or results of operations.

On 22 December 2017, the Tax Cuts and Jobs Act was signed into U.S. law which provided numerous amendments to the Internal
Revenue Code of 1986. The Tax Cuts and Jobs Act may impact our U.S. income tax expense (benefit) from continuing operations
in future periods.

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

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

For us to be treated as a foreign corporation for U.S. 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% (by both vote and value) of our shares by reason of holding shares of Cyberonics common stock, or (ii) we must have
substantial business activities in the UK after the Mergers (taking into account the activities of our 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% of the shares by vote and value. We do not expect to have substantial business
activities in the UK within the meaning of these rules.

We believe that because the former stockholders of Cyberonics own (within the meaning of Section 7874) less than 80% (by both
vote and value) of our shares by reason of holding shares of Cyberonics common stock, the test set forth above to treat us 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 our 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.
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 us as a foreign corporation were met. In addition, there have been legislative
proposals to expand the scope of U.S. corporate tax residence, including by potentially causing us to be treated as a U.S. corporation
if our management and control and affiliates were determined to be located primarily in the United States. 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 U.S. Treasury Regulations promulgated thereunder that could result in us being treated as a U.S. corporation.

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

If the Section 7874 Percentage is calculated to be at least 60% but less than 80%, Section 7874 imposes a minimum level of tax on
any “inversion gain” of a U.S. corporation (and any U.S. person related to the U.S. corporation) after the acquisition. Inversion gain
is defined as (i) the income or gain recognized 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 U.S. corporation to a foreign related person. The effect of this provision is to deny the use of certain U.S. tax attributes
(including net operating losses and certain tax credits) to offset U.S. tax liability, if any, attributable to such inversion gain. In addition,
the IRS and the U.S. 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% but less than 80%, 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” U.S. source earnings.

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

We believe the Section 7874 Percentage following the combination of Cyberonics and Sorin was less than 60%. As a result, we
believe that (i) Cyberonics and its U.S. affiliates will be able to utilize their U.S. tax attributes to offset their U.S. tax liability, 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%.

Our status as a foreign corporation for U.S. federal income tax purposes could be affected by a change in law.

We believe that under current law, we are treated as a foreign corporation for U.S. federal tax purposes because we are a UK
incorporated entity. However, changes to the inversion rules in Section 7874 of the Code or the U.S. Treasury Regulations promulgated
thereunder could adversely affect our status as a foreign corporation for U.S. federal tax purposes, and any such changes could have
prospective or retroactive application to us and our respective stockholders, shareholders and affiliates. In addition, recent legislative
proposals and IRS guidance have aimed to expand the scope of U.S. corporate tax residence, including by reducing the Section 7874
Percentage threshold at or above which we would be treated as a U.S. corporation or by determining our U.S. corporate tax residence
based on the location of our management and control. Any such changes to Section 7874 or other such legislation, if passed, could
have a significant adverse effect on our financial results.

We may not qualify for benefits under the tax treaty entered into between the UK and the United States.

We believe that we operate in a manner such that we are eligible for benefits under the tax treaty entered into between the UK and
the United States; however, our ability to qualify for such benefits will depend upon the requirements contained in such treaty. Our
failure to qualify for benefits under the tax treaty entered into between the UK and the United States could result in adverse tax
consequences to us.

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

We believe that we operate so as to be treated exclusively as a resident of the UK for tax purposes, but the relevant tax authorities
may treat us as also being a resident of another jurisdiction for tax purposes.

We are a company incorporated in the UK. Current UK law provides that we will be regarded as being a UK resident for tax purposes
from incorporation and shall remain so unless (a) we are concurrently resident in another jurisdiction (applying the tax residence
46

rules of that jurisdiction) that has a double tax treaty with the UK and (b) there is a tiebreaker provision in that tax treaty which
allocates exclusive residence to that other jurisdiction.

Based on our management and organizational structure, we believe that we should be regarded as resident exclusively in the UK
from our incorporation for tax purposes. However, because this analysis is highly factual and may depend on future changes in our
management and organizational structure, there can be no assurance regarding the final determination of our tax residence. Should
we be treated as resident in a country or jurisdiction other than the UK, we could be subject to taxation in that country or jurisdiction
on its worldwide income and we 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 us, as well as our shareholders, lenders and/or bondholders.

Our effective tax rate is uncertain and may vary from expectations.

No assurances can be given as to what our worldwide effective corporate tax rate will be because of, among other things, uncertainty
regarding the tax regulations and laws, enactment and enforceability thereof, policies of the jurisdictions where we operate. Our
actual effective tax rate may vary from our expectations or from historical trends and that variance may be material. Additionally,
tax laws or their implementation and applicable tax authority practices could change in the future.

On 22 December 2017, the U.S. enacted The Act. The Act, which is also commonly referred to as “U.S. tax reform”, significantly
changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% commencing
in 2018. In addition, the Act created a one-time mandatory tax, a toll charge, on previously deferred foreign earnings of non-U.S.
subsidiaries controlled by a U.S. corporation, or, in our case, a non-U.S. subsidiary controlled by one of our U.S. subsidiaries. We
recorded no toll charge for the year ended 31 December 2017 as we had no previously deferred foreign earnings of U.S. controlled
foreign subsidiaries as of the measurement dates. As a result of the Act, we recorded a non-cash net charge of $27.5 million during
the fourth quarter of 2017, which is included in “Income tax expense (benefit)’ in the consolidated statements of income (loss). This
amount primarily consists of two components: (i) $12.8 million relating to the impairment of foreign tax credits, and (ii) a net $14.7
million charge resulting from the remeasurement of our deferred tax assets and liabilities in the U.S. based on the change in the U.S.
federal corporate income tax rate.

Further regulations and notices and state conformity could be issued as a result of U.S. tax reform covering various issues that may
affect our tax position including, but not limited to, an increase in the corporate state tax rate and elimination of the interest deduction.
The content of any future legislation, the timing for regulations, notices, and state conformity, and the reporting periods that would
be impacted cannot be determined at this time. Although we believe the net charge of $27.5 million is a reasonable estimate of the
impact of the income tax effects of the Act on LivaNova as of 31 December 2017, the estimate is provisional. Once we finalize
certain tax positions for our 2017 U.S. consolidated tax return, we will be able to conclude whether any further adjustments to our
tax positions are required.

Transfers of our shares may be subject to UK stamp duty or UK stamp duty reserve tax.

UK stamp duty and/or SDRT are imposed in the UK on certain transfers of or agreements to transfer chargeable securities (which
include shares in companies incorporated in the UK) at a rate of 0.5% of the consideration paid for the transfer. Certain issues or
transfers of shares to depositories or into clearance services, as discussed below, are charged at a higher rate of 1.5%.

Transfers of shares or agreements to transfer shares held in book entry form through the Depository Trust & Clearing Corporation
should not be subject to UK stamp duty or SDRT in the UK A transfer of title in the shares or an agreement to transfer the shares
from within the DTC system out of DTC and any subsequent transfers or agreements to transfer that occur entirely outside the DTC
system, including our share repurchases, will generally be subject to UK stamp duty or SDRT at a rate of 0.5% of any consideration,
which is payable by the transferee of the shares. Any such duty must be paid (and the relevant transfer document stamped by Her
Majesty’s Revenue & Customs) before the transfer can be registered in our books. If such shares are redeposited into the DTC system,
the redeposit will attract UK stamp duty or SDRT at the higher 1.5% rate.

We have put in place arrangements to require that shares held in certificated form cannot be transferred into the DTC system until
the transferor of the shares has first delivered the shares to a depository we have specified so that UK stamp duty or SDRT may be
collected in connection with the initial delivery to the depository. Any such shares will be evidenced by a receipt issued by the
depository. Before the transfer can be registered in our books, the transferor will also be required to put the depository in funds to
settle the applicable UK stamp duty or SDRT, which will be charged at a rate of 1.5% of the value of the shares.

In HMRC’s most recent guidance published on 23 July 2014, in response to the decisions in certain recent cases, HMRC has confirmed
that it will no longer seek to apply the 1.5% UK stamp duty or SDRT charge when new shares of companies incorporated in the UK
are first issued to a clearance service (or its nominee) or depositary (or its nominee or agent) anywhere in the world or are transferred
to such an entity anywhere in the world as an integral part of an issue of share capital. Accordingly, we do not currently expect that
UK stamp duty and/or SDRT will be imposed under current UK tax law and HMRC practice on future issue of our shares; however,
it is possible that the UK government may change the relevant law in response to the cases referenced above, and that this may have
a material effect on the cost of shares we issue and potentially on the cost of dealing in our shares. If our shares are not eligible for
deposit and clearing within the facilities of DTC, then transactions in its securities may be disrupted.

The facilities of DTC are a widely-used mechanism that allows for rapid electronic transfers of securities between the participants
in the DTC system, which include many large banks and brokerage firms. Our shares are at present, subject to certain conditions,
generally eligible for deposit and clearing within the DTC system. However, DTC generally has discretion to cease to act as a
depository and clearing agency for our shares. If DTC determines at any time that our shares are not eligible for continued deposit
and clearance within its facilities, then we believe that our shares would not be eligible for continued listing on a U.S. securities
exchange and trading in our shares would be disrupted. While we would pursue alternative arrangements to preserve the listing and
maintain trading, any such disruption could have a material adverse effect on the trading price of our shares.

By order of the Board of Directors.

Damien McDonald
Chief Executive Officer & Director
26 April 2018

DIRECTORS’ REPORT

The directors present their report together with the audited financial statements for the period ended 31 December 2017.

Directors

The directors of the Company, who held office in the year ended 31 December 2017 were as follows:

Chairman
Mr. Daniel J. Moore

Executive Director
Mr. Damien McDonald

Non-executive directors
Mr. Francesco Bianchi
Mr. Stefano Gianotti
Mr. Hugh Morrison
Mr. Alfred J. Novak
Dr. Sharon O’Kane
Dr. Arthur L. Rosenthal
Ms. Andrea Saia

Upon the resignation of Mr. Ballester as Chief Executive Officer and as an executive director with effect from 31 December 2016,
Mr. Damien McDonald his successor as Chief Executive Officer was appointed by the Board as an executive director from 1 January
2017.

On 23 March 2018, Mr. Stefano Gianotti resigned from our Board with immediate effect in order to devote more time to his other
business interests.

Pursuant to our articles of association, our directors were appointed for a term expiring at the 2018 AGM. We are thus holding director
elections at this 2018 AGM. 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.

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. These were executed in 2015 except for the deeds of indemnity in respect
of Ms. Andrea Saia, who was appointed by the Board to fill a vacancy on 27 July 2016, and Mr. Damien McDonald, who was
appointed by the Board effective 1 January 2017. These deeds were executed in 2016 and 2017, respectively. 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 on-going costs in defending a legal action as they are
incurred rather than after judgement 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 09451374. The Company’s
registered address is 20 Eastbourne Terrace, London, England W2 6LG.

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

Share repurchases

There were no share repurchases by us in 2017.

Dividend

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.

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.

Greenhouse Gas Emissions (unaudited)

We report the carbon footprint of each of our Scope 1, 2 and 3 GHG emissions in tonnes of CO2 equivalent from our business
operations for the year ended 31 December 2017. Our focus is on the areas of largest environmental impact including manufacturing
sites, warehouses, research and development sites and offices. Smaller locations are not included.

We report our emissions in three "scopes". Scope 1 figures are direct GHG emissions. Scope 2 emissions include electricity indirect
GHG emissions. Scope 3 emissions are other indirect GHG emissions which include extraction and production of purchased materials
and fuels; transport-related activities; electricity-related activities not included in Scope 2; leased assets, franchises and outsourced
activities; use of sold products and services; and waste disposal.

Our measured sites included the following which include our headquarters, our European facilities and the Dominican Republic site
of Santo Domingo:

• London HQ (United Kingdom)
• Clamart plant (France)
• Munich plant (Germany)
• Mirandola plant (Italy)
•
• Milan office building (Italy)
• Cantu’ plant (Italy)
•

Saluggia plant (Italy)

Santo Domingo plant (Dominican Republic)

Scope 1 emissions (Direct)
Scope 2 emissions (Indirect)
Scope 3 emissions (Indirect)

Metric tonnes of CO2

2017
4,544
19,447
37,528

Metric tonnes of CO2

Global emissions*
kg CO2 per full time equivalent
employee**

2017
67,231

26.2

2016
7,269
24,598
59,761

2016
73,531

23.4

* Global emissions are distributed among the three scopes and are thereafter not equal to the sum of Scope 1, 2 and 3.

** Full time employees are those only at our measured sites: 2,722 in 2016 and 2,564 in 2017. While global emissions decreased, the number of employees at

measured sites also decreased, resulting in an increase in this KPI.

Financial risk management objectives/policies and hedging arrangements

Please refer to Note 3 — Financial Risk Management in the consolidated Financial Statements for information on LivaNova’s financial
risk management objectives/policies and hedging arrangements.

Events since 31 December 2017

Acquisitions

For a discussion of our acquisition of each of ImThera on 16 January 2018 and TandemLife on 18 February 2018, and our signing
on 8 March 2018 of an agreement with MicroPort for the sale by us of CRM to MicroPort, see our Strategic Report under "Acquisitions
and Investments".

Divestitures

On 8 March 2018, we entered into a definitive Purchase Agreement with MicroPort Scientific Corporation for the sale of our CRM
for $190.0 million. Completion of the transaction is subject to receipt of relevant regulatory approvals, including fulfilling the
requirements of the Hong Kong Stock Exchange’s Major Transaction requirements, and other customary closing conditions. We
expect the transaction to close in the second quarter of 2018.

Resignation of director

On 23 March 2018, Mr. Stefano Gianotti resigned from the Board effective that same date in order to pursue his other business
interests.

Future developments / Research and Development

Details of the activities of the Company in the field of research and development are set out in the Strategic Report.

Statement of disclosure to the 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.

Auditors

PricewaterhouseCoopers LLP has indicated its willingness to continue in office, and on the recommendation of the Audit and
Compliance Committee and in accordance with section 489 of the Companies Act, a resolution to re-appoint it will be proposed at
the 2018 AGM.

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.

By order of the Board of Directors.

Catherine Moroz
Company Secretary
26 April 2018

REMUNERATION REPORT

Statement From the Chairman of the Compensation Committee

Dear Shareholder,

I am pleased to present the 2017 Directors’ Remuneration Report of LivaNova, covering the period from 1 January 2017 to 31
December 2017. 2017 was our second full year as a public company. It was a year focused on bringing together a dedicated workforce
of more than 4,500 employees worldwide and creating a solid foundation from which to drive future growth.

In 2017, the principal decisions in respect of director remuneration included:

•

In February, the Compensation Committee approved the performance goals and compensation package for Damien
McDonald, our only executive director. The Compensation Committee also approved the 2017 short-term incentive plan
applicable to our executives, including Mr. McDonald and appointed Pearl Meyer as compensation advisors to the
Committee for the 2017 financial reporting year.

In April, the Compensation Committee approved the bonuses payable under the 2016 STIP for the Company's executive
officers which included the Company's former chief executive officer, Mr. André-Michel Ballester.

In May, the Compensation Committee approved annual equity awards under our Long-Term Incentive Plan to our executives
and employees, including Mr. McDonald.

In July, the Compensation Committee approved a procedure to verify the achievement of equity award performance and
based on Company or Market performance indicators. The verification will apply going forward to all awards made to
executives, including Mr. McDonald.

In October, the Compensation Committee approved to make all grants of equity awards to executives including our executive
director with an effective date of March 15, June 15, September 15 and December 15 of each year. It also recommended
to the Board (and the Board in December subsequently approved) an amendment to the Company's Non-Employee Director
Compensation Policy to re-allocate the cash and equity components of the non-employee directors' compensation so that
they are equal in value.

In December, the Board approved the annual equity awards for our non-executive directors. These awards are typically
made shortly after the AGM but in 2017, the Company was in possession of material non-public information in respect
of the divestiture of its CRM business franchise and only approved the awards on 11 December 2017 after the public
release of that information. The Board also approved a supplemental award to reflect the 39% increase from $60.41 to
$83.92 in the price of the Company's stock on Nasdaq from 5 August 2017 (the date when the prior equity awards vested)
to 7 December 2017.

Our remuneration philosophy

During 2017, LivaNova’s remuneration philosophy was rooted in the following principles:

• 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 Compensation 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 Compensation 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, 20 Eastbourne Terrace, London W2 6LG, United Kingdom.

Arthur Rosenthal, Ph.D.
Chairman of the Compensation Committee
26 April 2018

Introduction

The Compensation Committee presents this remuneration report which will be put to shareholders as an advisory vote at the 2018
AGM. 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 Compensation Committee in 2017 and Since Year End

The Chairman of the Compensation Committee is Arthur L. Rosenthal, Ph.D., and the other members of the Compensation Committee
are Alfred J. Novak and Francesco Bianchi, all of whom are non-executive directors that the Company considers to be independent
and all have served on the Committee since 19 October 2015. The Committee’s terms of reference are available on the Company’s
website at www.livanova.com.

The Compensation Committee has the sole authority to retain and terminate a compensation consultant to assist with its
responsibilities, as well as the sole authority to approve the consultant’s fees, which are then paid by the Company (within any
budgetary constraints imposed by the Board). Our officers do not discuss compensation matters with the Compensation Committee’s
consultant, except as needed to respond to questions from the consultant. The Compensation Committee’s consultant does not provide
services for the Company or any of our officers. Since 2016, the Compensation Committee has engaged the services of Pearl Meyer
& Partners, LLC, an experienced compensation consulting firm, to advise the committee on executive compensation matters. The
Compensation Committee selected Pearl Meyer based on its global expertise The Committee considered the following factors and
determined that Pearl Meyer is an independent and conflict-free advisor to the Company:

•

the provision of other services to the Company by the advisor’s employer;

the amount of fees received from the Company by the advisor’s employer, as a percentage of the total revenue of the advisor’s
employer;

the policies and procedures of the advisor’s employer that are designed to prevent conflicts of interest;

any business or personal relationship of the advisor with a member of the Committee;

any stock of the Company owned by the advisor; and

any business or personal relationship of the advisor or the advisor’s employer with an executive officer of the Company.

In 2017, Pearl Meyer provided support on the following projects:

•
•
•

director compensation analysis and benchmarking
peer group analysis
executive equity compensation analysis

The Company paid Pearl Meyer a total of $52,863 for the services indicated above for 2017, computed on the basis of Pearl Meyer’s
hourly rates for services rendered, multiplied by the number of hours required to generate the reports and including administrative
service fees.

Remuneration details for the period ended 31 December 2017

Single total figure on remuneration - executive director - audited information

The table below sets out for the Company’s sole executive director, Damien McDonald, the single figure of his remuneration for
the period ended 31 December 2017.

This comprises the total remuneration received over the full year from 1 January 2017 to 31 December 2017.

Basic Salary
and Fees
($’000)

Damien McDonald - 2017

848

Taxable
Benefits
($’000)

1,154

Annual Bonus
($’000)

Service-Based
Awards
($’000)

Long-Term
Incentive
Awards
($’000)

Pension
Contributions
($’000)

848

1,423

4,397

215

Total
($’000)

8,885

____________
(1) The currency conversion rates used are for 2017-£/$ =1.28864 (average currency rate for the period 1 January 2017 to 31 December 2017).

Salary and benefits - executive director - audited information

In 2017, Damien McDonald was paid a base salary of £658,000 per annum ($ 847,925). The taxable benefits column line for Damien
McDonald includes: (i) the accommodation allowance of £150,000 ($193,296), the car allowance of £17,749 ($22,873), (ii) school
allowance of £31,950 ($41,172), (iii) health insurance of £17,339 ($22,344), (iv) relocation agency services of £6,115 ($7,881), (v)
reimbursement for house selling related costs of £356,250 ($459,078) and (vi) related Gross Up of £315,919 ($407,106).

Pension contributions - executive director - audited information
In 2017, the Company paid a cash in lieu of pension allowance equal to 15 per cent of Damien McDonald's compensation (base
salary and bonus). The Company plan provides for the employee the possibility to opt for either cash (with a 13.8 per cent penalty)
or pension contribution. For 2017, Damien McDonald opted to receive the amount in cash, net of related income tax and employee
national insurance contributions.

Bonus payments - executive director - audited information
In April 2018, Damien McDonald received £658,132 ($848,095), an amount equal to 100.1% of his 2017 bonus opportunity under
the 2017 Short-Term Incentive Plan ("STIP"). The performance objectives selected by the Committee for the 2017 bonus plan were
as follows:

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

Percentage of
Target Bonus
60%
40%
100%

The performance objectives for the bonus program included an adjusted net sales objective, which was the adjusted net sales as
reported by the Company at the Company’s budgeted currency exchange rates, and an adjusted net profit objective, which was the
adjusted non-GAAP (U.S. generally accepted accounting principles) net profit as reported by the Company.

The percentage achievement of the performance objectives was subject to scaling 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.

Given 2017 adjusted net sales of $1,241.7 million in respect of a target of $1,263.6 (98.3%) and adjusted net profit of $171.8 million
in respect of a target of $169.4 million (103.1%), the 2017 bonus would have resulted in a 93.3% pay-out under the terms of the plan
approved by the Compensation Committee at the outset of 2017.

Due to the anomalous performance of CRM as compared to our overall performance in 2017 and due to the focus in 2017 on the
sale of CRM to a third party (a binding letter of intent was announced in November 2017), the Compensation Committee exercised
its discretion to exclude the financial performance of CRM from the calculations. In addition, the Committee made an incremental
payment of £3,948 to Mr. McDonald to match the percentage of base salary paid to the other named executive officers resulting in
individual increases in payout under the 2017 STIP of between 4.9% and 7.2%.

Long-term incentive awards - executive director - audited information

On 5 May 2017, the Committee approved an award of RSUs to Damien McDonald under the LivaNova 2015 Incentive Award Plan
having a date of grant value of $3.0 million, which could result in him receiving up to 53,409 Ordinary Shares.

These RSUs were to vest and the forfeiture restrictions thereon to lapse as follows:

•

If the closing stock price on the Nasdaq of an Ordinary Share of Company's stock on the date two days after the Company
announces its 2017 financial results, including the day of pre-market earnings release as the first such day, (the "Measure
Price") was less than $57.50, all RSUs would lapse and be forfeited;

If the Measure Price was equal to $57.50, one-third of the RSUs would have been eligible for vesting;

If the Measure Price was equal to or greater than $67.50, all of the RSUs would have been eligible for vesting;

If the Measure Price felt between $57.50 and $67.50, the number of RSU's eligible for vesting would have been equal to
the sum of (i) one-third of the RSUs, plus (ii) that portion of the remaining two-thirds of the RSUs determined by linear
interpolation (the difference between the Measure Price and $57.50, divided by $10.00, and then multiplied by the number
constituting two-thirds of the RSUs);

In each case, 25% of the RSUs eligible for vesting would have vested on the Measure Date, and 25% of the RSUs eligible
for vesting shall vest on each of the first three anniversaries of the Measure Date.

Given the fact the Measure Price (i.e. the closing stock price on the Nasdaq of an ordinary share of Company's stock on 1 March
2018) was $89.57, all market-based RSUs became eligible to vest. 25% (13,353 RSUs) vested on 1 March 2018 (for a value of
$1,196,028) and the remaining 75% (40,056 RSUs for a total theoretical value of $3,201,276 as of 31 December 2017, given the
market price at this date of $79.92) will vest in three equal instalments on each of the first anniversaries of the Measure Date.

Service based awards - executive director - audited information

On 5 May 2017, Damien McDonald was granted 17,803 service-based RSUs from the Plan over Shares equal in value to $1.0 million
that would vest 25% per year on each of the first four anniversaries of 5 May 2017. Their value as of 31 December 2017, given the
market price at this date of $79.92, is $1,423,816

Additional information not included in the table - executive director - not audited information

On 4 November 2016, Damien McDonald was granted 66,979 service-based RSUs and 174,227 Stock Appreciation Right as an
inducement award to vest in equal tranches at each anniversary of the four anniversaries of the grant date. The first tranche vested
on 4 November 2017. These values are not reported in the table as they represent 2016 remuneration, being "service-based" awards.

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 2017. This comprises the total remuneration received since 1
January 2017.

As the Board was unable to approve the Annual Award on 5 August 2017 due to the Company’s possession at the time of material
non-public information, on 15 December 2017, an amended policy setting a specific date, June 15 of each year, for approval of
Annual Awards (without regard as to whether the Company is in possession of material non-public information) was adopted. In
addition the Board on the same date approved an Annual Award, vesting in one year, with a value prorated for the period between 5
August 2017 and 15 June 2018, in addition to a Supplemental Award to captures the benefit of the increase in share price between
5 August 2017 and 7 December 2017 lost due to the delay in approving the awards (between 5 August 2017 and 7 December 2017,
the closing price of an ordinary share of the Company’s stock on the Nasdaq increased by 39% from $60.41 to $83.92, resulting in
a substantial decrease in the number of shares to be awarded on 15 December 2017 as compared to the number of shares that would
have been awarded on 5 August 2017).

Additional Fee
for Acting as
Chairman,
Chair of
Committee or
Member of
Committee

Basic Annual
Fee

Taxable
Benefits

Total
Emoluments

Service-Based
Share Awards

($’000)

($’000)(1)

($’000)

Total

($’000)

Current directors

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

Daniel J. Moore

Hugh Morrison

Alfred J. Novak

Arthur L. Rosenthal

Francesco Bianchi

Stefano Gianotti

Sharon O’Kane

Andrea Saia

155

123

110

106

— 109

101

— 101

122

108

232

138

317

201

203

164

387

261

248

244

247

229

239

439

309

288

285

286

274

273

196

____________
(1) The amounts refer to expenses reimbursement for the Directors to exercise their role that are considered taxable under UK tax legislation.

On 15 December 2017, 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 first anniversary of the date of grant.

Scheme interests awarded during the financial year - audited information

The following table sets out details of scheme interests awarded to Damien McDonald and the Company’s non-executive directors
since 1 January 2017 pursuant to the Incentive Award Plan.

Director

Award
Type

Basis of
Award

Damien

McDonald RSUs

2015
Incentive
Award Plan

No. of
Shares
Subject
to the
Award

Face Value
of Award
($)(1)

Exercise
Price ($)

Closing
Share Price
on Date of
Award (For
Face Value
Calculation)
($)

% of scheme
interests
achievable
on minimum
performance

Expiry of
Performance
Period

2,249,946

40,056

N/A

56.17

—

Damien
McDonald
(2)

2015
Incentive
Award Plan

RSUs

750.207

13,356

N/A

56.17

Damien

McDonald RSUs

Daniel J.
Moore

RSUs

Hugh
Morrison

RSUs

Alfred J.
Novak

RSUs

Arthur L.
Rosenthal

RSUs

Francesco
Bianchi

RSUs

Stefano
Gianotti

RSUs

Sharon
O'Kane

RSUs

Andrea Saia RSUs

2015
Incentive
Award Plan

999,995

17,803

N/A

56.17

231,550

2,885

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

137,646

1,715

N/A

80.26

—

____________
(1) Face value of RSUs award calculated using the closing market price of LivaNova share on the Nasdaq at the date of grant.
(2) These shares vested on March 1, 2018 (first tranche of the total shares granted of 53,4096 on May 5, 2017).

Performance
Criteria
Market base
criteria met
in 2017.
Time-base
vesting

Market base
criteria met
in 2017.
Time-base
vesting. This
first Tranche
vested March
1, 2018

Time-Based
Vesting

March 1,
2017

N/A

How the remuneration policy will be applied in the year ending 31 December 2018

Salary and benefits - executive director

On 15 March 2018, the Committee approved adjustments to the base salaries to Damien McDonald's base salary, effective since 1
April 2018. The base salary increased by 11% from £ 658,000 to £ 731,500. The increase have been approved following the analysis
of benchmarking data provided by the Committee's independent consultant, Pearl Meyer & Partners, LLC, that were showing that
Mr. McDonald's target total cash (i.e. base salary plus target variable short -term incentive) ranked at the 64th percentile in the UK
data and 65th percentile in the US data.

Bonus payments – executive director

On 9 February 2018, the Compensation Committee approved the 2018 annual Short-Term Incentive Plan (the "2018 STIP"). Damien
McDonald is eligible to participate in the 2018 STIP and his target bonus for 2018 is 100 per cent of his weighted base salary of the
year. The amount of his bonus will be determined by multiplying the percentage achievement under the 2018 performance objectives,
as described below, by such target amount. The performance objectives selected by the Committee for 2018 are as follows:

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

Percentage of
Target Bonus
60%
40%
100%

“Net Sales” is defined as our net sales for 2018 at budgeted currency exchange rates, excluding net sales from our CRM, ImThera
Medical, Inc. and any acquisitions in 2018. “Adjusted Net Income” is defined as our non-GAAP net income at reported currency
exchange rates, after adjustments for our CRM Franchise, and the effects of acquisitions, divestitures, restructuring, integration,
purchase price allocation and intangible amortization, special items, including 3T Heater Cooler remediation and significant and
unusual litigation, and equity compensation.

Given that 2018 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 2018 financial results.

The percentage achievement of the performance objectives will be scaled down by 16.67 per cent for each 1 per cent, or portion
thereof of underachievement, or up by 7.5 per cent for each 1 per cent, or portion thereof, of overachievement, respectively, between
an underachievement of at least 97 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 175 per cent of an executive officer’s
target bonus amount.

Long Term Incentive – executive director

On 15 March 2018, the Compensation Committee approved our 2018 annual Long-Term Incentive Program. Pursuant to the 2018
LTIP, the Committee granted Damien McDonald an equity award with a value of $4,500,000. One-fourth of the Award Value is
allocated to each of four different types of equity awards, as explained below:

Service-Based Restricted Stock Units - executive director

Damien McDonald received an award of service-based RSUs vesting in equal or substantially equal amounts on each of the first
four anniversaries of the grant date. The Committee determined the number of RSUs awarded by dividing one-fourth of the Award
Value by the most recent closing price of an ordinary share of our stock on the Nasdaq as of the grant date and rounding down to the
nearest whole unit.

Stock Appreciation Rights

Damien McDonald received an award of stock appreciation rights vesting in equal or substantially equal amounts on each of the first
four anniversaries of the grant date. The Committee determined the number of SARs awarded to each participant by dividing one-

fourth of the Award Value by the Black-Scholes value of a SAR based on the Closing Price and rounding down to the nearest whole
right.

Relative Total Shareholder Return Performance Stock Units

Damien McDonald received an award of performance stock units subject to a relative total shareholder return market condition. The
Committee determined the number of PSUs awarded to each participant by dividing one-fourth of the Award Value by the Closing
Price and rounding down to the nearest whole unit. At the end of calendar year 2020, our TSR for the three-year period 2018 through
2020 will be compared to the TSR for a peer group of 27 companies selected by the Committee on the advice of its compensation
consultant, Pearl Meyer & Partners, and the number of shares of our stock actually delivered to the participants will be determined
by the following chart, with linear interpolation applied between specified levels:

TSR Performance
Percentile Rank
90th
80th
50th
30th
<30th

Percent Payout

200%
150%
100%
40%
0%

The 2018 rTSR Peer Group includes:

ABIOMED, Inc.
Baxter International Inc.
Becton, Dickinson and Company
Boston Scientific Corporation
Cantel Medical Corp.
CONMED Corporation
DexCom, Inc.
Edwards Lifesciences Corporation
Globus Medical, Inc.
Haemonetics Corporation
Hill-Rom Holdings, Inc.
Hologic, Inc.
Integer Holdings Corporation
Integra LifeSciences Holdings Corp.

Intuitive Surgical, Inc.
Invacare Corporation
Masimo Corporation
Medtronic plc
NuVasive, Inc.
ResMed Inc.
Smith & Nephew plc
Steris Plc
Stryker Corporation
Teleflex Incorporated
Varian Medical Systems, Inc.
Wright Medical Group N.V.
Zimmer Biomet Holdings, Inc.

The following parameters will be used to determine rTSR for the three-year period ending 31 December 2020:

•

Stock Price: 30 trading-day average closing prices as of the beginning and end of the performance period;

• Dividend Treatment: Dividend reinvestment approach (using ex-dividend date);

• Relative Performance Measurement:

• Calculate cumulative TSR for LivaNova and each of the benchmark companies,

• Compute LivaNova’s discrete percentile rank, which is inclusive of LivaNova’s TSR (Excel: PERCENTRANK function);

and

• Benchmark Group Governance:

• Measured against benchmark group at the beginning of the performance period,

• Companies acquired or delisted during the performance period are excluded.

Three-Year Cumulative Adjusted Free Cash Flow Performance Stock Units

Damien McDonald received an award of PSUs subject to achievement of a three-year cumulative adjusted free cash flow target. The
Committee determined the number of PSUs awarded to each participant by dividing one-fourth of the Award Value by the Closing
Price and rounding down to the nearest whole unit. At the end of calendar year 2020, cumulative adjusted free cash flow for the
period 2018 through 2020 will be compared to the FCF Target, and the number of shares of our stock actually delivered to the
participants will be determined by the following chart, with linear interpolation applied between specified levels:

FCF Achievement
Relative to FCF Target

Percent Payout

125%
100%
60%
<60%

200%
150%
100%
20%
0%

“Adjusted Free Cash Flow” is defined as our reported cash flow from operating activities minus our reported capital expenditures
and excludes cash flows associated with restructuring, integration, acquisitions, divestitures, 3-T heater cooler product remediation
and significant and unusual litigation.

Chairman and non-executive directors’ fees

As a result of the amendment on 20 May 2017 and 15 December 2017, the Company’s non-employee director compensation policy
provides that each non-executive director will receive the following fees and awards for 2018:

•

a cash retainer in respect of Broad service of $110,000, plus an additional $75,000 for the Chairman;

an additional cash retainer of $15,000 for each member of the Audit and 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 Compensation 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 and Governance Committee, plus an additional
$9,000 for the chairperson of the Committee; and

an annual award of RSUs, granted on 15 June 2018 and vesting on 15 June 2019, having a value of $185,000, plus an
additional value of $110,000 for the Chairman.

Percentage change in remuneration of the Chief Executive Officer

The table below reflects a comparison between the percentage change in remuneration of the Chief Executive Officer between 2017
and 2016 in comparison with the other employees.

Chief Executive Officer
Average for all employees

Base salary
change %

14%
3%

Benefits
change %
259%
22%

Annual
Cash
Bonus
change %

84%
3%

In December 2016, Mr. André-Michel Ballester resigned his position as chief executive officer, and in January 2017, Mr. McDonald
assumed the role of chief executive officer. Accordingly, the table above reflects a comparison of Mr. Ballester’s remuneration in
2016 with Mr. McDonald’s remuneration in 2017. The change in benefits reflects a one-time reimbursement of expenses related to
Mr. McDonald’s purchase of a principal residence in the U.K. of £356,250 ($459,078), coupled with a gross up in the amount of
£315,919 ($407,106) for taxes.

By comparison, the other employees received an average base salary increase of three percent. The U.K.-based employees received
an average taxable benefit increase of 22%. Employees in countries outside the U.K. are excluded from this comparison given the
many variations in benefits across different countries. Finally, the other employees received an average increase in annual bonus of
three percent.

Payments made to past directors - audited information

The Company made payments to André-Michel Ballester and Brian Sheridan who are no longer directors in 2017.
The Company paid Mr. Ballester a total of 282,211 GBP in 2017 for consultancy fees and expenses. The Company paid Mr. Sheridan
50,000 EURO in 2017 for consultancy fees.

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 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 that 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 the policy), and (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 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 relevant 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 relevant measurement date, minus the exercise price, and minus an estimated tax expense of 40 per cent.)

None of our directors has reached an initial measurement date yet and so thus none has failed to comply with the voluntary guidelines.
However, as at 19 April 2018, four of our eight directors (including our one executive director) had already met the voluntary
ownership target in advance of the initial measurement date.

Directors’ interests in Ordinary Shares and options/awards in respect of Ordinary Shares- audited information

The table below sets out the total number of interests in the Company’s shares as at 31 December 2017. In addition to the number
included in the table, an additional 2,586 Ordinary Shares are held by the DJM Family Partnership Ltd in which Mr. Daniel J. Moore
has an indirect interest.

Director

Damien McDonald (1)

Daniel J. Moore (2)

Hugh Morrison

Alfred J. Novak

Arthur L. Rosenthal

Francesco Bianchi

Stefano Gianotti

Sharon O’Kane

Andrea Saia

Ordinary
Shares
Underlying
Stock
Options

Ordinary
Shares
Underlying
SARs

Ordinary
Shares
Underlying
RSUs

Ordinary
Shares

11,136

54,296

2,000

11,850

17,095

1,830

2,764

1,478

—

174,227

121,446

103,249

—

2,885

1,715

____________
(1) Of the 121,446 shares underlying RSUs, the vesting of 53,409 RSUs were subject to the achievement of performance conditions.
(2) The 103,249 Ordinary Shares underlying Stock Options are 46,626 stock options with an exercise price of $51.90 and 56,623 Stock options with an exercise
price of $57.39 granted respectively on 15 June 2013 and 15 June 2014 by Cyberonics Inc. and then converted in LivaNova Stock options on 19 October 2015,
date of the merger of Sorin S.p.a. and Cyberonics Inc. that resulted into LivaNova PLC.

Relative importance of spend on pay

The following table sets out the total amounts spent in the year ended 31 December 2017 and the year ended 31 December 2016 on
remuneration paid to employees and distributions to shareholders.

$ thousands
Employee remuneration (1)
Share buybacks

Dividend

Year Ended 31
December 2017

Year Ended 31
December 2016

%
change

402,891

Nil
Nil

372,578

49,987

Nil

8 %

(100)%
—

(1) The Employee remuneration does not include the spend on pay related to employees in the CRM business franchise that are reflected as a component of the

discontinued operations.

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 1 January 2017 and 31 December 2017, compared to the S&P 500 Index and the S&P Healthcare Equipment Index.
LivaNova chooses these indices as it felt they provided both a broader market benchmark together with a more proximate industry
benchmark.

In addition, Mr. Ballester received 2,171 RSU shares and 17,835 shares, in relation to the vesting of the restricted stock units
respectively granted on March 11, 2016 and November 18, 2016.

CEO Total Compensation

Total single-figure remuneration (thousands $)
Annual bonus award (as a % of maximum)
Vesting of long term performance awards (as a % of maximum)

Year Ended 31
December 2017

Year Ended 31
December 2016

8,885
57
100

1,968
53.3
25

Statement of Voting at Prior AGMs

The remuneration policy was last approved by shareholders at the 2016 AGM held on 16 June 2016 and can be inspected at the
Company's website: http://investor.livanova.com by clicking on "Financial Information" and then "Annual Reports & Proxies". The
remuneration policy is set out on pages 63 to 75 of the directors’ remuneration report within the 2015 Annual Report and accounts
for the period ended 31 December 2015. We will next bring a remuneration policy to shareholders for approval in 2019. The results
of the binding vote to approve the remuneration policy in 2016 were as follows:

For
(Number
of Votes)

Per cent
For
(%)

Against
(Number of
Votes)

Per cent
Against
(%)

Total Votes
Validly Cast

Total Votes
Validly Cast as
a Percentage of
Shares in Issue

Abstentions
(Number of
Votes)

To approve the directors’
remuneration policy

32,806,406

87.84

2,699,096

7.22

35,505,502

72.35

1,842,015

At the 2017AGM held on 14 June 2017, votes on the advisory vote to approve the directors’ remuneration report were as follows:

For
(Number
of Votes)

Per cent
For
(%)

Against
(Number of
Votes)

Per cent
Against
(%)

Total Votes
Validly Cast

Total Votes
Validly Cast as
a Percentage of
Shares in Issue

Abstentions
(Number of
Votes)

To approve the directors’
remuneration report

29,346,001

87.40

4,231,992

12.60

33,577,993

69.68

25,961

By order of the Board of Directors.

Arthur Rosenthal, Ph.D.
Chairman of the Compensation Committee
26 April 2018

Independent auditors’ report to the members of LivaNova PLC

Report on the audit of the financial statements

Opinion
In our opinion:

• LivaNova PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true

and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit,
the Company’s loss and the Group’s cash flows for the year then ended;

•

the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union;

the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”,
and applicable law); and

•

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Company
balance sheets as at 31 December 2017; the Consolidated statements of income (loss) and the Company statement of (loss)
income; the Consolidated statements of comprehensive income (loss) and Company statement of comprehensive income; the
Consolidated statements of cash flows, and the Consolidated and Company statements of changes in equity for the year then
ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.

Our audit approach
Overview

Overall Group materiality: $7.5 million (2016: $7.2 million), based on approximately
5% of profit before tax adjusted for:

Impairment of CRM upon classification as held for sale;

Expenses arising from the 3T Heater/Cooler Remediation, made up of exceptional
items of $7.2m and operating expenses of $7.8m;

Materiality

Restructuring and integration costs;

Audit scope

Key audit
matters

Acquisition costs in respect of Caisson and the gain recognised on the minority
investment prior to full acquisition;
Losses from equity investments in associates; and

Impairment of cost method investments

The Group operates through its 3 business franchises across over 100 countries. Our audit
focuses on the 16 largest components through a combination of both full scope and directed
scope entities.

The territories where we conducted audit procedures, together with work performed at
corporate functions and consolidated Group level, accounted for approximately: 92% of the
Group’s revenue and 91% of the Group’s profit before tax.
Business Combination - Caisson (Key Audit Matter for Group).

Impairment of CRM business franchise (Key Audit Matter for Group and Company).

Held for sale accounting - CRM (Key Audit Matter for Group).

3T Heater Cooler Provision (Key Audit Matter for Group and Company).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there
was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by
our audit.

Key audit matter
Business Combination - Caisson
In May 2017, LivaNova announced it had acquired the remaining
outstanding 51% interest in Caisson Interventional, LLC (‘Caisson’),
in support of LivaNova’s strategic growth initiatives.
LivaNova has been an investor in Caisson since 2012 and total
consideration of $72m was agreed, net of $6m of debt forgiveness for
the additional 51%. An initial payment of $18m was made on
completion of the deal, with the remaining payments to be made
dependent on regulatory approvals and sales earn outs. As a result of
the acquisition, LivaNova recognised a pre-tax gain of $38.1m
representing the gain on the book value of its existing investment in
Caisson.
Applicable to Group

Impairment of Cardiac Rhythm Management (‘CRM’)
business franchise
The agreed sale price of the CRM cash-generating unit
(‘CGU’) has provided an indicative fair value of CRM of
$181m. This value is below the carrying value of the CGU
and as such management has recorded an impairment
provision of $37m during the year against the customer
relationship intangible asset and developed technology within
the CRM business.
In the prior year a charge of $72m was recorded within the
CRM CGU, impairing the full goodwill balance and reducing
the customer relationship intangible asset and developed
technology down to their respective fair values.
We have focused on this audit matter because of the size of
the impairment charge and the judgement associated with
allocating the charge to the relevant assets.
Additionally, an impairment of $89m has been recorded in the
Company in respect of its investment in Sorin CRM SAS,
based on the expected fair value less costs of disposal.
Applicable to Group and Company

How our audit addressed the key audit matter

We gained an understanding of the process undertaken by
management in respect of the acquisition of Caisson including
understanding, evaluating and testing the design and operating
effectiveness of key controls over the process.
We obtained and reviewed evidence of the business
combination including reviewing the signed sale agreement,
receipt of consideration and minutes of board approval.
We also reviewed management’s business combination
memorandum, which included significant judgments and
assumptions taken which principally related to the valuation
of the acquired intangibles including discount rate and
valuation of earn out awards. We obtained and audited the
valuation of the acquired assets and assumed liabilities,
including previous equity interest, with the assistance of our
valuation specialists.
Additionally, we reviewed the adequacy and appropriateness
of the acquisition disclosures within the financial statements.
We noted no material exceptions through performing these
procedures.
Our audit has focused on understanding the proposal for the
sale of the business and obtaining third party evidence in the
form of an agreed letter of intent to support the fair value of
the CRM business.
We have audited management’s impairment calculation, and
focussed on the allocation of the impairment charge which
was recorded against the customer relationship intangible
asset and developed technology prior to reclassification of the
assets and liabilities of CRM into a held for sale disposal
group.
We have also considered the level of disclosure of the
impairment within both the Group and Company financial
statements.
We noted no material exceptions through performing these
procedures.

How our audit addressed the key audit matter
We have obtained and evaluated both internal and external
supporting evidence to determine that the held for sale criteria
have been met. We also considered management’s calculations
including the completeness of CRM related businesses
contained within the disposal group of assets and the valuation
of the assets and liabilities of CRM held within the disposal
group. We have agreed this to historical carrying values
audited in previous periods and to third party evidence
including valuation specialists where appropriate.

We have also assessed the appropriateness of the disclosures
in respect of the held for sale and discontinued operations
accounting.

We have also corroborated the amounts disclosed to those
contained in previous segment reporting and the stand-alone
carve out accounts produced as part of the disposal.

We noted no material exceptions through performing these
procedures.

We gained a detailed understanding of the 3T matter through
discussions with management and reviewing correspondence
from the relevant medical and legal authorities, as well as
internal compliance and legal documentation.

Using this data, we assessed the reasonableness of
management’s calculation of the provision for future costs
related to the remediation plan. We tested its mathematical
accuracy and considered the completeness of information
included in the valuation.

We assessed the reasonableness of the assumptions used in the
calculation, in particular in relation to the publicised
remediation activity, to ensure that only committed
remediation activity was included within the provision. In
addition, we performed a sensitivity analysis over the
calculations and concluded that reasonably possible changes
in the assumptions would not result in a material change in the
provision amount.

Key audit matter
Held for sale accounting - CRM
The CRM business franchise has met the held for sale and
discontinued operations criteria set out under IFRS 5 on the
basis that the board is committed to a sale, management has
been actively marketing the business for sale to a potential
buyer at a market price and this strategy is unlikely to change.
Additionally, management anticipates that the sale will
complete within 12 months of the balance sheet date. As at the
balance sheet date a potential acquirer has been identified and
signed letter of intent obtained.

The CRM business is also considered individually significant
as it represents its own cash generating unit, and accordingly
has been classified as a discontinued operation and separately
presented on the face of the primary financial statements.

Assets of $243m and liabilities of $76m have been presented
separately as assets and liabilities of discontinued operations
on the balance sheet at 31 December 2017. Profit of $5m has
also been presented as discontinued.

We have focused on this audit matter as a result of the
material impact that the held for sale and discontinued
operations accounting have had on the 2017 financial
statements of LivaNova PLC.

Applicable to Group

3T Heater Cooler Provision
As set out in more detail on page 125, in response to the FDA
Warning Letter, in the fourth quarter of 2016 LivaNova
initiated a program to provide existing 3T device users with
new loaner devices at no charge pending regulatory approval
and implementation of an additional worldwide risk
mitigation strategy. LivaNova is also currently implementing a
vacuum and sealing upgrade program throughout 2018 and
beyond until all devices are upgraded and will perform a no-
charge deep disinfection service for 3T device users who have
reported confirmed M. chimaera mycobacterium
contamination.

The Group maintains a provision for the future
costs associated with this product remediation
plan, which at 31 December 2017 was $27.5m
(2016: $33.5m).
The calculation of this provision is subject to
significant estimation uncertainty, particularly
regarding assumptions relating to:
The proportion of 3T units which will require an
upgrade versus those that will require a deep
disinfection service;
The cost of providing loaner devices to customers
while units are remediated;
The cost of deep disinfection services;
The residual value of loaner devices that
LivaNova has acquired; and
the timing of approvals or clearance by regulatory
authorities primarily in the US.

Applicable to Group and Company

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls,
and the industry in which the Group operates.

We conducted work full scope audits in 3 key territories: US, Italy and France. In addition, we obtained directed scope opinions
from another 13 territories.

The territories where we conducted audit procedures, together with work performed at corporate functions and consolidated
Group level, accounted for approximately 92% of the Group’s revenue and 91% of the Group’s profit before tax.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of
our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality
How we determined it

Rationale for benchmark applied

Group financial statements
$7.5 million (2016: $7.2 million).
Approximately 5% of profit before tax adjusted for
one-off and exceptional items.
Based on the benchmarks used in the annual report,
adjusted profit before tax is the primary measure
used by the shareholders in assessing the
performance of the Group. Therefore the following
have been excluded from profit before tax:

Company financial statements
$3 million (2016: $2.4 million).
Allocation of Group materiality based on
contribution to the Group.
The allocation of Group materiality is based on the
contribution of the Company to both the income
statement and balance sheet of the LivaNova PLC
Group.

Impairment of CRM upon classification as
held for sale;
Expenses arising from the 3T Heater/Cooler
Remediation, made up of exceptional items of
$7.2m and operating expenses of $7.8m;
Restructuring and integration costs;
Acquisition costs in respect of Caisson and
the gain recognised on the minority
investment prior to full acquisition;
Losses from equity investments in associates;
and
Impairment of cost method investments.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between $1 million and $7.2 million based on the contribution of the
component to the Group. Certain components were audited to a local statutory audit materiality that was also less than our overall
Group materiality.

We agreed with the Audit and Compliance Committee that we would report to them misstatements identified during our audit
above $800,000 (Group audit) (2016: $400,000) and $800,000 (Company audit) (2016: $400,000) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

•

the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or

•

the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of
at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.

Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report based on these
responsibilities.

With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 and
ISAs (UK) require us also to report certain opinions and matters as described below.

Strategic Report and Directors’ Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report.
Directors’ Remuneration

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Directors’ Responsibility Statement set out on pages 51-52, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue
as a going concern, disclosing as applicable matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but
to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

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.

Other required reporting

Companies Act 2006 exception reporting

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

certain disclosures of directors’ remuneration specified by law are not made; or

the Company 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.

Jonathan Lambert (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

26 April 2018

TABLE OF CONTENTS

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED BALANCE SHEET

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. Financial Risk Management

Note 4. Fair Value Measurements

Note 5. Financial Instruments

Note 6. Business Combinations

Note 7. Discontinued Operations

Note 8. 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

102

104

105

108

109

110

112

116

118

119

121

124

125

127

130

134

139

142
142

144

146

147

148

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

Revenue

Cost of sales

Exceptional items – product remediation

Gross profit

Operating expenses:

Selling, general and administrative

Research and development

Operating profit before exceptional items

Exceptional items

Operating income from continuing operations

Finance income

Finance expense

Gain on acquisition of Caisson Interventional, LLC

Impairment of cost-method investments

Foreign exchange and other gains

Share of loss from equity method investments

Income (loss) from continuing operations before tax

Income tax benefit (expense)

Income (loss) from continuing operations

Discontinued operations:

Income (loss) from discontinued operations, net of tax

Impairment of discontinued operations, net of tax

Loss from discontinued operations

Income (loss) attributable to owners of the parent

Basic income (loss) per share:

Continuing operations

Discontinued operations

Diluted income (loss) per share

Continuing operations

Discontinued operations

Shares used in computing basic loss per share

Shares used in computing diluted loss per share

Note

Year Ended 31
December 2017

Year Ended 31
December 2016

1,012,277

360,045

7,254

644,978

409,749

114,983

120,246

32,584

87,662

1,318

(7,797)

39,428

(8,565)

1,084

(16,719)

96,411

9,985

106,396

4,538

(36,868)

(32,330)

74,066

2.21

(0.67)

1.54

2.19

(0.66)

1.53

48,157

48,501

964,858

376,503

37,534

550,821

384,751

89,014

77,056

57,754

19,302

1,698

(10,616)

—

3,140

(18,679)

(5,155)

(78,126)

(83,281)

(111,325)

—

(111,325)

(194,606)

(1.70)

(2.28)

(3.98)

(1.70)

(2.27)

(3.97)

48,860

49,014

See accompanying notes to the consolidated financial statements

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Income (loss) attributable to owners of the parent
Items of other comprehensive income (loss) 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

Unrealized gain on investment

Tax impact

Total items of other comprehensive income (loss) that will subsequently
be reclassified to profit or loss
Items of other comprehensive income (loss) that will not subsequently be
reclassified to profit or loss:

Remeasurements of net asset for defined benefits

Tax impact

Total items of other comprehensive loss that will not subsequently be
reclassified to profit or loss

Total other comprehensive income (loss), net of taxes

Total comprehensive income (loss) for the period, net of taxes
attributable to owners of the parent

Note

Year Ended 31
December 2017

Year Ended 31
December 2016

74,066

(194,606)

(939)
402
(5,474)
1,473

112,623

7,272
(1,782)

113,575

(327)
64

(263)
113,312

543

(296)

3,387

(903)

(6,964)

—

(4,233)

(1,629)

476

(1,153)

(5,386)

187,378

(199,992)

See accompanying notes to the consolidated financial statements

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In thousands)

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

Current assets

Inventories

Trade receivables

Other receivables

Financial derivative assets

Other financial assets

Tax assets

Cash and cash equivalents

Total current assets

Assets held for sale

Assets of discontinued operations

Total assets

LIABILITIES AND EQUITY

Equity

Share capital

Group reconstruction reserve

Share premium

Treasury shares

Accumulated other comprehensive income (loss)
Retained deficit

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

Note

Year Ended 31
December 2017

Year Ended 31
December 2016

8
7

177,989

549,767

787,929

1,799

44,184

78,466

3,638

206,529

572,548

693,175

27,315

38,345

86,053

1,579

1,643,772

1,625,544

144,470

282,145

24,519

519

1,395

32,509

93,615

579,172

13,628

243,208

183,489

275,730

21,163

8,269

7,094

47,882

39,789

583,416

4,477

—

2,479,780

2,213,437

74,750

74,578

1,729,764

14,485
(133)
43,514
(45,273)
1,817,107

751

61,958

10,318

63,406

25,277

—

96,732

258,442

1,729,764

9,684

(4,500)

(69,798)
(161,101)

1,578,627

1,392

75,215

4,369

31,007

33,609

3,804

168,603

317,999

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET - (Continued)

(In thousands)

Current liabilities

Trade payables

Other payables

Financial derivative liabilities

Other financial liabilities

Provisions

Tax payable

Total current liabilities

Liabilities of discontinued operations

Total liabilities and equity

Note

31 December
2017

31 December
2016

84,716

116,361

1,294

84,034

28,710

12,826

327,941

76,290

89,514

105,664

942

47,650

50,701

22,340

316,811

—

2,479,780

2,213,437

See accompanying notes to the consolidated financial statements

The financial statements on pages 74 to 149 were approved by the Board of Directors and were signed on its behalf on 26 April
2018 by:

DAMIEN MCDONALD

CHIEF EXECUTIVE OFFICER & DIRECTOR

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

Ordinary

Number
of
Shares

Share
Capital

Group
Reconstruction
Reserve

Note

Additional
Paid-in
Capital
Share
Premium

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings
(Deficit)

Treasury
Shares

Total
Equity

Balance at 31 December 2015

48,868

$ 75,444

1,729,764

1,673

— $

(64,412) $

58,178

$ 1,800,647

Share-based compensation plans

Purchase of ordinary shares

Total transactions with owners
recognised directly in
shareholders’ equity

Net loss

Other comprehensive loss

Total comprehensive loss for the
period

282

(993)

391

(1,257)

—

8,011

—

(4,500)

—

24,057

32,459

(48,730)

(54,487)

48,157

74,578

1,729,764

9,684

(4,500)

(64,412)

33,505

1,778,619

Balance at 31 December 2016

48,157

74,578

1,729,764

Share-based compensation plans

133

172

—

9,684

4,801

(4,500)

4,367

—

(194,606)

(5,386)

—

(5,386)

(194,606)

(199,992)

(69,798)

(161,101)

1,578,627

—

41,762

51,102

Total transactions with owners
recognised directly in
shareholders’ equity

Net income

Other comprehensive income

Total comprehensive income for
the period

48,290

74,750

1,729,764

14,485

(133)

(69,798)

(119,339)

1,629,729

—

74,066

113,312

—

113,312

74,066

187,378

Balance at 31 December 2017

48,290

$ 74,750

1,729,764

14,485

(133) $

43,514

(45,273) $ 1,817,107

See accompanying notes to the consolidated financial statements

LIVANOVA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash Flows From Operating Activities:

Income (loss) for the period

Non-cash items included in loss:

Depreciation and amortization

Share-based compensation

Gain on acquisition of Caisson Interventional, LLC

Impairment of discontinued operations

Impairment of cost-method investments

Impairment of goodwill and other assets

Amortization on income taxes payable on intercompany transfers

Impairment of property, plant and equipment

Loss from equity method investments

Net finance expense

Income tax (benefit) expense

Other non-cash items

Changes in operating assets and liabilities:

Accounts receivable, net

Inventories

Other current and non-current assets

Restructuring reserve

Current and non-current liabilities

Cash provided by operations

Interest paid

Income taxes paid

Net cash provided by operating activities

Cash Flow From Investing Activities:

Purchase of property, plant, equipment and other

Acquisition of Caisson Interventional, LLC, net of cash acquired

Proceeds from sale of cost-method investments

Proceeds from asset sales

Purchases of cost and equity method investments

Loans to equity method investees

Purchase of short-term investments

Maturities of short-term investments

Net cash (used in) provided by investing activities

Cash Flows From Financing Activities:

Change in short-term borrowing, net

Proceeds from short-term borrowing (maturities greater than 90 days)

Proceeds from long-term debt obligations

Repayment of long-term debt obligations

Repayment of trade receivable advances

Purchase of treasury shares

Proceeds from exercise of options for stock

Cash settlement of compensation-based share units

Realised excess tax benefits - share-based compensation

Other financial assets and liabilities

Net cash provided by (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

Note

Year Ended 31
December 2017

Year Ended 31
December 2016

74,066

(194,606)

9, 10

78,508

28,861

(39,428)

44,904

8,565

—

31,784

5,979

21,606

6,479

(24,629)

2,858

(48,934)

7,187

(6,180)

(14,557)

(39,246)

137,823

(7,510)

(38,974)

91,339

(34,107)

(14,194)

3,192

5,935

(6,255)

(7,426)

—

(52,855)

12,396

20,000

2,048

(22,755)

—

4,973

—

(5,368)

11,294
4,048

53,826

39,789

93,615

88,771

27,064

—

72,314

25,952

5,971

22,612

8,918

72,931

9,777

(16,448)
26,703
(32,686)
12,405

15,653

145,331
(7,371)
(47,808)
90,152

(38,362)
—

—

1,145
(8,026)
(6,270)
(7,054)
14,051
(44,516)

(33,708)
—

7,231
(21,109)
(23,779)
(54,487)
8,332
(2,724)
2,060

144
(118,040)
(420)
(72,824)
112,613

39,789

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 20 Eastbourne
Terrace, London, W2 6LG, United Kingdom.

Background. LivaNova PLC was organized under the laws of England and Wales on 20 February 2015 for the purpose of facilitating
the business combination of Cyberonics, Inc., a Delaware corporation and Sorin S.p.A., a joint stock company organized under the
laws of Italy. As a result of the business combination, LivaNova, headquartered in London, 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 and on the London Stock Exchange as a standard listing under
the trading symbol “LIVN.” Upon the consummation of the Mergers, the historical financial statements of Cyberonics became the
Company’s historical financial statements. On 23 February 2017, we announced our voluntary cancellation of our standard listing
of our shares with the London Stock Exchange due to the low trading volume of our shares and trading ceased at the close of business
on 4 April 2017. We continue to serve our shareholders through our listing on the Nasdaq.

The principal legislation under which LivaNova operates is the Companies Act 2006, and regulations made thereunder. The LivaNova
Shares were 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. 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 and Neuromodulation, 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.

Business franchises. LivaNova is comprised of two principal business franchises, which are also our reportable segments: Cardiac
Surgery and Neuromodulation, corresponding to our primary therapeutic areas. Other corporate activities include corporate business
development and New Ventures, focused on new growth platforms and identification of other opportunities for expansion.

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 IFRS adopted by the European Union and interpretations issued by
the IFRS Interpretations Committee.

The financial statements for the years ended 31 December 2017 and 31 December 2016 were prepared in accordance with 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 USDs and all values are
rounded to the nearest thousands, except where otherwise indicated.

Fiscal Year-End. LivaNova's fiscal year ends 31 December.

Consolidation. The accompanying consolidated financial statements include LivaNova, our wholly owned subsidiaries and the
LivaNova PLC Employee Benefit Trust. All significant intercompany accounts and transactions have been eliminated.

Sale of our Cardiac Rhythm Management business franchise. On 20 November 2017, we entered into a LOI to sell our CRM to
MicroPort Scientific Corporation for $190.0 million in cash, and, on 8 March 2018, we entered into a definitive Purchase Agreement.
Completion of the transaction is subject to receipt of relevant regulatory approvals, including fulfilling the requirements of the Hong
Kong Stock Exchange’s Major Transaction requirements, and other customary closing conditions. We expect the transaction to close
in the second quarter of 2018. As a result of the commitment to undertake the proposed transaction, we recognised an impairment
of $36.9 million, net of an $8.0 million tax benefit, related to the intangible and tangible assets of the CRM business franchise. The
impairment is included in impairment of discontinued operations, net of tax within the consolidated statements of income (loss) for
the year ended 31 December 2017. We concluded that the sale of the CRM business franchise represents a strategic shift in our
business that will have a major effect on future operations and financial results and therefore qualifies as a discontinued operation
under IFRS. The results of operations of the CRM business franchise are reflected as discontinued operations for the year ended 31
December 2017 and 31 December 2016. The assets and liabilities of the CRM business franchise are classified as held for sale and
presented as either assets or liabilities of the discontinued operation on the consolidated balance sheet as at 31 December 2017. All
balance sheet data prior to 31 December 2017 reflect the assets and liabilities of the CRM business franchise as previously reported.

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 are classified as either joint operations or joint ventures. 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 (loss) of the investee in other comprehensive income (loss). Dividends received or
receivable from associates are recognised as a reduction in the carrying amount of the investment.

Unrealised gains on transactions between the Company and its associates and joint ventures are eliminated 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.

Business Combinations. We allocate the amounts we pay for an 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.

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.

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 USD 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 (loss) as qualifying cash flow hedges.

Foreign currency differences arising from translation are recognised in the consolidated statements of income (loss).

The GBP exchange rate to the USD used in preparing the Company financial statements was as follows:

Year ended 31 December 2017
Year ended 31 December 2016

Weighted Average
Rate GBP

0.776928
0.741130

Closing Rate GBP
0.739730
0.812240

Foreign operations. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisitions are translated to USDs at exchange rates at the reporting date. The income and expenses of foreign operations are
translated to USDs at exchange rates at the dates of transactions. Foreign currency differences arising on translation of foreign
operations into USDs 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 balance sheet 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, available-for-sale 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,
83

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 re-organisation. 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 re-purchasing 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.

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 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 uncollectable
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 consolidated statements of income (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 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 de-recognised, at which
time, the cumulative gain or loss is recognised in income (loss) from continuing operations, or the investment is determined to be
impaired, at which time, the cumulative loss is reclassified to the income (loss) from continuing operations 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 AFS 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 AFS, 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 consolidated statements of income (loss), is removed from other
comprehensive income (loss) 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 rights to receive cash flows from the asset have expired, or

• 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 has entered into sales 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.

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 de-recognised when the obligation under the liability is discharged, 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 de-recognition of the original liability and the
recognition of a new liability. The difference in the respective carrying amounts is recognised in the consolidated statements 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 consolidated statements of income (loss)
and the consolidated statements 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 consolidated statements 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 reclassified to the consolidated statements of income (loss) to offset exchange
differences originated by the hedged item or to adjust the value of net income (loss) from continuing operations. 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 increased 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. We consider all highly liquid investments with an original maturity of three months or less, consisting
of demand deposit accounts and money market mutual funds, to be cash equivalents and are carried in the consolidated balance
sheets at cost, which approximate their fair value.

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 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.

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.

We classify long-lived assets as held for sale in the period in which we commit to a plan to sell the asset, the asset is available for
immediate sale, the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and the
sale of the asset is probable. A long-lived asset classified as held for sale is measured at the lower of its carrying amount or fair value
less cost to sell and depreciation is discontinued. We recognize a loss for any excess of carrying value over the fair value less cost
to sell.

The estimated useful lives for all classes of depreciable PP&E except for land and capital investment in process as of 31 December
2017 are as follow:

Building and building improvements

Equipment, furniture, fixtures

Other

Lives in Years
3 to 50

3 to 20

3 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 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.

Intangible Assets. Intangible assets shown on the consolidated balance sheets consist of finite-lived and indefinite-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 which includes patents, related know-how and licensed
patent rights that represent assets expected to generate future economic benefits. Trademarks and trade names include the Sorin trade
name acquired as part of the Mergers. In-process R&D was recognized as part of the acquisition of Caisson. Customer relationships
consist of relationships with hospitals and cardiac surgeons in the countries where we operate. Other intangible assets consist of
favourable leases acquired from Sorin in the Mergers. We amortize our finite-lived intangible assets over their useful lives using the
straight-line method. Customer relationships, developed technology, trademarks and trade names, software and other intangible assets
are finite-lived intangible assets. In-process R&D is an indefinite-lived intangible asset.

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 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.

Usually, the Company applies the fair value less costs of disposal method for its impairment assessment. In most cases no directly
observable market inputs are available to measure the fair value less costs of disposal. Fair value less costs of disposal reflects
estimates of assumptions that market participants would be expected to use when pricing the asset or CGU. Goodwill impairment
evaluations are highly subjective. In most instances, they involve expectations of future cash flows that reflect our judgements and
assumptions regarding future industry conditions and operations. The estimates, judgements and assumptions used in the application
of our goodwill impairment policies reflect both historical experience and an assessment of current operational, industry, market,
economic and political environments. Quantitative factors used to determine the fair value of the CGU reflect our best estimates,
and we believe they are reasonable. Future declines in the CGU’s operating performance or our anticipated business outlook may
reduce the estimated fair value of our CGU and result in additional impairment. Factors that could have a negative impact on the
fair value of the reporting units include, but are not limited to:

• Decreases in revenue as a result of the inability of our sales force to effectively market and promote our products;
•
• Declines in anticipated growth rates;

Increased competition, patent expirations or new technologies or treatments;

• The outcome of litigation, legal proceedings, investigations or other claims resulting in significant cash outflows; and
•

Increases in the market-participant risk-adjusted WACC.

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.

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 31 December 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. Research costs are recognised as an expense for the period in which they are incurred. 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.

Inventories. We state our inventories at the lower of cost, using the first-in first-out, and net realizable value. Our calculation of cost
includes the acquisition cost of raw materials and components, direct labour 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.

U.S. 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, imposed, among other things, an annual excise tax of 2.3% on any
entity that manufactures or imports medical devices offered for sale in the United States. Due to subsequent legislative amendments
the excise tax has been suspended for the period 1 January 2016 to 31 December 2019, and, absent further legislative action, will be
reinstated starting 1 January 2020.

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 time-line 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 curtailment and non-routine
settlements

• Net interest expense or income

Provision for severance indemnity 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.

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
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, 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 are accrued over the service period.

The following share-based incentive awards are offered by the Company:

•

Share Appreciation Rights. A 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.

• 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 re-purchase 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
rateable over the vesting period. Calculation of compensation for restricted share awards requires estimation of employee
turnover and forfeiture rates.

• 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.

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 for each jurisdiction, 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 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.

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).

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 income (loss) per share is calculated by dividing the income (loss) for the year attributable to equity
holders of the parent by the weighted average number of shares outstanding during the year. Diluted EPS is calculated by dividing
the income (loss) attributable to equity holders of the parent by the weighted average number of shares outstanding during the year
plus the weighted average number of shares that would be issued on conversion of all the dilutive potential shares into shares. Refer
to ”Note 25. Earnings per Share” for additional information.

Segments. LivaNova is comprised of two principal business franchises, which are also our reportable segments: Cardiac Surgery and
Neuromodulation, corresponding to our primary therapeutic areas. Other corporate activities include corporate business development
and New Ventures, focused on new growth platforms and identification of other opportunities for expansion.

For further information regarding our business segments, historical financial information and our methodology for the presentation
of financial results, please 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:

Critical Estimates

•

Impairment of non-financial assets. An impairment exists when the carrying value of an asset or cash generating unit
exceeds its recoverable amount, which is generally based on available data from binding sales transactions, conducted
at arm’s length for similar assets, observable market prices less incremental costs for disposing of the asset or based
on a discounted cash flow model. The discounted cash flow model is most sensitive to the discount rate used as well
as the expected future cash inflows and the growth rate used for extrapolation purposes. Refer to disclosure in "Note
10. Goodwill and Intangible Assets" where reasonably possible changes in key assumptions could affect the carrying
value.

• 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, underlying actuarial
assumptions and sensitivity analysis, see ‘‘Note 22. Employee Retirement Plans.’’

•

Intangible Assets - In-process research and development. In-process R&D was recognized as part of the acquisition of
Caisson, based 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. The key estimates in the
valuation include the discount rate and the expected future cash inflows.

Critical Judgements

• 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. The outcome of these matters is not certain and judgement is required in determining
whether these matters require the recognition of a liability. The most significant matter considered in the period relates

to the product remediation plan for our 3T device. For more information, see ‘‘Note 24. Commitments and
Contingencies.’’

•

Taxes. We prepare and file our tax returns based on an interpretation of tax laws and regulations and 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.
See "Note 23. Income Taxes" and "Note 24. Commitments and Contingencies."

• 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. 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
franchises and entities, as well as to achieve its aims, LivaNova 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 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 policies and risk appetite.
All derivative activities for risk management purposes are carried out by 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 to 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 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 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.

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 LivaNova could be required to pay.
Cash outflows for financial liabilities without fixed amount or timing are based on the conditions existing at the respective balance
sheet date.

Contractual undiscounted cash outflows were as follows (in thousands):

Due Within 1
Year

1-2 Years

2-5 Years

Over
5 Years

Total

31 December 2017

Non-derivative financial instruments

Trade payables

Financial liabilities
Total

Financial derivative liabilities

- on exchange risk

- on rate risk
Total

84,716

25,844

110,560

460

834

1,294

— $

21,026

38,456

2,476

84,716

87,802

21,026

38,456

2,476

172,518

— $

506

— $

245

— $

—

— $

460

1,585

2,045

Due Within 1
Year

1-2 Years

2-5 Years

Over
5 Years

Total

31 December 2016

89,514

— $

—

21,301

110,815

942

3,804

21,814

25,618

699

— $

—

50,767

693

— $

—

2,634

89,514

3,804

96,515

2,634

189,833

— $

2,334

Non-derivative financial instruments

Trade payables

Public grants

Financial liabilities
Total

Financial derivative liabilities

- on rate risk

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 USD, Euro, Canadian Dollar, GBP 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 80% of consolidated EBITDA denominated in material
currencies, hedged against USD, LivaNova’s reporting currency. At 31 December 2017, cash flow hedge is carried out for FX net
risk positions denominated in Euro, Japanese Yen, Canadian Dollar and the GBP.

Based on our exposure to foreign currency exchange rate risk, a sensitivity analysis indicates that if the USD had uniformly
strengthened by 10% against the Canadian Dollar, GBP and the Japanese Yen, in the year ended 31 December 2017, the effect on
our unrealised income, for our derivatives outstanding at 31 December 2017, would have been approximately $6.0 million; if the
USD had uniformly weakened by 10% against the same currencies, the effect on our unrealized expenses for our derivatives
outstanding at 31 December 2017 would have been approximately $7.3 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 USD, Euro, GBP 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 assets
- not for hedging(1)
Total assets

Financial derivative liabilities

- for hedging

Net exposure

EUR

USD

JPY

GBP

Other

Total

31 December 2017

58,840

3,220

1,268

5,654

69,003

661

—

694

30,705

417

881

898

—

90,843

4,118

2,109

5,754

69,894

204

208

72,211

585

6,543

—

122

1,390

7,549

—

4,402

11,951

1,658

33,922

—

417

135

7,447

1,150

104,492

167

—

267

434

15,615

70,098

5,462

91,175

$ (71,517) $

84,300

4,082

$ (10,561) $

7,013

13,317

— $

—

(351) $
(351)

(405) $
(405)

1,232

—

— $

—
(351) $

(505)
549

559
(964) $

406

826

520

460

____________
(1) For hedging transactions that do not meet the requirements for hedge accounting.

Assets

Cash and cash equivalents denominated in
foreign currency

Trade receivables and other 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

EUR

USD

JPY

GBP

Other

Total

31 December 2016

282

7,888

3,655

946

4,191

16,962

548

—

830

24,940

5,325

(76)

5,205

35,942

318

33,146

—

8,980

314

1,184

9,406

642

53,546

6,639

79,038

79,111

316

7,026

225

—

225

583

2,899

3,521

212

7,660

—

79,148

233

445

3,520

90,328

Net exposure

$ (78,281) $

26,120

8,755

(2,337) $

8,961

$ (36,782)

Financial derivative assets
- not for hedging (1)
- for hedging
Total

Net exposure

725

2,537

307

— $

—

725

—

2,537

4,186

4,493

725

730

(216)
(216)

3,574

4,695

8,269

725

2,537

4,493

730

(216) $

8,269

____________
(1) For hedging transactions that do not meet the requirements for hedge accounting.

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 year ended 31 December 2017, the Company’s debt at variable
rates was denominated in Euro.

As at 31 December 2017, LivaNova Group had the following financing denominated in USD:

•
•

a local credit facility in favour of LivaNova Columbia for an amount of $770,000,
a revolving credit facility of $20 million with Barclays Bank in favour of LivaNova PLC.

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 2017 and 31 December 2016, the Company had outstanding derivative contracts to hedge against the risk of
interest rate fluctuations in notional amounts of $56.0 million and $63.2 million, respectively, equal to about 38% and 51% of
consolidated financial liabilities, respectively.

As at 31 December 2017, if interest rates on Euro-denominated floating rate 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 $84,000 lower or higher,
mainly as a result of higher or lower interest expense on the debt. Other components of equity would have been $502,000 lower as
a result of an increase in the interest rate curve with a positive impact on the fair value of our fixed interest rate swaps (derivative

designated for hedge accounting) or $50,000 higher as a result of an decrease in the interest rate curve with a negative impact on the
fair value of our fixed interest rate swaps (derivatives designed for hedge accounting).

The following assumptions were used for the sensitivity analysis as at 31 December 2017:

• Unhedged financial liabilities: change of +0.10% - (0.10)% in the rate curve at 31 December 2017 relative to Euro

rates;

• Hedged financial liabilities: change of +0.50% - (0.05)% in the rate curve at 31 December 2017 relative to Euro and

USD 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. Refer to “Note 14. Trade Receivables and Allowance for Bad Debt” for
more details. In addition, we have historically had 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 2017

31 December 2016

44,184

3,638

282,145

24,519

1,395

93,615

49,217

38,345

1,540

275,730

17,296

7,094

39,789

48,939

498,713

428,733

The risk related to bank accounts, financial assets and assets for financial derivatives is limited since all bank and financial counter-
parties have a high rating.

The guarantees issued by LivaNova are primarily due to unconditional bank guarantees, irrevocable letters of credit, bid bonds,
guarantees to the governmental tax authorities and tenancy guarantees, and thus, the related credit risk is remote and has been remote
as viewed 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 (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
investment grade credit rating 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 uncollectable receivables for past-due receivables for each LivaNova entity and the
ageing of each receivable.

Changes in provisions for uncollectable 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
(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 2017

31 December 2016

213,856
14,173
34,726
14,760
3,139
1,491
282,145

206,286
28,148
21,227
13,320
4,344
2,405
275,730

Trade receivables that are past due were $68.3 million and $69.4 million at 31 December 2017 and 31 December 2016, respectively.
Of this amount 23.5% and 24.6% at 31 December 2017 and 31 December 2016, 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 $213.9 million and $206.3 million at 31 December 2017 and 31
December 2016, respectively. Of this amount, 15.1% and 16.2% at 31 December 2017 and 31 December 2016, respectively, were
the receivables from government (public) hospitals. As indicated in the following table (in thousands):

31 December 2017

31 December 2016

Total

Performing

Past Due

Total

Performing

Past Due

By Sector

Public
Private
Total

48,296
233,849
$ 282,145

32,223
181,633
213,856

16,073
52,216
68,289

50,542
225,188
$ 275,730

33,451
172,835
206,286

17,091
52,353
69,444

Concentrations of risk by region are provided below to further assess the risk related to the trade receivables (in thousands except
D.S.O.):

31 December 2017

31 December 2016

D.S.O.

Total

Performing

Past Due

D.S.O.

Total

Performing

Past Due

By Region

Italy
Spain
France
Germany
Rest of Europe
North America
Japan
Rest of world
Total

191
148
75
32
73
81
80
161
96

17,839
7,766
8,374
3,210
23,968
134,831
9,939
76,218
$ 282,145

12,623
5,708
6,761
3,162
14,701
112,226
9,939
48,736
213,856

5,216
2,058
1,613
48
9,267
22,605
0
27,482
$ 68,289

161
122
59
27
64
57
78
139
80

34,473
13,573
22,230
3,510
23,160
84,419
15,872
78,493
$ 275,730

19,278
9,002
18,262
3,273
15,881
70,553
16,029
54,008
206,286

15,195
4,571
3,968
237
7,279
13,866
(157 )
24,485
69,444

Revenues are derived from a large number of customers with no customers being individually material.

The average collection period increased from 80 days at 31 December 2016 to 96 days at 31 December 2017. 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 4. Fair Value Measurements

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 maximises
the use of observable inputs and minimises 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. Level 3 assets include investments in private companies
classified as AFS and level 3 liabilities consist of include contingent payments recognised as a result of the acquisition of Cellplex
Pty Ltd. and Inversiones Drilltex SAS and contingent consideration recognized as a result of the acquisition of Caisson.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis (in
thousands):

Fair Value as at
31 December
2017

Fair Value Measurements
Using Inputs Considered as:

Level 1

Level 2

Level 3

Assets:

Available-for-sale investments

Assets held for sale

Derivative Assets – for hedging (exchange rates)

Derivative Assets – not 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

39,965

13,628

—

519

— $

39,965

—

13,628

—

519

—

54,112

— $

14,147

39,965

460

— $

460

1,585

—
33,973

—

—
—

1,585

—
—

36,018

— $

2,045

—

—
33,973

33,973

____________
(1) Our recurring fair value measurements, using significant unobservable inputs (level 3), relate solely to our contingent consideration liability. Refer to “Note

19. Provisions” for a the changes in the fair value of our contingent consideration liability.

Fair Value as at
31 December
2016

Fair Value Measurements
Using Inputs Considered as:

Level 1

Level 2

Level 3

Assets:

Available-for-sale investments

Assets held for sale

Derivative Assets – for hedging (exchange rates)

Derivative Assets – not 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

33,777

— $

4,477

4,911

3,358

—

4,911

3,358

33,777

4,477

—

46,523

— $

8,269

38,254

2,334
—

—

3,890

— $
—

—

2,334
—

—

6,224

— $

2,334

—
—

—

3,890

____________
(1) Our recurring fair value measurements, using significant unobservable inputs (level 3), relate solely to our contingent consideration liability. Refer to “Note

19. Provisions” for the changes in the fair value of our contingent consideration liability.

100

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 counterparts, adjustments for counterparts’ 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 year ended 31 December 2017, it was determined that the fair value of the investment
in Respicardia Inc. 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 $5.5 million, in addition, during 31 December 2017 we
recognized an impairment of our cost-method investment in Rainbow Medical Ltd. An additional round of financing, which included
a new investor, indicated that the carrying value of our aggregate investment in Rainbow Medical might not be recoverable and that
the decrease in value of our aggregate investment was other than temporary. We, therefore, estimated the fair value of our investment
using the income approach. The estimated fair value of our aggregate investment was below our carrying value by $3.0 million. The
fair value of the other investments in equity shares approximated their carrying value as at 31 December 2017. 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. Refer to "Note
12. Financial Assets" for further information.

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 2017
and 31 December 2016. 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.

101

During the year ended 31 December 2017, we recorded an impairment of our investment in, and notes receivable from Highlife of
$13.0 million; consisting of investment impairment of $4.7 million and the notes receivable impairment of $8.3 million.

In May 2017, we acquired the remaining equity interests in Caisson and we began consolidating the results of Caisson as of the
acquisition date and recognized a pre-tax non-cash gain of $38.1 million.

During the year ended 31 December 2016, we recorded a $5.5 million impairment of our equity-method investment in Respicardia,
Inc. This impairment is included in our share of losses from equity method investments in the consolidated statements of income
(loss). In addition, during the year ended 31 December 2016, we recorded an impairment of approximately $5.7 million, for our
Costa Rica manufacturing plant and equipment. These impairments were triggered by our plan to transfer manufacturing to Houston,
Texas from Costa Rica and are included in exceptional Items in the consolidated statements of income (loss). Refer to “Note 9.
Property Plant and Equipment” for further information.

Financial Instruments Not Measured at Fair Value

The carrying values of our cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair
value due to the short-term nature of these items.

The carrying value of our long and short-term debt as of 31 December 2017 and 31 December 2016 was $146.0 million and $122.9
million, respectively, 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 and short-term bank loans. 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.

• 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”. There were no factoring agreements at
31 December 2017 or 31 December 2016.

102

Classification of Financial Instruments at 31 December 2017

Classification

Carrying Amount

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

Financial
Assets/
Liabilities at
Fair Value
Through
Profit or Loss

(in thousands)

Assets

Financial assets

— $

1,276

2,943

39,965

— $

44,184

— $

44,184

Other assets

Trade receivables

Other receivables

Financial derivative
assets

Other financial assets

Cash and cash
equivalents

—

519

—

3,638

282,145

24,519

—

1,395

93,615

—

3,638

282,145

24,519

519

1,395

282,145

24,519

519

1,395

93,615

3,638

282,145

24,519

519

1,395

93,615

—

3,638

Total financial assets

519

406,588

2,943

39,965

— $

450,015

402,193

47,822

450,015

Liabilities

Financial liabilities

— $

87,802

— $

87,802

25,844

61,958

87,802

Other liabilities

Trade payables

Other payables

Financial derivative
liabilities

Other financial liabilities

Total financial
liabilities

—

4,927

84,716

50,137

—

58,190

—

2,045

—

4,927

84,716

50,137

2,045

58,190

—

4,927

84,716

50,137

1,294

58,190

—

751

—

4,927

84,716

50,137

2,045

58,190

— $

285,772

2,045

287,817

220,181

67,636

287,817

103

Classification of Financial Instruments at 31 December 2016

Classification

Carrying Amount

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

Financial
Assets/
Liabilities at
Fair Value
Through
Profit or Loss

(in thousands)

Assets

Financial assets

— $

2,031

2,537

33,777

— $

— $ 38,345

— $

38,345

Other assets

Trade receivables

Other receivables

—

Financial derivative assets

3,358

1,579

275,730

21,011

—

7,094

39,789

—

4,911

—

1,579

275,730

21,011

8,269

7,094

39,789

—

1,579

275,730

21,011

8,269

7,094

39,789

—

1,579

275,730

21,011

8,269

7,094

39,789

—

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

3,358

347,234

2,537

33,777

— $

4,911

$ 391,817

351,893

39,924

391,817

— $

96,516

— $ 96,516

21,301

75,215

96,516

—

3,285

89,514

27,362

—

26,349

—

2,334

—

3,285

89,514

27,362

2,334

26,349

—

3,285

89,514

27,362

942

26,349

—

1,392

—

3,285

89,514

27,362

2,334

26,349

Total financial liabilities

— $

243,026

2,334

$ 245,360

165,468

79,892

245,360

Note 6. Business Combinations

Caisson Interventional, LLC Acquisition. On 2 May 2017, we acquired the remaining 51% equity interests in Caisson for a
purchase price of up to $72.0 million, net of $6.3 million of debt forgiveness, consisting to $18.0 million paid at closing, $14.4
million to be paid after 12 months, and contingent consideration of up to $39.6 million to be paid on a schedule driven primarily by
regulatory approvals and a sales-based earnout. Caisson is focused on the design, development and clinical evaluation of a novel
TMVR implant device with a fully transvenous delivery system.

The following table presents the acquisition date fair-value of the consideration transferred and the fair value of our interest in Caisson
prior to the acquisition (in thousands):

Cash(1)
Debt forgiven(2)
Deferred consideration(1)
Contingent consideration(1)
Fair value of consideration transferred
Fair value of our interest prior to the acquisition(2)
Fair value of total consideration

16,216

6,309
13,455

30,342

66,322

52,505

118,827

____________
(1) Concurrent with the acquisition, we recognized $3.7 million of post-combination compensation expense. Of this amount, $1.8 million is reflected as a reduction
of $18.0 million in cash paid at closing of the acquisition, while $1.9 million increased the deferred consideration and contingent consideration liabilities
recognized at the date of the acquisition to a total of $14.1 million and $31.7 million, respectively.

(2) On the acquisition date, we remeasured the notes receivable from Caisson and our existing investment in Caisson at fair value and recognized a pre-tax non-
cash gain of $1.3 million and $38.1 million, respectively, which are included in ‘Gain on acquisition of Caisson Interventional, LLC’ in the consolidated
statements of income (loss).

104

We have recorded no adjustments to the preliminary purchase price allocation at fair value for the Caisson acquisition, as presented
in the following table (in thousands):

Cash and cash equivalents

In-process research and development

Goodwill

Other assets

Current liabilities

Deferred income tax liabilities, net

Net assets acquired

1,468

89,000

44,473

918

1,023

16,009

118,827

Acquired goodwill of $9.6 million is expected to be deductible for tax purposes. Additionally, $3.0 million of the initial cash payment
was deposited in escrow for future claims indemnification. Of this amount, $2.0 million is included in ‘Prepaid expenses and other
current assets’ and the remaining $1.0 million is included in ‘Other long-term assets’ in the consolidated balance sheet as of 31
December 2017.

We recognized acquisition-related expenses of approximately $1.3 million for legal and valuation expenses during the year ended
31 December 2017. Additionally, the results of Caisson for the period of 2 May 2017 through 31 December 2017 added no revenue
and $20.1 million in expenses in our consolidated statements of income (loss). This included $7.2 million in compensation expense
associated with the retention of employees of Caisson.

The contingent consideration arrangements are composed of potential cash payments upon the achievement of certain regulatory
milestones and a sales-based earnout associated with sales of products covered by the purchase agreement. The sales-based earnout
was valued using projected sales from our internal strategic plans.

Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs (in thousands):

Caisson Acquisition
Regulatory milestone-
based payments

Fair value at 2
May 2017

Valuation Technique

Unobservable Input

Ranges

14,250 Discounted cash flow

Discount rate

Probability of payment

2.6% - 3.4%

90% - 95%

Projected payment years

2018 - 2023

Sales-based earnout

16,091 Monte Carlo simulation

Discount rate

Sales volatility

11.5% - 12.7%

36.9%

Projected years of sales

2019 - 2033

30,341

Note 7. Discontinued Operations

On 20 November 2017, we entered into a LOI to sell our CRM Business Franchise to MicroPort Scientific Corporation for $190.0
million in cash, and, on 8 March 2018, we entered into Purchase Agreement. Completion of the transaction is subject to receipt of
relevant regulatory approvals, including fulfilling the requirements of the Hong Kong Stock Exchange’s Major Transaction
requirements, and other customary closing conditions. We expect the transaction to close in the second quarter of 2018.

105

We concluded that the sale of CRM represents a strategic shift in our business that will have a major effect on future operations and
financial results. As a result, we classified the operating results of CRM as discontinued operations in our consolidated statements
of (loss) income. Additionally we tested the long-lived assets of CRM for impairment utilising fair value less cost to sell and recognized
an impairment of tangible and intangible assets of $36.9 million, net of a $8.0 million tax benefit. The impairment is presented
separately as Impairment of discontinued operations, net of tax on the consolidated statements of (loss) income since the impairment
is significant and resulted from the agreement to sell CRM. The assets and liabilities of CRM are classified as held for sale and
presented as assets (or liabilities) of discontinued operations on the consolidated balance sheets at 31 December 2017. All balance
sheet data previous to 31 December 2017 reflect the assets and liabilities of the CRM business franchise as previously reported.

The following table presents the assets and liabilities of CRM classified as held for sale and presented as assets and liabilities of
discontinued operations in the consolidated balance sheets (in thousands):

31 December 2017

Property, plant and equipment

Intangible assets

Equity investments in associated and joint ventures measured at equity

Deferred tax assets

Other assets

Inventories
Trade receivables

Tax assets

Assets of discontinued operations

Provision for employee severance indemnities and other employee benefit provisions

Deferred income tax liability

Trade payables

Other payables

Provisions

Public grants

Tax payable

Liabilities of discontinued operations

9,348

88,239

6,098

2,517

3,500

54,097
64,684

14,725

243,208

9,860

6,037

26,501

23,230

3,337

2,241

5,084

76,290

106

The following table represents the financial results of CRM presented as net loss from discontinued operations in the consolidated
statements of income (loss) (in thousands):

Year Ended 31
December 2017

Year Ended 31
December 2016

245,171

Net sales

Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative expenses

Research and development

Operating profit before exceptional items

Exceptional items

Operating loss

Foreign exchange and other - (loss) gain

Share of loss from equity method investments

Loss before tax

Income tax benefit

91,632

153,539

109,945

41,992

1,602

43,309
(41,707)
(380)
(4,887)
(46,974)
(14,644)
(32,330) $

249,067

104,269

144,798

121,644

45,051

(21,897)

91,040

(112,937)

350

(3,933)

(116,520)

(5,195)

(111,325)

Net loss from discontinued operations

The following exceptional items are included within operating profit above (in thousands):

Merger and integration expenses
Restructuring expenses
CRM Impairment
Total exceptional items

Year Ended 31
December 2017

Year Ended 31
December 2016

22
(1,617)
44,904
43,309

160
18,566
72,314
91,040

The following table represents the cash flows from operating, investing and financing activities of CRM presented within the results
of the consolidated statements of cash flows (in thousands):

Net cash provided by operating activities
Net cash used in investing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Year Ended 31
December 2017

Year Ended 31
December 2016

10,202
(10,202)
—
—
— $

3,809
(3,809)
—
—
—

During the year ended 31 December 2017 we invested $4.5 million in MicroPort Sorin CRM (Shanghai) Co. Ltd. which is included
in assets of discontinued operations on the consolidated balance sheets.

The future minimum lease payments for operating leases of CRM as of 31 December 2017 are (in thousands):

No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years

6,107
18,234
20,388

107

Note 8. Restructuring Plans

We initiate restructuring plans to leverage economies of scale, streamline distribution and logistics and strengthen operational and
administrative effectiveness in order to reduce overall costs. Costs associated with these Plans were reported as restructuring expenses
in the operating results of our consolidated statements of income (loss).

Our 2015 and 2016 Reorganization Plans were initiated October 2015 and March 2016, respectively, in conjunction with the
completion of the Mergers. The Plans include the closure of the R&D facility in Meylan, France and consolidation of its research
and development capabilities into the Clamart, France facility. In addition, during the year ended 31 December 2016, we initiated a
plan to exit the Costa Rica manufacturing operation and transfer its operations to Houston, Texas. We completed the exit of Costa
Rica in the first half of 2017 and we plan to complete the 2015 and 2016 Reorganization Plans in the first half of 2018.

In March 2017, we committed to a plan to sell our Suzhou Industrial Park facility in Shanghai, China. As a result of this exit plan
we recorded an impairment of the building and equipment of $5.4 million and accrued $0.5 million of additional costs, primarily
related to employee severance, during the year ended 31 December 2017. In addition, the remaining carrying value of the land,
building and equipment was reclassified to ‘Assets held for sale’ in March 2017, with a balance of $13.6 million as of 31 December
2017 in the consolidated balance sheet. In December 2017, we executed a letter of intent for the sale of the Suzhou facility.

We estimate that these Plans will result in a net reduction of approximately 324 personnel of which 314 have occurred as of 31
December 2017.

The restructuring plan’s liabilities for the period 1 January 2017 to 31 December 2017 are as follows (in thousands):

Beginning liability balance

Charges

Cash payments

Ending liability balance

Employee Severance
and Other
Termination Costs

21,092

10,076
(27,279)
3,889

Other

Total

3,056

5,363
(5,794)
2,625

24,148

15,439

(33,073)

6,514

The following table presents restructuring expense by reportable segment, with discontinued operations included (in thousands):

Cardiac Surgery(1)
Neuromodulation(2)
Other

Restructuring expense from continuing operations

Discontinued operations
Total

Year Ended 31
December 2017

Year Ended 31
December 2016

8,819

561

7,676

17,056
(1,617)
15,439

11,042

14,769

11,566

37,377

18,566
55,943

____________
(1) Cardiac Surgery restructuring expense for the year ended 31 December 2017 included building and equipment impairment of $5.4 million related to the Suzhou,

China facility exit plan.

(2) Neuromodulation restructuring expense for the year ended 31 December 2016 included building and equipment impairment of $5.7 million related to the Costa

Rica exit plan.

108

Note 9. Property, Plant and Equipment

(in thousands)
At 31 December 2016

Gross amount

Accumulated depreciation and
impairment

Net amount

At 31 December 2017

Gross amount

Accumulated depreciation and
impairment

Net amount

Land

Buildings and
Building
Improvements

Equipment,
Other,
Furniture,
Fixtures

Capital
Investment in
Process

Total

15,181

96,304

150,545

17,012

279,042

—

15,181

(11,852)
84,452

(60,661)
89,884

—

(72,513)

17,012

206,529

16,293

80,280

157,520

9,944

264,037

—

16,293

(11,542)
68,738

(74,506)
83,014

—

(86,048)

9,944

177,989

Changes during the year in the net amount of each category of property, plant and equipment are indicated below (in thousands):

Net Amount at 31 December 2015

15,741

Land

Buildings and
Building
Improvements
72,708
$

Equipment,
Other,
Furniture,
Fixtures

Capital
Investment in
Process

Total

101,133

41,129

230,711

Additions

Disposals

Impairment

Depreciation

Currency translation (losses)

Reclassifications

Other Charges

Assets classified as held for sale
Net Amount at 31 December 2016

Additions

Acquisition of Caisson Interventional,
LLC

Disposals
Impairment

Depreciation

Currency translation gains

Reclassifications

Assets classified as held for sale
Discontinued Operations(1)

—

(243)

346

—

(663)

15,181

—

—
—

—

1,112

—

7,912
(47)
(2,540)
(4,827)
(987)
16,047

—
(3,814)
84,452

1,623

55
(232)
(3,963)
(4,112)
6,138
(714)
(13,628)
(881)

9,975
(2,592)
(8,760)
(30,994)
(386)
21,445

—

89,884

14,273

465
(2,682)
(6,554)
(25,544)
7,680

11,799

—
(6,307)

17,469
(68)
(149)
—
(1,354)
(39,989)
(26)
—

17,012

7,613

250
(420)
(709)
—

958
(12,600)
—
(2,160)

35,356

(2,707)

(11,449)

(35,821)

(2,970)

(2,151)

(4,477)

206,529

23,509

770

(3,334)
(11,226)

(29,656)

15,888

(1,515)

(13,628)

(9,348)

Net Amount at 31 December 2017

16,293

68,738

83,014

9,944

177,989

____________
(1) Refer to "Note 7. Discontinued Operations."

A building in Cantù, Italy with a net book value of $0.3 million and $0.6 million as at 31 December 2017 and 31 December 2016, respectively,
was provided as collateral to secure a long-term loan taken out by Sorin Group Italia S.r.l.

109

During the year ended 31 December 2017, we initiated a plan to sell our Suzhou Industrial Park facility in Shanghai, China and as
a result of this exit plan we recorded impairments of the building and equipment of $5.4 million, which were recorded in Exceptional
items in the consolidated statements of income (loss). In addition, we classified the remaining carrying value of the land, building
and equipment of our Suzhou facility, of $13.6 million, to assets held for sale in the consolidated balance sheet as of 31 December
2017.

During the year ended 31 December 2016, we initiated a plan to exit the Costa Rica manufacturing operation and transfer those
activities to Houston, Texas. Movable machinery and equipment was transferred to various locations, primarily to Europe. As a result
of our exit from Costa Rica, we recorded impairments for the building and equipment in 31 December 2016 $5.7 million, which is
included in restructuring expenses within exceptional Items in the consolidated statements of income (loss). In addition, the carrying
value of $4.5 million of the land and building after impairment was classified as assets held for sale in the consolidated balance sheet
as of 31 December 2016.

During the year ended 31 December 2016, an impairment of $5.5 million was recorded against equipment within the CRM cash
generating unit. Refer to “Note 10. Goodwill and Intangible Assets” for further details.

Note 10. Goodwill and Intangible Assets

(in thousands)

Goodwill

At 31 December 2016

Developed
Technology

Customer
Relationships

Trademarks
and Trade
Names

In-Process
R&D

Other
Intangible
Assets

Software

Total

Gross amount

$ 711,523

206,048

441,088

12,649

— $

2,106

27,383

$ 689,274

Accumulated amortisation and

impairment

Net amount

At 31 December 2017

(18,348)

(28,880)

(67,362)

(3,689)

—

(1,226)

(15,569)

(116,726)

$ 693,175

177,168

373,726

8,960

— $

880

11,814

$ 572,548

Gross amount

$ 787,929

178,610

327,496

14,391

89,000

805

31,653

$ 641,955

Accumulated amortisation and

impairment

Net amount

—

(26,428)

(40,469)

(7,795)

—

(213)

(17,283)

(92,188)

$ 787,929

152,182

287,027

6,596

89,000

592

14,370

$ 549,767

110

The changes in the net carrying value of each class of intangible assets during the year are indicated below (in thousands):

Goodwill

Developed
Technology

Customer
Relationships

Trademarks
and Trade
Names

In-Process
R&D

Other
Intangible
Assets

Software

Total

$ 712,150

207,560

445,455

12,487

— $

265

14,477

$ 680,244

Net Amount at 31 December

2015

Additions

Amortisation

Impairment

Currency translation

(losses)

Reclassifications

Other changes

—

(18,348 )

—

(15,647 )

(10,521 )

—

(28,389 )

(37,041 )

—

(3,228 )

—

(627 )

(4,224 )

(6,299 )

(299 )

—

Net Amount at 31 December

2016

693,175

177,168

373,726

8,960

Acquisition of Caisson
Interventional, LLC

44,472

Additions

Disposals

Amortisation

Impairment

—

Currency translation gains

50,282

Reclassifications
Discontinued operations(2)

—

(15,103 )

(10,375 )

19,699

—

(23,745 )

(30,361 )

32,453

—

(19,207 )

(65,046 )

—

(3,520 )

—

1,156

—

89,000

—

1,878

1,128

3,006

(91 )

(5,590 )

(52,945 )

(962 )

(21 )

(48,545 )

(308 )

(274 )

(11,404 )

—

2,053

2,151

880

11,814

572,548

—

1,106

(8 )

(166 )

1,014

(1 )

—

9,491

(11 )

89,000

10,597

(19 )

(6,319 )

(48,853 )

—

(39,722 )

1,148

—

54,455

—

(2,233 )

(1,753 )

(88,239 )

Net Amount at 31 December

2017

$ 787,929

152,182

287,027

6,596

89,000

592

14,370

$ 549,767

____________
(1) During the year ended 31 December 2017, we recognized $89.0 million of in-process R&D related to the acquisition of Caisson.
(2) Refer to "Note 7. Discontinued Operations."

Amortisation of intangible assets charged to the consolidated statements of income (loss) totalled $48.9 million and $52.9 million
for the year ended 31 December 2017 and 31 December 2016, respectively.

The amortisation periods for our finite-lived intangible assets as at 31 December 2017 were as follows:

Developed technology
Customer relationships
Trademarks and trade names
Other intangible assets
Software

Impairment of Goodwill and Intangible Assets

Minimum Life in
Years

Maximum Life in
Years

9
16
4
5
1

15
18
4
5
10

Our CGUs consist of: Cardiac Surgery and Neuromodulation. The carrying amount of goodwill by CGU (in thousands):

Neuromodulation
Cardiac Surgery
Other
Total

31 December 2017

31 December 2016

315,943
427,514
44,472
787,929

315,943
377,232

—
693,175

We performed a quantitative assessment for our Neuromodulation and Cardiac Surgery CGUs as of 31 December 2017 in
accordance with IAS 36 ‘Impairment of Assets’. The methodology applied to most CGUs value in use calculations, reflecting

111

past experience and external sources of information, include Board approved budgets based on pre-tax cash flows with a CAGR
of 1.4% to 6.6% for the next five years, pre-tax discount rates between 8.5% and 10% derived from the Company’s benchmarked
weighted average cost of capital (WACC), and long-term nominal growth rate of 3%. We concluded that it remains more- likely
than not that the Neuromodulation and Cardiac Surgery reporting units' goodwill was not impaired. The value in use model used
for calculating fair value is most sensitive to the discount rate as well as the expected future cash inflows and the growth rate for
extrapolation purposes. A 1% change in the discount rate or growth rate used would affect the fair value calculated by
approximately $200 million for our Cardiac Surgery CGUs at 31 December 2017.

Additionally, we performed a quantitative assessment of the goodwill recognized in conjunction with the acquisition of Caisson
which is displayed as "Other" in the table above. The value in use calculation has been based on a 15 year projection period which
is consistent with the expected useful economic life of the Caisson technology. The assessment included a discounted cash flow
model test that included a discount rate of 18.2% and a long-term growth rate of 2%.

IAS 36 provides that, if there is any reasonably possible change to a key assumption that would cause the CGU’s carrying amount
to exceed its recoverable amount, further disclosures are required. The value in use calculation resulted in an excess of fair value
over carrying value of approximately 5% as the acquisition was recently completed in 2017. We consider the Caisson CGU
carrying value to approximate fair value as of year end due to the first year of acquisition and a change of 1% in the discount rate
or growth rate used would affect the fair value calculated by $25 million. We concluded that it remains more-likely than not that
the goodwill calculated as part of the Caisson acquisition in the current year was not impaired.

Note 11. Investments in Associates, Joint Ventures and Subsidiaries

Equity investments in associates and joint ventures measured at equity.

The table below lists the investments in associates and joint ventures and the balance (in thousands except percentage of ownership):

La Bouscarre S.C.I.
Caisson Interventional LLC (2)
Highlife S.A.S.(3)
MicroPort Sorin CRM (Shanghai) Co. Ltd.(4)
Total

Nature of
Relationship
Associate

Associate

Joint venture

% Ownership (1)
50%

31 December 2017
17
$

31 December 2016
16
$

—%

25%

49%

—

1,782

—

1,799

16,423

6,009

4,867

27,315

____________
(1) Ownership percentages as at 31 December 2017.
(2) On 2 May 2017, we acquired the remaining 51% equity interests in Caisson, and we began consolidating the results of Caisson as of the acquisition date. Refer

to “Note 6. Business Combinations” for further information.

(3) During the year ended 31 December 2017, we recognized an impairment of our investment in, and notes receivable from, Highlife. Refer to the paragraph below
for further details. In addition, due to additional investments by third parties and the conversion of our note receivable to equity our equity interest fell to 25%
from 38% during the year ended 31 December 2017.

(4) During the year ended 31 December 2017 we invested $4.5 million in MicroPort. In addition, due to the sale of CRM to MicroPort, our investment in MicroPort

is held in ‘Assets of discontinued operations’ on the consolidated balance sheets as at 31 December 2017.

Highlife Impairment

We recognized an impairment of our equity-method investment in, and notes receivable from, Highlife during the year ended 31
December 2017. Certain factors, including a revision in our investment strategy and a new strategic investor, indicated that the
carrying value of our aggregate investment might not be recoverable and that the decrease in value of our aggregate investment was
other than temporary. We, therefore, estimated the fair value of our investment and notes receivable using the market approach. The
estimated fair value of our aggregate investment was below our carrying value by $13.0 million. This aggregate impairment was
included in share of loss from equity method investments in the consolidated statements of income (loss).

112

Summarised 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):

Highlife S.A.S.

— $

1,740

4,182

3,333

Revenue

Net Loss

Total Assets

Equity

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. The share of loss from equity method investments of $16.7 million includes the share of net loss included in the table above
as well as the $13.0 million impairment in Highlife.

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 2017. The Company has no contingent
liabilities relating to its interests in the associates and joint ventures.

113

Principal subsidiaries. The Company had the following subsidiaries and associates as at 31 December 2017:

Registered Office

Currency

% Consolidated
Group
Ownership

LivaNova PLC (Italian Branch)

Via Benigno Crespi 17 20159 Milan, Italy

Caisson Interventional LLC

10900 73rd Ave N Ste 116, Maple Grove, MN 55339 USA

Cardiosolutions Inc.

375 West Street, West Bridgewater, MA 02379 USA

Cyberonics Holdings LLC

100 Cyberonics Boulevard, Houston, TX 77058 USA

Cyberonics Latam SRL

Cyberonics Netherlands CV

Cyberonics Spain SL

Enopace Biomedical Ltd

ImThera Medical, Inc.

La Bouscarre S.C.I.

LivaNova Australia PTY Limited

LivaNova Austria GmbH

LivaNova Belgium NV

Edificio B49, 51 Ave O, Zona Franca Coyo, Coyo-Alajeuela,
Costa Rica 20113
100 Cyberonics Boulevard, Houston, TX 77058 USA

100 Cyberonics Boulevard, Houston, TX 77058 USA

15 Alon Hatavor St, Caesaria 38900 Israel

12555 High Bluff Dr, Ste 310, San Diego, CA 92130 USA

Route de Revel 31450 Fourquevaux France

16-18 Hydrive Close - Dandenong South - Victoria 3175,
Australia
Donau City Strasse 11/16 1220 Wien, Austria

Ikaroslaan 83, 1930 Zaventem, Belgium

Livanova Brasil Comércio e Distribuição de
Equipamentos Médico-hospitalares Ltda
LivaNova Canada Corp.

Rua Liege, 54 – Vila Vermelha, 04298-070 – São Paulo - SP -
Brasil
280 Hillmount Road, Unit 8, Markham, ON L6C 3A1 Canada

LivaNova Colombia Sas

Avenida Calle 80 No. 69-70 Bodega 37, Bogotá, Colombia

LivaNova Deutschland GmbH

Lindberghstrasse 25, D - 80939 München, Germany

LivaNova Espana, S.L.

LivaNova Finland OY

LivaNova France SAS

LivaNova Holding S.r.l.

LivaNova Holding SAS

Avenida Diagonal 123, planta 10, 08005, Barcelona, Spain

c/o Kalliolaw Asianajotoimisto Oy, Södra kajen 12, 00130
Helsinki, Finland
4 avenue Reaumur 92134 Clamart, France

Via Benigno Crespi, 17 - 20159 Milano, Italy

4 avenue Reaumur 92134 Clamart, France

LivaNova Holding USA Inc.

14401 W. 65th Way - Arvada, CO 80004 USA

LivaNova Inc.

1570 Sunland LN, Costa Mesa, CA 92626 USA

LivaNova India Private Limited

Barakhamba Road 110001 New Delhi, India

LivaNova IP Limited

20 Eastbourne Terrace, London, England W2 6LG, United
Kingdom

LivaNova Japan K.K.

11-1 Nagatacho 2 chome, Chiyoda-ku, Tokyo, 100-6110 Japan

LivaNova Nederland N.V.

Westerdoksdijk 423, 1013 BX, Amsterdam, Netherlands

LivaNova Norway AS

c/o AmestoAccounthouse AS, Smeltedigelen 1, 0195 Oslo,
Norway

LivaNova Poland Sp. Z o.o.

Park Postepu Bud A Ul. Postepu 21 PL-02 676 Warszawa, Poland

LivaNova Portugal, Lda

Edificio Zenith, Rua Dr. António L. Borges n. 9/9 a - 6a -
Miraflores - 1495-131 Algés, Portugal

LivaNova Scandinavia AB

Djupdalsvägen 16, 192 51 Sollentuna, Scandinavia

LivaNova Singapore Pte Ltd

The Adelphi, 1 Coleman Street, #10-07, Singapore 179803

LivaNova Site Management S.r.l.

Via Benigno Crespi 17 20159 Milan, Italy

LivaNova Switzerland SA

WTC Av. Grattapaille 2 1018 Lausanne CH, Switzerland

LivaNova UK Limited

1370 Montpellier Court, Gloucester Business Park, Gloucester,
Gloucestershire, GL3 4AH, United Kingdom

114

EUR

USD

CRC

EUR

USD

EUR

AUD

EUR

BRL

CAD

COP

EUR

USD

INR

EUR

JPY

EUR

NOK

PLN

EUR

SGD

EUR

100

Registered Office

Currency

% Consolidated
Group
Ownership

LivaNova USA Inc.

100 Cyberonics Boulevard, Houston, TX 77058 USA

Livn Irishco 2 UC

70 Sir John Rogerson’s Quay, Dublin 2, Ireland

Livn Irishco 3 Unlimited Company

70 Sir John Rogerson’s Quay, Dublin 2, Ireland

Livn Irishco Unlimited Company

70 Sir John Rogerson’s Quay, Dublin 2, Ireland

Livn Luxco 2 Sarl

Livn Luxco Sarl

Livn UK 2 Co Limited

Livn UK 3 Co Limited

Livn UK Holdco Limited

Livn US 1, LLC

Livn US 3 LLC

Livn US Holdco, Inc.

Livn US Lp

15 Rue Edward Steichen L-2540 Luxembourg

20 Eastbourne Terrace, London, England W2 6LG, United
Kingdom

2711 Centerville Road, Suite 400, Wilmington, DE 19808

2711 Centerville Road, Suite 400, Wilmington, DE 19808 USA

1209 Orange Street, Wilmington, DE 19801 USA

2711 Centerville Road, Suite 400, Wilmington, DE 19808 USA

MicroPort Sorin CRM (Shanghai) Co. Ltd

Room 101 Bleg 2 501 Newtone Rd 201203 Shanghaî, China

MicroPort CRM Srl

Saluggia (Vercelli) - Italy, via Crescentino snc

Sobedia Energia

Sorin CRM SAS

Sorin Group Czech Republic

Sorin Group DR, S.r.l.

Via Crescentino sn 13040 Saluggia (VC), Italy

4 avenue Reaumur 92134 Clamart, France

Na poriçi 1079/3a Nové Mesto Praha 110 00 Praha 1, Czech
Republic

Edificio I-3Zona Franca Industrial de las Americas, Autopista Las
Americas Km 22 Z.F. Santo Domingo Este, Dominican Republic

Sorin Group Italia S.r.l.

Sorin Group Rus LLC

Via Benigno Crespi, 17 - 20159 Milano, Italy

Marshal Proshlyakov str. 30 office 304 123458 Moscow, Russia

Sorin Medical (Shanghai) Co. Ltd

Sorin Medical Devices (Suzhou) Co. Ltd

Room 218, 2nd Floor, No. 56 Meisheng Road, China (Shanghai)
Pilot Free Trade Zone

No. 130, Weihe Road, Suzhou Industrial Park, Jiangsu Province,
PRC

USD

EUR

USD

CNY

EUR

USD

EUR

RUB

CNY

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.

Operating performance of the main group companies.

Sorin Group Italia S.r.l.

(thousands of euros)
Net revenues
EBIT

Net profit/(loss)

For The Year Ended
31 December 2017

383,744
(9,260)

(4,773)

115

(thousands of USD)
Net revenues

EBIT

Net profit/(loss)

(thousands of euros)
Net revenues

EBIT

Net profit/(loss)

(thousands of euros)
Net revenues

LivaNova Holding USA, Inc.

Sorin CRM S.A.S.

LivaNova Deutschland GmbH(1)

For The Year Ended
31 December 2017

105,879

(2,544)

28,682

For The Year Ended
31 December 2017

168,838

(37,052)

(46,812)

For The Year Ended
31 December 2017

119,134

EBIT
Net profit/(loss)
____________
(1) LivaNova Deutschland GmbH is a 100% consolidated LivaNova group company that is formally exempt for FS 2017 from GERMAN GAAP auditing and

15,803
9,887

LivaNova Canada Corp.

LivaNova USA, Inc.

publishing.

(thousands of Canadian dollars)
Net revenues

EBIT

Net profit/(loss)

(thousands of USD)
Net revenues

EBIT

Net profit/(loss)

Note 12. Financial Assets

Non-Current Financial Assets

(in thousands)

Investments in equity instruments in privately-held companies

Financial receivables due from associated companies

Corporate owned life insurance policies

Other

Total non-current financial assets

For The Year Ended
31 December 2017

137,910

35,187

17,463

For The Year Ended
31 December 2017

492,558

79,796

(20,656)

31 December 2017

31 December 2016

39,965

417

2,943

859

44,184

33,777

1,870

2,537

161

38,345

116

The table below lists our non-current financial assets of investments in equity instruments in privately-held companies classified as
available-for-sale in the consolidated balance sheets (in thousands):

Respicardia Inc.(1)
ImThera Medical, Inc. - convertible preferred shares and warrants(2)
Rainbow Medical Ltd.(3)
MD Start II
Total

31 December 2017

31 December 2016

17,422

20,172

1,172

1,199

39,965

17,518

12,000

3,733

526

33,777

____________
(1) Respicardia is a privately funded U.S. company developing an implantable device designed to restore a more natural breathing pattern during sleep in patients
with CSA by transvenous stimulating the phrenic nerve. During the year ended 31 December 2017, we converted a loan to Respicardia of $1.5 million to equity,
we recorded an impairment of $5.5 million and we recorded an FX gain of $3.9 million, Refer to the paragraph below for further details regarding the impairment.
ImThera Medical, Inc. is a private U.S. company developing a neurostimulation device system for the treatment of obstructive sleep apnea. On 16 January
2018, we acquired the remaining outstanding interests in ImThera. Refer to “Note 33. Events after the Reporting Period” for a discussion of our acquisition of
ImThera. At December 31, 2018 we recorded an unrealized gain of $7.3 million to other comprehensive income to reflect the change in fair value of our
investment in ImThera.

(2)

(3) Rainbow Medical Ltd. is an Israeli company that seeds and grows companies developing medical devices in a diverse range of medical fields. During the fourth

quarter of 2017, we impaired our investment in Rainbow Medical. Refer to the paragraph below for further details.

Respicardia Impairment

We recognized an impairment of our cost-method investment in Respicardia during the year ended 31 December 2017. Terms of an
additional round of financing with a new strategic investor indicated that the carrying value of our aggregate investment might not
be recoverable and that the decrease in value of our aggregate investment was other than temporary. We, therefore, estimated the
fair value of our investment using the income approach. The estimated fair value of our investment was below our carrying value
by $5.5 million. This impairment was included in impairment of cost-method investments in the consolidated statements of income
(loss).

Rainbow Medical Impairment

We recognized an impairment of our cost-method investment in Rainbow Medical during the year ended 31 December 2017. An
additional round of financing, which included a new investor, indicated that the carrying value of our aggregate investment might
not be recoverable and that the decrease in value of our aggregate investment was other than temporary. We, therefore, estimated the
fair value of our investment using the income approach. The estimated fair value of our aggregate investment was below our carrying
value by $3.0 million. This aggregate impairment was included in impairment of cost-method investments in the consolidated
statements of income (loss).

Istituto Europeo di Oncologia S.R.L Sale

During the year ended 31 December 2017, we sold our investment in Istituto Europeo di Oncologia S.R.L, for a gain of $3.2
million. This gain is included in foreign exchange and other - gain in the consolidated statements of income (loss).

Current Financial Assets:

(in thousands)
Financial receivables due from associated companies(1)
Other

Total current financial assets

31 December 2017

31 December 2016

1,000

395

1,395

6,852

242

7,094

____________
(1) We recognized an impairment of our notes receivable from Highlife during the year ended 31 December 2017 of $8.3 million. This impairment was included
in "Share of loss from equity method investments" in the consolidated statements of income (loss). In addition, refer to "Note 11. Investment in Associates,
Joint Ventures and Subsidiaries" for further information regarding recognition of impairment of our investment in Highlife's preferred stock.

117

Note 13. Inventories

Inventories consisted of the following (in thousands):

Raw materials
Work-in-process
Finished goods
Total

31 December 2017

31 December 2016

39,810
18,206
86,454
144,470

47,704
32,316
103,469
183,489

Inventories are reported net of the provision for obsolescence which totalled $10.5 million and $9.8 million as at 31 December 2017
and 31 December 2016, respectively. The provision for obsolescence at 31 December 2017 reflects normal obsolescence and includes
components that are phased out or expired.

Note 14. Trade Receivables and Other Receivables

Trade receivables, net, consisted of the following (in thousands):

Trade receivables from third parties

Allowance for bad debt

Total

31 December 2017

31 December 2016

288,127
(5,982)
282,145

285,336

(9,606)

275,730

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.

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

Discontinued operations

End of period

31 December 2017

31 December 2016

(9,606) $
(1,801)
240

—
(171)
(1,137)
6,493
(5,982) $

(1,653)

(8,004)

—

(83)

111

—

(9,606)

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 may utilize non-recourse and with-recourse factoring arrangements as a part of its funding policy;
however, as at 31 December 2017 and 31 December 2016, there are no factoring arrangements outstanding.

Below is a summary of other receivables (in thousands):

Prepaid assets

Escrow deposit - Caisson

Earthquake grant receivable

Deposits and advances to suppliers

Guarantee deposits
Total

31 December 2017

31 December 2016

13,372

2,000

4,064

4,551

532
24,519

11,424

—

4,748

3,440

1,551
21,163

118

Note 15. Derivative Financial Instruments

Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. In addition, due to certain
loans with floating interest rates, we are also subject to the impact of changes in interest rates on our interest payments. We enter
into foreign currency exchange rate derivative contracts and interest rate swap contracts to reduce the impact of foreign currency
rate and interest rate fluctuations on earnings and cash flow. We measure all outstanding derivatives each period end at fair value
and report the fair value as either financial assets or liabilities in the consolidated balance sheets. We do not enter into derivative
contracts for speculative purposes. At inception of the contract, the derivative is designated as either a freestanding derivative or
hedge. Derivatives that are not designated as hedging instruments are referred to as freestanding derivatives with changes in fair
value included in earnings.

If the derivative qualifies for hedge accounting, depending on the nature of the hedge and hedge effectiveness, changes in the fair
value of the derivative will either be recognized immediately in earnings or recorded in other comprehensive income (loss) until the
hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in OCI are reclassified to the
consolidated statements of income (loss) as shown in the tables below and interest rate swaps gains and losses in OCI are a reclassified
to interest expense in the consolidated statements of income (loss). 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 earnings. Cash flows from derivative contracts are reported as operating activities in the consolidated statements of
cash flows. .

Freestanding derivative foreign currency contracts

The gross notional amount of our FX derivative contracts not designated as hedging instruments, outstanding at 31 December 2017
and 31 December 2016, was $231.9 million and $489.1 million, respectively.

The amount and location of the (losses) gains in the consolidated statements of income (loss) related to freestanding FX derivative
contracts (in thousands):

Derivatives Not Designated as
Hedging Instruments
FX derivative contracts

Location
Foreign exchange and other

Year Ended 31
December 2017

Year Ended 31
December 2016

(11,678) $

10,960

Cash Flow Hedges

Foreign Currency Risk

We utilize FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with our 12 month
USD forecasts of revenues denominated in GBP, Japanese Yen and Canadian Dollar. We transfer to earnings from accumulated other
comprehensive income (loss), the gain or loss realized on the FX derivative contracts at the time of invoicing.

There was no hedge ineffectiveness and there were no components of the FX derivative contracts excluded in the measurement of
hedge effectiveness during the year ended 31 December 2017 and 31 December 2016 .

During the year ended 31 December 2016, we discontinued and settled certain of our FX derivative contracts due to changes in our
foreign currency revenue forecast that resulted in a gain of $0.2 million reclassified to earnings from accumulated other comprehensive
(loss).

Interest Rate Risk

In July 2014, Sorin entered into a European Investment Bank long-term loan agreement that matures in June 2021 with variable
interest payments due quarterly based on the Euribor 3 month floating interest rate. To minimize the impact of changes in the interest
rate we entered into an interest rate swap agreement program to swap the EIB floating-rate interest payments for fixed-rate interest
payments. The interest rate swap contracts qualify for, and are designated as, cash flow hedges.

119

There was no interest rate swap hedge ineffectiveness or component of the swap contract excluded in the measurement of hedge
effectiveness during the years ended 31 December 2017 and 31 December 2016.

Open derivative contracts designated as cash flow hedges (in thousands):

Description of derivative contract:

31 December 2017

31 December 2016

FX derivative contracts to be exchanged for GBP

16,847

FX derivative contracts to be exchanged for Japanese Yen

FX derivative contracts to be exchanged for Canadian Dollars

Interest rate swap contracts

32,302

16,494

55,965

6,663

57,840

—

63,246

After-tax net loss associated with derivatives designated as cash flow hedges recorded in the ending balance of Accumulated Other
Comprehensive Loss and the amount expected to be reclassified to earnings in the next 12 months (in thousands):

FX derivative contracts

Interest rate swap contracts

Total

Presentation in Financial Statements

31 December 2017

Amount Expected to be
Reclassed to Earnings in
Next 12 Months

(712) $
(207)
(919) $

(712)

(59)

(771)

Pre-tax gains (losses) posted to other comprehensive income and the amount reclassified to earnings for derivative contracts designated
as cash flow hedges (in thousands):

Description of derivative contract

Location in earnings of
reclassified gain or loss

FX derivative contracts

Foreign Exchange and Other

SG&A

Interest rate swap contracts

Interest expense

Total

Year Ended 31 December 2017

Losses
Recognized in
OCI

Gains (Losses)
Reclassified
from OCI to
Earnings:

(9,861) $
—

0
(9,861) $

(6,471 )

2,084

939

(3,448)

Year Ended 31 December 2016

Description of derivative contract

Location in earnings of
reclassified gain or loss

Gains Recognized
in OCI

Gains Reclassified
from OCI
to Earnings:

FX derivative contracts

Foreign Exchange and Other

SG&A

Interest rate swap contracts

Interest expense

Total

2,874

—

2,959

3,705

(4,218)

(458)

(971)

120

The following tables present the fair value, and the location of, derivative contracts reported in the consolidated balance sheets (in
thousands):

Asset Derivatives

Liability Derivatives

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

31 December 2017

Derivatives designated as
hedging instruments

Interest rate contracts

Current financial derivative
assets

Non-current financial
derivative assets

Foreign currency exchange
rate contracts

Current financial derivative
assets

Total derivatives designated as hedging instruments

Derivatives not designated
as hedging instruments

Foreign currency exchange
rate contracts

Current financial
derivative assets

Total derivatives not designated as hedging instruments

Total derivatives

31 December 2016

Derivatives designated as
hedging instruments

Interest rate contracts

Current financial derivative
assets

Non-current financial
derivative assets

Foreign currency exchange
rate contracts.

Current financial derivative
assets

Total derivatives designated as hedging instruments

Derivatives not designated
as hedging instruments

Foreign currency exchange
rate contracts

Current financial derivative
assets

Total derivatives not designated as hedging instruments

Total derivatives
____________

Current financial
derivative liabilities

Non-current financial
derivative liabilities

Current financial
derivative liabilities

834

751

460

2,045

—

2,045

—

519

—

4,911

3,358

8,269

Current financial derivative
liabilities

Non-current financial
derivative liabilities

Current financial
derivative liabilities

942

1,392

—

2,334

Current financial
derivative liabilities

—

2,334

____________
(1) For the classification of input used to evaluate the fair value of our derivatives, refer to “Note 4. Fair Value Measurements.”

Asset Derivatives

Liability Derivatives

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

(1) For the classification of input used to evaluate the fair value of our derivatives, refer to “Note 4. Fair Value Measurements.”

Note 16. Shareholders’ Equity

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 U.S. 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. LivaNova’s Ordinary Shares are listed on Nasdaq under the ticker symbol
“LIVN.”

121

The Company’s authorised share capital is as following:

(in number of shares)

31 December 2017

31 December 2016

Authorised share capital, Ordinary Shares of £1 each, unlimited shares authorized
Issued – fully paid
Outstanding

48,290,276
48,287,346

48,156,690
48,028,413

Preferred shares. LivaNova is not authorised to issue preferred shares.

Share repurchase plans. On 1 August 2016, the Board of Directors authorized a share repurchase plan pursuant to an authority granted
by shareholders at the 2016 annual general meeting held on 15 June 2016. The repurchase program was structured to enable us to
buy back up to $30 million of Ordinary Shares on Nasdaq in the period ended 31 December 2016 and an aggregate of $150 million
of Ordinary Shares (inclusive of the $30 million of Ordinary Shares set out above) also on Nasdaq up to and including 31 December
2018. In November 2016, the share repurchase plan was amended to authorize the repurchase up to $50 million of Ordinary Shares
through 31 December 2016 (instead of the originally authorized $30 million). As of 31 December 2016, we purchased 993,339 shares
under this plan at a cost of $50 million at an average price per share of $50.32. All repurchased shares were canceled and are no
longer considered issued or outstanding. We did not repurchase any additional shares during the year ended 31 December 2017.

Group reconstruction reserve. The 'Group reconstruction reserve' represents the excess of value attributed to shares and share
appreciation rights issued during the acquisition of Sorin S.p.A on 19 October 2015 over the nominal value of those shares and share
rights.

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 year ended 31 December 2017 as translation adjustment
related to earnings that are intended to be reinvested in the countries where earned.

122

(in thousands)

Beginning Balance - 31 December 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

Change in
Unrealised
gain (loss) on
investments

Change in
Unrealised
Gain (Loss) on
Derivatives
888

Foreign
Currency
Translation
Adjustments
$

Revaluation of
Net Liability
(Asset) for
Defined Benefits

— $

(65,170 ) $

(130 ) $

Total
(64,412 )

—

2,959

(795 )

(6,964 )

—

(1,629 )

476

(5,634 )

(319 )

2,164

(6,964 )

(1,153 )

(5,953 )

971
(404)

567

—

971

(404 )

567

2,731

(6,964 )

(1,153 )

(5,386 )

Ending Balance - 31 December 2016

— $

3,619

(72,134 ) $

(1,283 ) $

(69,798 )

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 2017

7,272

(1,782 )

(9,861)
2,653

112,623

—

(327 )

109,707

935

5,490

(7,208)

112,623

(263 )

110,642

—

3,448

(778 )

2,670

—

3,448

(778 )

2,670

5,490
5,490

(4,538)

(919) $

112,623
40,489 $

(263 )
(1,546 ) $

113,312
43,514

123

Note 17. Financial Liabilities

The outstanding principal amount of long-term debt at 31 December 2017 and at 31 December 2016 consisted of the following (in
thousands, except interest rates):

Principal Amount at
31 December 2017

Principal Amount at
31 December 2016

European Investment Bank

69,893

Mediocredito Italiano

Banca del Mezzogiorno

Bpifrance (ex-Oséo).

Novalia SA (Vallonie)

Mediocredito Italiano

Total long-term facilities

9,118

5,499

1,450

845

997

87,802

Less current portion of long- term debt

Total long-term debt

25,844

61,958

78,987

7,276

6,747

1,909

798

799

96,516

21,301

75,215

Maturity

June 2021

Effective Interest
Rate

0.95%

December 2023

0.50% – 3.10%

December 2019

0.50% – 3.15%

October 2019

December 2023 -
June 2033

September 2021
and
September 2026

2.58%

0.00% – 2.45%

0.80% – 1.30%

Cash movements associated with the outstanding principal amounts of our long-term debt for the year ended 31 December 2017
included the following:

European Investment Bank

78,987

Beginning of
fiscal year
2017

Borrowing
$

— $

Banca del Mezzogiorno

Mediocredito Italiano

Bpifrance (ex-Oséo)

Region Wallonne

Mediocredito Italiano -
mortgages and other

6,747

7,276

1,909

798

799

—

2,048

—

Totals

96,516

2,048

Scheduled
principal
reductions

Amortization
of prepaid
loan fees

(18,825) $
(2,050)
(1,140)
(680)
(60)

—
(22,755) $

—

FX -
Translation

End of fiscal
year 2017

9,738

69,906

831

896

235

5,528

9,083

1,464

836

985

11,897

87,802

The outstanding principal amount of our short-term unsecured revolving credit agreements and other agreements with various banks
was $58.2 million and $26.3 million at 31 December 2017 and 31 December 2016, respectively, with interest rates ranging from
0.1% and 9.3% and loan terms ranging from one day to 180 days.

Note 18. Other Non-Current Liabilities

(in thousands)
Amounts due to employees

Escrow indemnity liability - Caisson

Unfavorable operating leases

Other
Total

31 December 2017

31 December 2016

5,390

1,000

252

3,676
10,318

1,084

—

1,672

1,613
4,369

The unfavourable operating leases were acquired in the acquisition of Sorin S.p.A.at 19 October 2015.

124

Note 19. Provisions

The provisions in the table below are expected to result in payments within the next year.

Current Provisions

(in thousands)
Product remediation
Restructuring reserve
Escrow indemnity liability - Caisson
Contractual warranty reserve
Other
Total

Non-Current Provisions

(in thousands)
Contingent consideration(1)
Liability for uncertain tax provisions (inclusive of penalties and interest)

Product remediation

Restructuring reserve

Other

31 December 2017

31 December 2016

16,811
3,560
2,000
1,476
4,863
28,710

23,464
16,859
—
2,736
7,642
50,701

31 December 2017

31 December 2016

33,973
18,306

10,735

392

—

3,890
16,857

10,023

—

237

Total
____________
(1) The contingent consideration liability represents contingent payments related to three acquisitions: the first and second acquisitions, in September 2015, were
Cellplex PTY Ltd. in Australia and the commercial activities of a local distributor in Colombia. The contingent payments for the first 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 of the acquiree through December 2019. The third acquisition, Caisson, occurred in May 2017. Refer to “Note 6.
Business Combinations.”

31,007

63,406

Product Remediation. In December 2015, we received an FDA Warning Letter alleging certain In December 2015, we received an
FDA Warning Letter alleging certain violations of FDA regulations applicable to medical device manufacturing at our Munich,
Germany and Arvada, Colorado facilities. On 13 October 2016 the Centers for Disease Control and Prevention and FDA separately
released safety notifications regarding the 3T Heater Cooler devices in response to which the Company issued a Field Safety Notice
Update for U.S. users of 3T Heater Cooler devices to proactively and voluntarily contact facilities to facilitate implementation of
the CDC and FDA recommendations.

At 31 December 2016, we recognized a liability for a product remediation plan related to our 3T Heater-Cooler device . The remediation
plan we developed consists primarily of a modification of the 3T device design to include internal sealing and the addition of a
vacuum system to new and existing devices. These changes are intended to address regulatory actions and to reduce further the risk
of possible dispersion of aerosols from 3T devices in the operating room. We concluded that it was probable that a liability had been
incurred upon management’s approval of the plan and the commitments made by management to various regulatory authorities
globally in November and December 2016, and furthermore, the cost associated with the plan was reasonably estimable. The
deployment of this solution for commercially distributed devices has been dependent upon final validation and verification of the
design changes and approval or clearance by regulatory authorities worldwide, including FDA clearance in the U.S. It is reasonably
possible that our estimate of the remediation liability could materially change in future periods due to the various significant
assumptions involved such as customer behavior, market reaction and the timing of approvals or clearance by regulatory authorities
worldwide.

In April 2017, we obtained CE Mark in Europe for the design change of the 3T device and in May 2017 we completed our first
vacuum and sealing upgrade on a customer-owned device. We are currently implementing the vacuum and sealing upgrade program
in as many countries as possible throughout 2018 and beyond until all devices are upgraded. As part of the remediation plan, we also
intend to perform a no-charge deep disinfection service for 3T device users who have reported confirmed M. chimaera mycobacterium
contamination. Although the deep disinfection service is not yet available in the U.S., it is currently offered in many countries around
the world and will be expanded to additional geographies as we receive the required regulatory approvals. Finally, we are continuing
to offer the loaner program for 3T devices, initiated in the fourth quarter of 2016, to provide existing 3T device users with a new

125

loaner 3T device at no charge pending regulatory approval and implementation of the vacuum system addition and deep disinfection
service worldwide. This loaner program began in the U.S. and is being made available progressively on a global basis, prioritizing
and allocating devices to 3T device users based on pre-established criteria.

For further information, please refer to “Note 24. Commitments and Contingencies.” At this stage, no liability has been recognized
with respect to any lawsuits involving the Company related to the 3T Heater Cooler and the related legal costs will be expensed as
incurred.

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).

Restructuring reserve. Refer to “Note 8. Restructuring Plans” for more details.

The changes in the carrying value of current provisions during the year are indicated below (in thousands):

Restructuring
Reserve

Warranties
Reserve

Product
Remediation

Escrow
Indemnity
Liability -
Caisson

Other
Reserves

Total

31 December 2015

4,720

2,119

— $

6,871

13,710

Additions to provision

Utilisation

Release of provisions

Currency translation gains/losses

31 December 2016

Additions to provision

Utilisation

Release of provisions

Reclassifications from/(to) current

Currency translation gains/losses

Discontinued operations

26,770

(13,726)

(636)

(269)

16,859

5,362

(16,752)

(3,126)

(433)

1,650

—

31 December 2017

3,560

1,359

(762)

—

2,736

1,066
(1,897)
—

—

322
(751)
1,476

27,510

(4,046)

—

23,464

3,458
(12,900)
(1,071)
669

3,191

—

2,000

—

16,811

2,000

1,872

(928)

—
(173)

7,642

2,361
(1,777)
(71)
—
(937)
(2,355)
4,863

57,511

(19,462)

(636)

(422)

50,701

14,247

(33,326)

(4,268)

236

4,226

(3,106)

28,710

126

The changes in the carrying value of non-current provisions during the year are indicated below (in thousands):

31 December 2015

3,457

13,048

— $

480

16,985

Contingent
Consideration(1)

Uncertain
Tax Positions
Reserve

Product
Remediation

Restructuring
Reserve

Other
Reserves

Total

Additions to provision

Utilisation

Release of provisions

Currency translation gains/losses

31 December 2016

Acquisition of Caisson Interventional
LLC

Additions to provision

Utilisation

Release of provisions

Reclassifications from/(to) non-current

Currency translation gains/losses

Discontinued operations

2,553

(2,087)

—

(33)

3,890

31,688

(1,907)

—

237

—

4,024

10,024

—

(215)

16,857

—

(79)

—

1,528

—

(1)

10,023

—

(669)

1,381

—

(41)

433

—

(140)

(90)

(14)

237

—

138

—

(172)

—

(231)

16,602

(2,227)

(90)

(263)

31,007

31,688

124

(1,907)

(213)

(236)

3,174

(231)

31 December 2017

33,973

18,306

10,735

392

— $

63,406

____________
(1) The contingent consideration liability represents contingent payments related to three acquisitions: the first and second acquisitions, in September 2015, were
Cellplex PTY Ltd. in Australia and the commercial activities of a local distributor in Colombia. The contingent payments for the first 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 of the acquiree through December 2019. The third acquisition, Caisson, occurred in May 2017. Refer to “Note 6.
Business Combinations.”

Note 20. Other Payables

(in thousands)

31 December 2017

31 December 2016

Accrued expenses- employee-related charges

45,616

Other accrued expenses

Amounts due to employees

Deferred compensation - Caisson acquisition

Other current liabilities

Other amounts due to health and social security institution

Deferred income

Escrow deposit - Caisson

Current advances from customers

Total

Note 21. Share-Based Incentive Plans

Share-Based Incentive Plans

24,443

14,048

14,300

5,295

6,560

2,900

2,000

1,199

50,277

15,516

20,373

—

6,700

7,652

1,708

—

3,438

116,361

105,664

On 16 October 2015, we approved the adoption of the Company’s 2015 Incentive Award 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

127

awards and dividend equivalents. As of 31 December 2017, there were approximately 6,115,000 shares available for future grants
under the 2015 Plan.

Share-Based Compensation

Amounts of share-based compensation recognised in the consolidated statements of income (loss), by expense category are as follows
(in thousands):

Cost of sales

Selling, general and administrative

Research and development

Expense related to acquisition of Sorin S.p.A. in Oct 2015

Share-based compensation from continuing operations

Stock-based compensation from discontinued operations

Total stock-based compensation

Year Ended 31
December 2017

Year Ended 31
December 2016

770

24,723

1,935

—

27,428

1,433

28,861

984

22,435

1,266

271

24,956

2,376

27,332

Amounts of share-based compensation expense recognised in the consolidated statements of income (loss), by type of arrangement
are as follows (in thousands):

Service-based stock appreciation rights

Service-based restricted stock units

Market performance-based restricted stock units

Operating performance-based restricted stock units

Total share-based compensation expense

Year Ended 31
December 2017

Year Ended 31
December 2016

8,537

16,343

732

1,816

11,507

13,328

27,428

24,956

The expense for the years ended 31 December 2017 and 31 December 2016 related to awards that were accounted for as equity
settled.

Share Options and Share Appreciation Rights

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)

Year Ended 31
December 2017

Year Ended 31
December 2016

56.84

54.31

56.17–80.26

54.31–65.58

—

1.7% – 2.2%

1.0% – 1.8%

4.6 – 5.2

4.0 – 5.0

29.6% – 30.4%

30.8% – 32.4%

____________
(1) We do not plan to pay dividends.
(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.

128

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 year
Granted
Exercised
Forfeited
Expired
Outstanding – end of year

Year Ended 31 December 2017

Year Ended 31 December 2016

Number of
Optioned
Shares
$
1,949,328
$
654,478
(345,513) $
(154,381) $
(78,790) $
$

2,025,122

Wtd. Avg.
Exercise Price
57.07
56.84
56.60
59.52
58.90
56.82

Number of
Optioned
Shares
$
1,589,561
$
761,812
(256,293) $
(81,230) $
(64,522) $
$

1,949,328

Wtd. Avg.
Exercise Price
55.56
54.31
37.62
64.42
55.45
57.07

Fully vested and exercisable – end of year
Fully vested and expected to vest – end of year (1)

944,051
1,990,317

$
$

58.37
56.82

941,763
1,915,212

$
$

55.65
57.03

____________
(1) Factors in expected future forfeitures.

The weighted average remaining contractual life for the share options and SARs outstanding at 31 December 2017 and 31 December
2016 is 6.80 years and 6.09 years, respectively.

The aggregate intrinsic value of the options and SARs outstanding at 31 December 2017 and 31 December 2016 is $46 million and
$2 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 year end are categorized in exercise price ranges as follows:

Outstanding Options
$10–20
$21–30
$31–40
$41–50
$51–60
$61–70

$71–80

Total

31 December 2017

31 December 2016

10,251
35,776
4,228
243,277
1,303,080
412,876

15,634

2,025,122

94,021
90,368
20,481
91,887
633,329
659,475

—

1,589,561

Year Ended 31
December 2017

Year Ended 31
December 2016

Weighted average grant date fair value of share option awards and SARs during the
year

Weighted average share price of share option exercises during the year

Aggregate intrinsic value of share option and SAR exercises during the year (in
thousands)

17.19

56.60

5,462

15.03

37.62

5,033

129

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:

Non-vested shares at beginning of
year
Granted
Vested
Forfeited
Non-vested shares at end of year

Year Ended 31 December 2017

Year Ended 31 December 2016

Number of Shares

Wtd. Avg. Grant Date
Fair Value

Number of Shares

Wtd. Avg. Grant Date
Fair Value

$
506,219
131,442
$
(169,580) $
(87,973) $
$
380,108

56.56
61.37
59.09
56.68
57.07

$
203,563
407,822
$
(88,303) $
(16,863) $
$
506,219

59.20
55.53
56.65
62.73
56.56

Year Ended 31
December 2017

Year Ended 31
December 2016

Weighted average grant date fair value of service-based share grants issued during
the year

Aggregate fair value of service-based share grants that vested during the year (in
thousands)

55.53

4,810

57.55

24,384

The following tables detail the activity for performance-based and market-based restricted share and restricted share unit awards:

Year Ended 31 December 2017

Year Ended 31 December 2016

Number of Shares

Wtd. Avg. Grant Date
Fair Value

Number of Shares

Wtd. Avg. Grant Date
Fair Value

Non-vested shares at beginning of year

Granted

Vested

Forfeited

Non-vested shares at end of year

52,083

346,584

(2,171) $

(55,109) $

341,387

42.01

42.11

57.60

42.73

41.90

— $

52,083

— $

52,083

—

42.01

—

42.01

Weighted average grant date fair value of performance-based share grants issued
during the year

Aggregate fair value of performance-based share grants that vested during the year
(in thousands)

42.11

110

42.01

—

Year Ended 31
December 2017

Year Ended 31
December 2016

Note 22. Employee Retirement Plans

We sponsor several defined benefit pension plans, which include plans in the U.S., Italy, Germany, Japan and France. We maintain
a frozen cash balance retirement plan in the U.S., 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 a severance payment 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.

We also sponsor defined contribution plans, including the Cyberonics, Inc. Employee Retirement Savings Plan, which qualifies under
Section 401(k) of the IRC, covering U.S. employees, the Cyberonics, Inc. Non-Qualified Deferred Compensation Plan, covering
certain U.S. middle and senior management and the Belgium Defined Contribution Pension Plan for Cyberonics’s Belgium employees.

The expense related to these plans was $10.2 million and $11.6 million for the years ended 31 December 2017 and 31 December
2016, respectively.

130

As at 31 December 2017 the net underfunded status of our U.S. and non-U.S. defined benefit pension plans was $22.6 million.

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 plays 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 are as follows (in thousands):

Year Ended 31 December 2017

Year Ended 31 December 2016

Accumulated benefit obligation at end of year

Change in projected benefit obligation

Projected benefit obligation at beginning of year

Service cost

Interest cost

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

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

U.S. Pension
Benefits

Non-U.S.
Pension
Benefits

11,191

10,425

—

361

—

770
(555)
—

11,001

5,925

444

870

—

—
(360)
—

6,879

11,001

4,122

23,785

20,402

503

291

—
(27)
(2,222)
2,601

21,548

2,898

—

369

—
(393)
147

3,075

21,548

18,473

U.S. Pension
Benefits

10,615

Non-U.S.
Pension Benefits
39,002
$

10,218

29,315

—

367
(609)
698
(249)
—

10,425

5,858

277

—

648
(609)
(249)
—

5,925

10,425

4,500

693

534

(296)

1,227

(2,214)

(682)

28,577

2,760

—

369

—

(244)

2,977

28,577

25,600

Non-current

Recognised liability

4,122

18,473

4,500

4,122

18,473

4,500

131

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:

Year Ended 31 December 2017

Year Ended 31 December 2016

U.S. Pension
Benefits

Non-U.S. Pension
Benefits

U.S. Pension Benefits

Non-U.S. Pension
Benefits

Actuarial assumptions used to determine
benefit obligation

Discount rate

Rate of compensation increase
Actuarial assumptions used to determine net
periodic benefit cost

Discount rate

Rate of compensation increase

Expected return on plan assets

3.28%

N/A

3.63%

N/A

5.00%

0.27% – 2.73%
2.50%
–

– 3.00%

3.63%
N/A

0.27% – 1.50%
2.50%
–

– 3.89%

0.27% – 2.73% 3.64% – 3.79% 0.27% – 1.50%
2.50%
–

2.50%
–

– 3.89%

– 3.00%

N/A

To determine the discount rates for our U.S. benefit plan, we used the Citigroup Above-median yield curve. For the discount rates
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
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 $3.1 million
as of 31 December 2017 and were not material.

Our U.S. pension plan target allocations as of 31 December 2017, by asset category, are as follows:

Equity Securities

Debt Securities

Other

Total

Retirement Benefit Fair Values

U.S. Pension
Benefits

27%

63%

10%

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

132

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.

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.

(in thousands)
Equity mutual funds

Fixed income mutual funds
Money market funds

Total

(in thousands)
Equity mutual funds

Fixed income mutual funds

Money market funds

Total

Retirement Benefit Funding Plan

Fair Value as at
31 December 2017

Fair Value Measurement Using Inputs Considered as

Level 1

Level 2

Level 3

1,879

4,334
666

6,879

— $

1,879

—
666

666

4,334
—

6,213

Fair Value as at
31 December 2016

Fair Value Measurement Using Inputs Considered as

Level 1

Level 2

Level 3

1,660

4,041

224

5,925

— $

1,660

—

224

4,041

—

5,701

—

—
—

—

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.

During the year ended 31 December 2017, we did not make a material contribution to the non-U.S. pension plans. The weighted
average duration of the defined benefit plans is 13 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 $0.9 million during fiscal year 2018. Contributions
to the non-U.S. pension plans in fiscal year 2017 are not expected to be material.

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)
2018

2019

2020

2021

2022

Thereafter

U.S. Plan

Non-U.S. Plans

1,965

622

1,034

780

1,033

5,757

1,670

801

1,019

911

1,085

16,062

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Sensitivity Analysis

The sensitivity of the defined benefit obligation as of 31 December 2017 to significant changes in actuarial assumptions:

Discount rate

Increase +0.50%
(1.01)%

Decrease –0.50%
5.31%

The above sensitivity analysis is 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.

Defined Contribution Plans. We incurred expenses for our defined contribution plans of $7.8 million and $10.0 million for the years
ended 31 December 2017 and 31 December 2016, respectively.

Severance Indemnity. In Italy, upon termination of employment for any reason, employers are required to pay a 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 1 January 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 $0.4 million and $1.1 million, respectively, for the years ended 31 December 2017
and 31 December 2016, respectively.

Note 23. Income Taxes

Income tax benefit (expense) consists of the following (in thousands):

Current tax

Deferred tax

Income tax benefit (expense)

Year Ended 31
December 2017

Year Ended 31
December 2016

(40,128) $
50,113

9,985

36,668

(114,794 )

(78,126 )

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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:

Statutory tax rate at U.K. Rate
Effect of changes in tax rate
Change in unrecognized deferred tax assets
Reduced tax benefit due to non-deductible transaction costs
U.S. state and local tax provision, net of federal benefit
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
Sale of intellectual property
Distribution of subsidiary earnings
Revaluation of investment in subsidiaries
Other, net
Effective tax rate

U.S. Tax Reform

Year Ended 31
December 2017

Year Ended 31
December 2016

19.0 %
(27.5)
13.4
2.5
1.6
14.9
(17.0)
1.8
(2.1)
—
1.5
(2.2)
0.2
(0.4)
(15.3)
(0.8)
(10.4)%

20.0 %
10.7
(13.7)
(51.0)
(39.3)
(503.9)
340.5
(39.1)
20.0
—
(41.4)
13.9
(1,558.3)
274.5
69.8
(18.2)
(1,515.5)%

On 22 December 2017, the U.S. enacted the Tax Cuts and Jobs Act. The Act, which is also commonly referred to as “U.S. tax reform”,
significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21%
commencing in 2018. In addition, the Act created a one-time mandatory tax, a toll charge, on previously deferred foreign earnings
of non-U.S. subsidiaries controlled by a U.S. corporation, or in our case, a non-U.S. subsidiary controlled by one of our U.S.
subsidiaries. We recorded no toll charge for the year ended 31 December 2017 as we had no previously deferred foreign earnings of
U.S. controlled foreign subsidiaries as of the measurement dates. As a result of the Act, we recorded a non-cash net benefit of $16.0
million during the fourth quarter of 2017, which is included in “Income tax (benefit) expense” in the consolidated statements of
(loss) income. This amount primarily consists of two components: (i) $12.8 million relating to de-recognition of foreign tax credits,
and (ii) a net benefit of $28.8 million resulting from the remeasurement of our deferred tax assets and liabilities in the U.S. based
on a change in the corporate income tax rate.

135

Deferred Income Tax Assets and Liabilities

The change in net deferred tax (liabilities) assets, inclusive of discontinued operations, as recognized in the balance sheet can be
analysed as follows (in thousands):

At the beginning of the year

Deferred tax income (expense) for the period, net
Deferred tax recorded in equity(1)

Currency translation and other

Year Ended 31
December 2017

Year Ended 31
December 2016

(82,550) $

63,261

3,913

(6,412)

(49,396)

(34,220)

2,021

(955)

At the end of the year
____________
(1) The $3.9 million reduction in deferred tax liability offset to equity was primarily due to excess tax benefit from stock-based compensation and adjustments

(21,788) $

(82,550)

relating to the Caisson acquisition purchase price accounting and revaluation of our investment in ImThera.

Deferred income tax assets and liabilities, inclusive of discontinued operations, on a gross basis are summarised as follows (in
thousands):

31 December 2017

31 December 2016

Deferred tax assets

Net operating loss carryforwards (NOLs)

52,475

Tax credit carryforwards

Deferred compensation

Accruals and reserves

Depreciation and amortization

Inventory

Investments

Other

Total deferred tax assets

Deferred tax liabilities

Gain on sale of intellectual property

Investments
Property, equipment & intangible assets

Other

Gross deferred tax liabilities

Total deferred tax liabilities, net

Reported in the consolidated balance sheet as (after jurisdictional netting)

Net deferred tax asset

Deferred tax liability

Total deferred tax liabilities, net

5,343

28,521

27,409

76,026

16,524

3,858

3,366

74,043

17,242

1,805

28,988

85,201

17,174

—

8,856

213,522

233,309

(75,624)
(4,917)
(153,588)
(1,181)
(235,310)
(21,788) $

(136,117)

(12,553)
(165,998)

(1,191)
(315,859)

(82,550)

80,983
(102,771)
(21,788) $

86,053

168,603

(82,550)

We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future.
However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement
of these balances or potentially give rise to new deferred tax amounts.

136

We utilized $2.5 million and $5.3 million of U.S. capital loss carryforward for the years ended 31 December 2017 and 31 December
2016, respectively. We have $12.8 million of unrecognized foreign tax credits in the U.S., $3.4 million of U.S. State tax credits
and $2.4 million of other credits.

Net Operating Loss Carryforwards

We had the following net operating loss carryforwards as of 31 December 2017, including discontinued operation NOLs, which can
be used to reduce our income tax payable in future years (in thousands):

Region

Gross Amount

Gross Amount
with No
Expiration

With Expiration

Starting
Expiration Year

Europe
South America
U.S. Federal
U.S. State
Far East

335,855
14,815
134,415
106,555
12,174

324,279
14,815
—
—
—

11,576
—
134,415
106,555
12,174

2022
N/A
2021
2018
2018

Included in the table above are gross deferred tax assets that have not been recognized with respect of the following items (in
thousands):

Tax loss carryforwards(1)
Other(2)
Total

31 December 2017

31 December 2016

274,638

13,241

287,879

218,058

—

218,058

____________
(1)

Included in tax loss carryforwards for the year ended 31 December 2017 were unrecognized gross deferred tax assets of $182.5 million related to discontinued
operations. The tax loss carryforwards represent tax benefits that were not recorded due to the inability to utilize the carryforwards.

(2) Other deferred tax assets for which tax benefits were not recorded refers primarily to U.S. foreign tax credits and U.S. alternative minimum tax credits.

The historic NOLs of Sorin U.S., obtained in the acquisition of Sorin S.p.A. on 19 October 2015, are limited by U.S. Internal Revenue
Code Section 382. The limitation on the utilization of NOL is approximately $14.2 million per year, which is expected to be sufficient
to absorb the U.S. net operating losses prior to their expiration.

A significant portion of our worldwide net deferred tax liability relates to the tax effect of the step-up in value of the assets acquired
with the acquisition of Sorin S.p.A. on 19 October 2015.

No provision has been made for income taxes on undistributed earnings of foreign subsidiaries as of 31 December 2017 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 of 31 December 2017, it was not practicable to determine the amount of the deferred income
tax liability related to those investments.

Uncertain Tax Positions

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 unrecognized tax benefits as of 31 December
2017 were recognized, $22.8 million would impact our effective tax rate. We are unable to estimate the amount of change in the
majority of our unrecognized tax benefits over the next 12 months. Refer to “Note 24. Commitments and Contingencies” for additional
information regarding the status of current tax litigation.

Accrued interest and penalties related to uncertain tax positions totalled $8.0 million and $6.3 million as of 31 December 2017 and
31 December 2016, respectively, and were included in non-current provisions on our consolidated balance sheets.

137

On 26 October 2017, the European Commission announced that an investigation will be opened with respect to the UK’s controlled
foreign company rules. The CFC rules under investigation provide certain tax exceptions to entities controlled by UK parent companies
that are subject to lower tax rates if the activities being undertaken by the CFC relate to financing. The EC is investigating whether
the exemption is a breach of EU State Aid rules. The investigation is in its early stages and is unlikely to be completed within the
next twelve months with an appeal process likely to follow. It is unclear as to whether the UK will be part of the EU once a decision
has been finalized due to Brexit and what impact, if any, Brexit will have on the outcome of the investigation or the enforceability
of a decision. Due to the many uncertainties related to this matter, including the preliminary state of the investigation, the pending
Brexit negotiations and political environment and the unknown outcome of the investigation and resulting appeals, no uncertain tax
position reserve has been recognized related to this matter and we are unable to reasonably estimate the potential liability for this
matter and we are unable to reasonably estimate the potential liability for this matter. LivaNova PLC is domiciled and resident in
the UK.

Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within
those countries, and the income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary. As a
result of the changes in the overall level of our income, the deployment of various tax strategies and the changes in tax laws, our
consolidated effective income tax rate may vary from one reporting period to another.

Other Matters

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

Earliest year open

1992

2012

2010

2013

In April 2016, the IRS and U.S. Treasury Department issued new rules that materially change the manner in which the determination
is made as to whether the U.S. anti-inversion rules under Section 7874 will apply. The new rules have the effect of linking with the
acquisition of Sorin S.p.A. in 2015 certain future acquisitions of U.S. businesses made in exchange for LivaNova equity, and such
linkage may impact LivaNova’s ability to engage in particular acquisition strategies. For example, the new temporary regulations
would impact certain acquisitions of U.S. companies in an exchange for stock in LivaNova during the 36 month period beginning
19 October 2015 by excluding from the Section 7874 calculations the portion of shares of LivaNova that are allocable to the legacy
Cyberonics shareholders. This new rule would generally have the effect of increasing the otherwise applicable Section 7874 fraction
with respect to future acquisitions of a U.S. business, thereby increasing the risk that such acquisition could cause LivaNova to be
treated as a U.S. corporation for U.S. federal income tax purposes.

On 13 October 2016, the IRS and U.S. Treasury Department released final and temporary regulations under section 385. In response
to comments, the final regulations significantly narrow the scope of the proposed regulations previously issued on 4 April 2016. Like
the proposed regulations, the final regulations establish extensive documentation requirements that must be satisfied for a debt
instrument to constitute debt for U.S. federal tax purposes and re-characterizes a debt instrument as stock if the instrument is issued
in one of a number of specified transactions. Moreover, while these new rules are not retroactive, they will impact our future
intercompany transactions and our ability to engage in future restructuring.

Executive Order 13789, issued in April 2017, ordered the US Treasury to examine tax regulations for excessive cost, complexity or
whether such regulation exceeded IRS’s statutory authority, which included IRC Sec. 385.

138

Note 24. Commitments and Contingencies

FDA Warning Letter

On 29 December 2015, the FDA issued a Warning Letter alleging certain violations of FDA regulations applicable to medical device
manufacturers at our Munich, Germany and Arvada, Colorado facilities.

The FDA inspected the Munich facility from 24 August 2015 to 27 August 2015 and the 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. We did not receive a Form 483 in connection with the FDA’s inspection of the Arvada facility.
Following the receipt of the Form 483, we 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 our
responses and identified other alleged violations related to the manufacture of our 3T Heater-Cooler device that were not previously
included in the Form 483.

The Warning Letter further stated that our 3T devices and other devices we manufactured at our Munich facility are subject to refusal
of admission into the U.S. until resolution of the issues set forth by the FDA in the Warning Letter. The FDA has informed us that
the import alert is limited to the 3T 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 device, and manufacturing
and shipment of all of our products other than the 3T device remain unaffected by the import limitation. To help clarify these issues
for current customers, we issued an informational Customer Letter in January 2016 and that same month agreed with the FDA on a
process for shipping 3T devices to existing U.S. users pursuant to a certificate of medical necessity program.

Finally, the Warning Letter stated 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, this restriction applies only to the Munich and Arvada facilities, which do not manufacture or design devices subject to
Class III premarket approval.

We continue 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. We take these matters seriously and intend to respond timely and fully to the FDA’s requests.

CDC and FDA Safety Communications and Company Field Safety Notice Update

On 13 October 2016, the CDC and FDA separately released safety notifications regarding the 3T devices. The CDC’s Morbidity and
Mortality Weekly Report and Health Advisory Notice reported that tests conducted by CDC and its affiliates indicate that there
appears to be genetic similarity between both patient and 3T device strains of the non-tuberculous mycobacterium bacteria M.
chimaera isolated in hospitals in Iowa and Pennsylvania. Citing the geographic separation between the two hospitals referenced in
the investigation, the report asserts that 3T devices manufactured prior to 18 August 2014 could have been contaminated during the
manufacturing process. The CDC’s HAN and FDA’s Safety Communication, issued contemporaneously with the MMWR report,
each assess certain risks associated with 3T devices and provide guidance for providers and patients. The CDC notification states
that the decision to use the 3T device during a surgical operation is to be taken by the surgeon based on a risk approach and on patient
need. Both the CDC’s and FDA’s communications confirm that 3T devices are critical medical devices and enable doctors to perform
life-saving cardiac surgery procedures.

Also on 13 October 2016, in response to the Warning Letter and CDC’s HAN and FDA’s Safety Commission, we issued a Field
Safety Notice Update for U.S. users of 3T devices to proactively and voluntarily contact facilities to aid in implementation of the
CDC and FDA recommendations. In the fourth quarter of 2016, we initiated a program to provide existing 3T device users with a
new loaner 3T device at no charge pending regulatory approval and implementation of additional risk mitigation strategies worldwide.
This loaner program began in the U.S. and is being made available progressively on a global basis, prioritizing and allocating devices
to 3T device users based on pre-established criteria. We anticipate that this program will continue until we are able to address customer
needs through a broader solution that includes implementation of one or more of the risk mitigation strategies currently under review
with regulatory agencies. We are also currently implementing a vacuum and sealing upgrade program in as many countries as possible
throughout 2018 and beyond until all devices are upgraded. Furthermore, we intend to perform a no-charge deep disinfection service
for 3T device users who have reported confirmed M. chimaera mycobacterium contamination. Although the deep disinfection service

139

is not yet available in the U.S., it is currently offered in many countries around the world and will be expanded to additional geographies
as we receive the required regulatory approvals.

On 31 December 2016, we recognized a liability for our product remediation plan related to our 3T device. We concluded that it was
probable that a liability had been incurred upon management’s approval of the plan and the commitments made by management to
various regulatory authorities globally in November and December 2016, and furthermore, the cost associated with the plan was
reasonably estimable. At 31 December 2017, the product remediation liability was $27.5 million. Refer to “Note 19. Provisions” for
additional information.

Litigation

The Company is currently involved in litigation involving our 3T heater-cooler product. The litigation includes a class action complaint
in the U.S. District Court for the Middle District of Pennsylvania, federal multi-district litigation in the U.S. District Court for the
Middle District of Pennsylvania and cases in various state courts and jurisdictions outside the U.S. As of 27 February 2018, we are
involved in approximately 110 claims worldwide, with the majority of the claims in various federal or state courts throughout the
United States. The complaints generally seek damages and other relief based on theories of strict liability, negligence, breach of
express and implied warranties, failure to warn, design and manufacturing defect, fraudulent and negligent misrepresentation/
concealment, unjust enrichment, and violations of various state consumer protection statutes. The class action consists 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 currently are asymptomatic for NTM infection. Members of the class seek declaratory relief
that the 3T devices are defective and unsafe for intended uses, medical monitoring, damages, and attorneys’ fees. LivaNova has filed
a petition for permission to appeal the class certification order with the U.S. Court of Appeals for the Third Circuit. We have not
recognized an expense related to damages in connection with these matters because any potential loss is not currently probable or
reasonably estimable. In addition we cannot reasonably estimate a range of potential loss, if any, that may result from these matters.

Civil Investigative Demand

On 31 May 2017, the Company received a Civil Investigative Demand from the US Attorney’s Office for the Northern District of
Georgia. The CID requested certain documents relating to sales and marketing of VNS devices and related products in the State of
Georgia. We have not recognized an expense related to this matter because any potential loss is not currently probable or reasonably
estimable. In addition we cannot reasonably estimate a range of potential loss, if any, that may result from this matter.

Other Legacy Sorin Matters

SNIA Litigation

Our subsidiary, Sorin S.p.A. was created as a result of a spin-off from SNIA S.p.A. in January 2004. SNIA subsequently became
insolvent and 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 approximately $4 billion for remediation costs relating to the
environmental damage at chemical sites previously operated by SNIA’s other subsidiaries.

In September 2011 and July 2014, the Bankruptcy Court of Udine and the Bankruptcy Court of Milan held (in proceedings to which
we are not parties) that the Italian Ministry of the Environment and other Italian government agencies were not creditors of either
SNIA or its subsidiaries in connection with their claims in the Italian insolvency proceedings. The Public Administrations appealed
and in January 2016, the Court of Udine rejected the appeal. The Public Administrations have also appealed that decision.

In January 2012, SNIA filed a civil action against Sorin in the Civil Court of Milan asserting joint liability of a parent and a spun-
off company. On 1 April 2016, the Court of Milan dismissed all legal actions of SNIA and of the Public Administrations further
requiring the Public Administrations to pay Sorin approximately $360,000 for legal fees. The Public Administrations appealed the
2016 Decision to the Court of Appeal of Milan, a final hearing occurred on March 21, 2018, and currently, the parties are preparing
their final briefs.

We have not recognized an expense in connection with this matter because any potential loss is not currently probable or reasonably
estimable. In addition, we cannot reasonably estimate a range of potential loss, if any, that may result from this matter.

140

Environmental Remediation Order

On 28 July 2015, Sorin received an administrative order from the Italian Ministry of the Environment directing prompt commencement
of environmental remediation at the chemical sites previously operated by SNIA’s other subsidiaries. We challenged the Remediation
Order before the Administrative Court of Lazio in Rome, and the TAR annulled the Remediation Order. The Italian Ministry of the
Environment appealed. We have not recognized an expense in connection with this matter because any potential loss is not currently
probable or reasonably estimable. In addition, we cannot reasonably estimate a range of potential loss, if any, that may result from
this matter.

Opposition to Merger Proceedings

On 28 July 2015, the Public Administrations filed an opposition proceeding to the merger between Sorin and Cyberonics, before the
Commercial Courts of Milan. The Court authorized the Merger and the Public Administrations did not appeal this decision. The
proceeding then continued as a civil case, with the Public Administration seeking damages. The Commercial Court of Milan delivered
a decision in October 2016, fully rejecting the Public Administration’s request and awarding us approximately $480 thousand in
damages for frivolous litigation and legal fees. The Public Administrations appealed to the Court of Appeal of Milan.

Tax Litigation

In a tax audit report received 30 October 2009, the Regional Internal Revenue Office of Lombardy informed Sorin Group Italia S.r.l.
that, among several issues, it was disallowing in part (for a total of €102.6 million (approximately $123.0 million), related to tax
years 2002 through 2006) a tax-deductible write down of the investment in the U.S. company, Cobe Cardiovascular Inc., which Sorin
Group Italia S.r.l. recognized 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. We challenged all three notices of assessment (for 2004, 2005 and 2006) before the relevant Provincial Tax Courts.

The preliminary challenges filed for 2004, 2005 and 2006 were denied at the first jurisdictional level. We appealed these decisions.
The appeal submitted against the first-level decision for 2004 was successful. The Internal Revenue Office appealed this second-
level decision to the Italian Supreme Court (Corte di Cassazione) on 3 February 2017. The Italian Supreme Court’s decision is
pending.

The appeals submitted against the first-level decisions for 2005 and 2006 were rejected. We appealed these adverse decisions to the
Italian Supreme Court, where the matters are still pending.

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. In these matters the Internal Revenue Office claims 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 subsequently utilized in 2007 and 2008. We challenged both notices of assessment. The Provincial Tax Court of Milan
has stayed its decision for years 2007 and 2008 pending resolution of the litigation regarding years 2004, 2005, and 2006. The total
amount of losses in dispute is €62.6 million(approximately $75.1 million). We have continuously reassessed our potential exposure
in these matters, taking into account the recent, and generally adverse, trend to Italian taxpayers in this type of litigation. Although
we believe that our defensive arguments are strong, noting the adverse trend in some of the court decisions, we have recognized a
reserve for an uncertain tax position of €17.0 million (approximately $20.4 million).

Other Matters

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 (loss) income, financial position or liquidity.

141

Lease Agreements

We have operating leases for facilities and equipment. Rent expense from all operating leases amounted to approximately $18.8
million and $15.6 million for the years ended 31 December 2017 and 31 December 2016, respectively.

The future minimum lease payments for operating leases related to continuing operations as of 31 December 2017 are (in thousands):

No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years

Note 25. Earnings Per Share

13,584
34,115
24,632

Basic 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):

Numerator

Net income (loss) from continuing operations

Net loss from discontinued operations

Income (loss) attributable to owners of the parent

Denominator

Basic weighted average shares outstanding
Add effects of stock-based compensation instruments(1)
Diluted weighted average shares outstanding.

Basic income (loss) per share

Continuing operations

Discontinued operations

Diluted income (loss) per share

Continuing operations

Discontinued operations

Year Ended 31
December 2017

Year Ended 31
December 2016

106,396 $

(32,330 )

74,066 $

(83,281 )

(111,325 )

(194,606 )

48,157

344

48,501

2.21
(0.67)
1.54

2.19 $

(0.66 )

1.53 $

48,860

154

49,014

(1.70)

(2.28)

(3.98)

(1.70 )

(2.27 )

(3.97 )

____________
(1) Excluded from the computation of diluted earnings per share for the year ended 31 December 2017 were stock options, SARs and restricted share units
outstanding at 31 December 2017 to purchase 24 thousand shares because to include them would have been anti-dilutive. Excluded from the computation of
diluted earnings per share for the year ended 31 December 2016 were stock options, SARs and restricted share units outstanding at 31 December 2016 to
purchase 1.6 million shares because to include them would have been anti-dilutive.

Note 26. Geographic and Segment Information

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. We have two reportable segments: Cardiac Surgery and Neuromodulation.

142

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 systems, mechanical heart valves and tissue
heart valves.

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 products 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.

“Other” includes corporate shared service expenses for finance, legal, human resources and information technology and corporate
business development. New Ventures is focused on new growth platforms and identification of other opportunities for expansion.

Net sales of our reportable segments include revenues from the sale of products they each develop and manufacture or distribute.
We define segment income as operating income before merger and integration, restructuring, amortization and litigation settlement.

Net sales and operating income (loss) by segment are as follows (in thousands):

Net sales

Cardiac Surgery

Neuromodulation

Other
Total net sales

Operating profit (loss) before exceptional items

Cardiac Surgery

Neuromodulation

Other
Total Operating profit before exceptional items

Exceptional items
Operating income from continuing operations

The following tables present capital expenditures by reportable segment (in thousands):

Capital expenditures
Cardiac Surgery
Neuromodulation
Other

Discontinued operations
Total

Year Ended 31
December 2017

Year Ended 31
December 2016

635,517

374,976

1,784

1,012,277

611,715

351,406

1,737

964,858

Year Ended 31
December 2017

Year Ended 31
December 2016

49,107

187,309
(116,170)
120,246

32,584

87,662

(15,331)

173,684

(81,297)

77,056

57,754

19,302

Year Ended 31
December 2017

Year Ended 31
December 2016

18,985
2,504
7,010

5,608

34,107

21,190
8,098
5,265

3,809

38,362

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 Chief Operating Decision Maker, and used by the CODM in evaluating
performance and allocating resources.

143

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.

Net sales to external customers by geography are determined based on the country the products are shipped from and are as follows
(in thousands):

United States
Europe(1)(2)
Rest of world
Total(3)

Year Ended 31
December 2017

Year Ended 31
December 2016

494,724
210,470
307,083
1,012,277

480,558
204,846
279,454
964,858

____________
(1) Net sales to external customers includes $30.8 million and $37.3 million in the United Kingdom, our country of domicile, for the years ended 31 December

2017 and 31 December 2016, respectively. Prior to the Mergers, we were domiciled in the United States.

(2) Europe sales include those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included

in Rest of world.

(3) No single customer represented over 10% of our consolidated net sales and no country’s net sales exceeded 10% of our consolidated sales except for the U.S.

Property, plant, and equipment, net by geography are as follows (in thousands):

United States

Europe

Rest of world

Total

Note 27. Related Parties

31 December 2017

31 December 2016

53,570

113,536

10,883

177,989

58,679

116,385

31,465

206,529

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.

144

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(1)
ImThera Medical, Inc.(2)
Total

Trade receivables - current

Microport Sorin

Cardiosolutions Inc

Total

Other financial assets - current

Highlife SAS

Respicardia, Inc.

Total

31 December 2017

31 December 2016

— $

1,000

945

—

945

— $

417

1,870

—

1,870

209

219

6,852

____________
(1) On 2 May 2017, we acquired the remaining 51% equity interests in Caisson. Refer to “Note 6. Business Combinations” for further information.
(2) On 16 January 2018, we acquired the remaining 86% outstanding interests in ImThera. Refer to "Note 33. Events after the Reporting Period" for further

information.

The following sales and financing transactions were entered into with associates during the periods as follows (in thousands):

Income Statement
Revenue
Microport Sorin
Financial income
Highlife SAS

Year Ended 31
December 2017

Year Ended 31
December 2016

2,785

— $

1,704

157

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):

Salaries and short term benefits

Post-employment benefits

Termination benefits

Share-based compensation

Total

There were no other material related party transactions in the period.

Year Ended 31
December 2017

Year Ended 31
December 2016

7,365

496

1,483

8,211

17,555

8,890

454

2,066

15,967

27,377

145

Note 28. Consolidated Statements of Income (Loss) - Expenses by Nature

(in thousands)
Net sales

Other revenues and income

Cost of materials, service used and change in inventory

Personnel expense

Other operating costs

Amortisation, depreciation and impairment

Additions to provisions

Gain on acquisition of Caisson Interventional, LLC

Impairment of cost-method investments

Interest expense

Interest income
Foreign exchange

Share of loss from equity method investments
Income (loss) from continuing operations before tax

Income tax (benefit)/expense

Loss from discontinued operations
Income (loss) attributable to owners of the parent

Note 29. Employee and Key Management Compensation Costs

(in thousands)
Wages and salaries
Share-based payments(1)
Other employee costs

Total

Year Ended 31
December 2017

Year Ended 31
December 2016

1,012,277

964,858

4,995

(419,229 )

(402,891 )

(25,328 )

(72,069 )

(10,093 )

39,428
(8,565)
(7,797)
1,318
1,084
(16,719)
96,411
(9,985)
(32,330)
74,066

8,429

(409,707 )

(372,578 )

(36,500 )

(79,115 )

(56,085 )

—

(10,616 )

1,698
3,140

(18,679 )

(5,155 )

78,126

(111,325 )

(194,606)

Year Ended 31
December 2017

Year Ended 31
December 2016

311,322

27,428

64,141

402,891

285,991

24,956

61,631

372,578

____________
(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 53 to 66 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 was 4,500 for the year ended 31 December 2017, including approximately 900
employed by our CRM business franchise as of 31 December 2017, and 4,674 for the year ended 31 December 2016.

146

Note 30. Exceptional Items

The following exceptional items are included within operating loss (in thousands):

Merger and integration expenses
Restructuring expenses
Total

Year Ended 31
December 2017

Year Ended 31
December 2016

15,528
17,056
32,584

20,377
37,377
57,754

Merger Expenses. Merger expenses consisted of expenses directly related to the Mergers, such as professional fees for legal services,
accounting services, due diligence, as well as investment banking fees. Refer to “Note 6. 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 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.

Note 31. Auditors’ Remuneration

(in thousands)
LivaNova auditors

Year Ended 31
December 2017

Year Ended 31
December 2016

Fees payable to the Company’s auditor and its associates for the audit of parent
company and consolidated financial statements

2,237

2,617

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

Audit-related services

Taxation compliance services

Taxation advisory services

Other non-audit services

1,874

4,111

765

—

633

1,725

4,342

—

543

Total fees payable to the Company’s auditor

5,559

4,914

Note 32. New Accounting Pronouncements

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. IFRS 9 was issued in May 2014 and is effective for years beginning on or after January 1, 2018. The
standard replaces the majority of IAS 39, Financial instruments; recognition and impairment, and covers the classification,
measurement and de-recognition of financial assets and financial liabilities, introduces a new impairment model for financial assets
based on expected losses rather than incurred losses and provides a new hedge accounting model.

IFRS 9 includes a single approach for the classification of financial assets, based on the business model used to manage financial
assets in order to generate cash flows and the cash flow characteristics of those financial assets. A financial asset held at amortised
cost must be managed under a business model where financial assets are held to collect contractual cash flows and have cash flows
which relate solely to payments of principal and interest. A financial asset held under a business model under which financial assets
may be either held to collect contractual cash flows or sold will be classified as held at fair value through Other Comprehensive

147

Income if the SPPI criteria are met. Any other financial assets will be held at fair value through profit or loss or Other Comprehensive
Income as appropriate. At inception, an entity at its sole option may irrevocably designate an investment in an equity instrument to
be held at fair through Other Comprehensive Income unless the asset is deemed held for trading or contingent consideration. We
did not make this election and therefore, all financial assets will be held at fair value through profit or loss. As such, we estimate a
transition adjustment to be recorded to retained earnings in the amount of $5.5 million related to our investment in ImThera at 1
January 2018.

IFRS 9 also introduces the expected credit loss model for impairment of financial assets which replaces the incurred loss model used
in IAS 39. Application of the IFRS 9 impairment model is not expected to have a significant impact given the Company’s current
credit risk management policies.

Finally, IFRS 9 introduces changes related to hedging by allowing more exposures to be hedged and establishing new criteria for
hedge accounting that are less complex and more aligned with the way that entities manage risks when compared to IAS 39. Application
of the changes to hedging under IFRS 9 are not expected to have a significant impact to the Company’s financial statements.

IFRS 15 Revenue from Contracts with Customers. IFRS 15 was issued in May 2014 and establishes a five-step model to account for
revenue arising from contracts with customers. IFRS 15 requires an entity to recognize the amount of revenue to which it expects
to be entitled for the transfer of promised goods or services to customers and replaces most existing revenue recognition guidance.
We adopted the new revenue guidance on January 1, 2018. We elected the modified retrospective transition method, however, we
recognized no cumulative effect to the opening balance of retained earnings because the impact on the timing of when revenue is
recognized within our Cardiac Surgery segment, specifically related to heart-lung machines and preventative maintenance contracts
on cardiopulmonary equipment was insignificant. The timing of revenue recognition for products and related revenue streams within
our Neuromodulation segment and discontinued operations will not change. Upon adoption of the new standard, we implemented
new internal controls related to our accounting policies and procedures, including review controls to ensure contractual terms and
conditions that may require consideration under the standard are properly identified and analysed.

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.

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

ImThera Acquisition

On 16 January 2018, we acquired the remaining 86% outstanding interests in ImThera for up to approximately $225 million. Up-
front costs are approximately $78 million with the balance paid based on achieving regulatory and sales milestones. Headquartered
in San Diego, California, ImThera manufactures an implantable device for the treatment of obstructive sleep apnea that stimulates
multiple tongue muscles via the hypoglossal nerve, which opens the airway while a patient is sleeping. The ImThera device is aligned
with our Neuromodulation business franchise. ImThera has a commercial presence in the European market, and we will be advancing
ImThera’s enrolment in an FDA pivotal study.

TandemLife Acquisition

On 4 April 2018, we announced the closing of our acquisition of CardiacAssist, Inc., dba TandemLife, a privately-held Delaware
corporation. TandemLife designs, manufactures and commercializes advanced cardiac and respiratory temporary support solutions.
We agreed to pay up to $250 million to acquire TandemLife, with upfront costs of approximately $200 million and with up to $50
million in contingent consideration based on achieving regulatory milestones.

148

Bridge Facility Agreement

On 3 April 2018, in connection with the TandemLife acquisition, we drew down $190.0 million under a a term loan bridge facility
agreement at an interest rate of 2.63%. The Bridge Facility Agreement will terminate on 14 August 2018, but may be extended to
13 February 2019, subject to delivery of prior notice and satisfaction of other conditions. Borrowings under the Bridge Facility
Agreement will bear interest at a variable annual rate based on LIBOR plus an applicable margin. In addition, a facility fee is assessed
on the commitment amount.

The Bridge Facility Agreement contains financial covenants that require LivaNova to maintain a maximum semi-annual leverage
ratio and a minimum semi-annual interest coverage ratio. The Bridge Facility Agreement also contains customary representations
and warranties, covenants, and events of default.

The proceeds of the Bridge Facility are intended to be used to fund the acquisition and pay related expenses, refinance certain
indebtedness and for general corporate and working capital purposes.

149

TABLE OF CONTENTS

COMPANY STATEMENT OF (LOSS) INCOME

COMPANY STATEMENT OF COMPREHENSIVE INCOME

COMPANY BALANCE SHEET

COMPANY STATEMENT OF CHANGES IN EQUITY

Note 1. Nature of Operations

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Note 3. Plant Property and Equipment

Note 4. Intangibles Assets

Note 5. Investments in Subsidiaries

Note 6. Other Financial Assets

Note 7. Trade Receivables and Allowance for Bad Debt

Note 8. Derivative Financial Instruments

Note 9. Equity

Note 10. Financial Liabilities

Note 11. Other Payables

Note 12. Share-based Incentives Plans

Note 13. Income Taxes

Note 14. Commitments and Contingencies

Note 15. Related Parties

Note 16. Statement of (Loss) Income – Expenses by Nature

Note 17. Employee Compensation Costs

Note 18. Exceptional Items

Note 19. Auditors’ Remuneration

Note 20. Events After Reporting Period

151

152

153

155

156

164

165

169

171

172

173

175

179

180

150

LIVANOVA PLC
COMPANY STATEMENT OF (LOSS) INCOME
(In thousands)

Revenue

Net operating expenses

Operating loss before exceptional items

Exceptional items

Operating loss

Income from subsidiary undertakings

Interest income

Interest expense

Foreign exchange

(Loss) income before tax

Income tax benefit (expense)

(Loss) income for the period

Note

Year Ended 31
December 2017
23,630
$

Year Ended 31
December 2016
15,915
$

(65,703 )

(42,073 )

(101,675 )

(143,748 )

55,121

3,372

(15,327 )

(455 )
(101,037)
4,355
(96,682) $

(56,515 )

(40,600 )

(45,510 )

(86,110 )

270,474

1,867

(9,540 )

(17,304 )

159,387

(2,023)
157,364

151

LIVANOVA PLC
COMPANY STATEMENT OF COMPREHENSIVE INCOME
(In thousands)

Year Ended 31
December 2017
$

(96,682) $

Year Ended 31
December 2016
157,364

(939)
402

59,367

58,830

(6)
—

543
(296)
606

853

(6)
1

(5)
848

158,212

(Loss) income 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

Total items of other comprehensive income that will subsequently be
reclassified under profit.
Items of other comprehensive income (loss) that will not subsequently be
reclassified under profit:

Remeasurements of net assets for defined benefits
Tax impact

Note

Total items of other comprehensive (loss) income that will not subsequently
be reclassified under profit

Total other comprehensive income, net of taxes

Total comprehensive income for the period, net of taxes

(6)
58,824
(37,858) $

152

LIVANOVA PLC
COMPANY BALANCE SHEET
(In thousands)

Note

31 December
2017

31 December
2016

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
Financial derivative assets
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
Capital reduction reserve
Treasury shares
Accumulated other comprehensive income (loss)
Retained earnings

Total equity
Non-current liabilities

Financial derivative liabilities
Financial liabilities
Provision for employee severance indemnities and other employee

benefit provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Trade payables
Other payables
Provisions
Financial derivative liabilities
Other financial liabilities
Tax payable

Total current liabilities
Total liabilities and equity

153

3
4
5
13

8
6

9
9
9
9
9
9

8
10

1,167
1,027
3,172,721
13,615
18,767
3,207,297
5,447
4,132
941
321,649
8,866
76,065
417,100
3,624,397

74,750
66,446
14,485
1,257
(133)
37,085
2,613,939
2,807,829

1,294
184,177

1,274
—
186,745

15,210
13,805
—
751
598,219
1,838
629,823
3,624,397

1,127
1,034
3,195,829
1,514
15,094
3,214,598
14,345
6,652
8,269
250,172
8,789
25,832
314,059
3,528,657

74,578
66,446
9,684
1,257
(4,500)
(21,739)
2,690,870
2,816,596

1,392
172,458

1,017
38
174,905

12,905
10,673
1,180
942
503,313
8,143
537,156
3,528,657

LIVANOVA PLC
COMPANY BALANCE SHEET - (Continued)
(In thousands)

Registration number 09451374

The financial statements on pages 151 to 180 were approved by the Board of Directors and were signed on its behalf on

26 April 2018 by:

DAMIEN MCDONALD

CHIEF EXECUTIVE OFFICER & DIRECTOR

154

LIVANOVA PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
(In thousands)

Ordinary
Shares
Number
of Shares

Note

Share
Capital

Merger
Relief
Reserve

Share
Premium

Capital
Reduction
Reserve

Treasury
Shares

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings
(Deficit)

Total Equity

48,868

$ 75,444

$ 2,649,592

1,673

— $

(22,587)

(22,614)

2,681,508

—

(2,583,146)

(993)

(1,257)

282

391

—

1,257

(4,500)

8,011

—

(711)

(866)

(2,583,146)

8,011

1,257

(4,500)

—

848

2,583,146

—

(49,987)

(54,487)

22,961

31,363

2,556,120

157,364

(23,124)

157,364

—

848

157,364

158,212

48,157

74,578

66,446

9,684

1,257

(4,500)

(21,739)

2,690,870

2,816,596

—

133

172

133

—

172

—

4,801

—

4,801

—

4,367

—

19,751

29,091

19,751

(96,682)

29,091

(96,682)

58,824

—

58,824

(96,682)

(37,858)

48,290

$ 74,750

66,446

14,485

1,257

(133)

37,085

2,613,939

2,807,829

Balance at 31 December
2015

Capital Restructuring

Share repurchases

Share-based
compensation plans

Total transactions with
owners, recognised
directly in shareholders’
equity

Income for the period

Other comprehensive
income

Total comprehensive
income for the period

Balance at 31 December
2016

Capital Restructuring

Share repurchases

Share-based
compensation plans

Total transactions with
owners, recognised
directly in shareholders’
equity

Income for the period

Other comprehensive
income

Total comprehensive
income for the period

Balance at 31 December
2017

155

Note 1. Nature of Operations

Background. LivaNova was incorporated in England and Wales on 20 February 2015 for the purpose of facilitating the business
combination of Cyberonics, Inc., a Delaware corporation and Sorin S.p.A., a joint stock company organized under the laws of Italy.
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 and on the London Stock Exchange as a standard listing under the trading symbol “LIVN”. On 23 February
2017, we announced our voluntary cancellation of our standard listing of Ordinary Shares with the London Stock Exchange due to
the low volume of our ordinary share trading on the London Stock Exchange. Trading ceased at the close of business on 4 April
2017.We continue to serve our shareholders through our listing on the Nasdaq.

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 thousand 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 thousand 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.

Note 2. Basis of Preparation, Use of Accounting Estimates and Significant Accounting Policies

Basis of Preparation. The separate financial statements of LivaNova have been prepared on a going concern basis under the historical cost
convention, except for derivative financial instruments and share based payments awards that have been measured at fair value in accordance
with the Companies Act 2006. The financial statements are presented in U.S. dollars and all values are rounded to the nearest thousands,
except when otherwise indicated.

156

The financial statements of LivaNova have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’. The change in basis of preparation has enabled LivaNova to take advantage of the applicable disclosure exemptions permitted
by FRS 101 in the financial statements, which are summarised below:

Standard Disclosure
IFRS 7, ‘Financial Instruments: Disclosures’
IFRS 13, ‘Fair Value Measurement’

Exemption
Full exemption
paras 91-99 – disclosure of valuation techniques and inputs used for fair
value measurement of assets and liabilities

IAS 7, ‘Statement of Cash Flows’
IAS 8, 'Accounting Policies, Changes in Accounting
Estimates and Errors'

Full exemption
paras 30-31 – disclosure in respect of new standards and interpretations
that have been issued but which are not yet effective

IAS 24, ‘Related Party Disclosures’

para 17 – key management compensation
The requirements to disclose related party transactions entered into
between two or more members of a group, provided that any subsidiary
which is a party to the transaction is wholly owned by such a member

Fiscal Year-End. The periods presented include the years ended 31 December 2017 and 31 December 2016.

New Accounting Pronouncements, Refer to "Note 32. New Accounting Pronouncements" to the consolidated financial statements in
this 2017 Annual Report.

Investments. Investments in subsidiaries, associates and joint ventures are accounted for at cost less any provision for impairment.

Foreign currencies. The U.S. dollar 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 (loss) income 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 GBP exchange rate to the USD used in preparing the Company financial statements was as follows:

Year Ended 31 December 2017
Year Ended 31 December 2016

Weighted Average
Rate GBP

Closing Rate GBP

0.776928
0.741130

0.739730
0.812240

All exchange differences are presented as part of “Foreign exchange” on the statement of (loss) income.

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

157

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:

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; therefore, changes in the value of
these forward contracts are recognised in the 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.

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
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 7. Trade
Receivables and Allowance for Bad Debt” for further information.

Available-for-sale 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

158

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 EIR method 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.

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.

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

159

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, 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 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 2017 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 recoverable amount of
the group of 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 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

160

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

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 (loss) income:

•

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 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.

161

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 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, 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 are accrued over the service period.

The following share-based incentive awards are offered by the Company:

•

• 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.

• 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.

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.

162

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 (loss) income. 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.

Critical Estimates and Judgements. The preparation of our financial statements in conformity with FRS101 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:

•

Investments in Subsidiaries. We review investments in subsidiaries for impairment when events or changes in
circumstances indicate that a potential impairment exists, which involves estimation of future cash flows relating to
each investment. See "Note 5. Investments in Subsidiaries" for more details.

• Commitments and Contingencies. Refer to "Note 2. Basis of Preparation, Use of Accounting Estimates and Significant

Accounting Policies" of the consolidated financial statements.

163

Note 3. Property, Plant and Equipment

(in thousands)
At 31 December 2016

Gross amount

Accumulated depreciation and impairment
Net amount

At 31 December 2017

Gross amount

Accumulated depreciation and impairment
Net amount

Building and Building
Improvements

Equipment, Furniture &
Fixtures

Total

1,062

(143 )

919

1,190

(218 )

972

2,955

(2,747 )

208

3,401

(3,206 )

195

4,017

(2,890 )

1,127

4,591

(3,424 )

1,167

Changes during the year in the net amount of each category of property, plant and equipment are indicated below (in thousands):

Building and Building
Improvements

Equipment, Furniture &
Fixtures

Total

Net amount at 31 December 2015

Additions

Depreciation

Currency translation losses
Net Amount at 31 December 2016

Additions

Depreciation

Currency translation losses
Net Amount at 31 December 2017

Note 4. Intangible Assets

(in thousands)
At 31 December 2016

Gross amount

Accumulated amortisation and impairment
Net amount

At 31 December 2017

Gross amount
Accumulated amortisation and impairment

Net amount

199 $
799

(78)

(1)
919
117

(63)

(2)

235 $
49

(70)

(6)
208
76

(89)

971

196

434
848

(148)

(7)
1,127
193

(152)

(1)

1,167

Patents

Trademarks and
Trade Names

Software and
Other

Total

7,019
(7,019)

— $

7,986
(7,986)

— $

1,196
(1,196)

— $

1,361
(1,361)

5,645
(4,611)
1,034

6,899
(5,872)

— $

1,027

13,860

(12,826)

1,034

16,246
(15,219)

1,027

164

The changes in the net carrying value of each class of intangible assets during the year are indicated below (in thousands):

Trademarks and
Trade Names

Software and
Other

Total

Net amount at 31 December 2015

1,057

Additions

Amortisation

Currency translation losses
Net Amount at 31 December 2016

Additions

Amortisation

Currency translation gains
Net Amount at 31 December 2017

—
(29)
—

—

507
(539)
9

1,034

462
(586)
117

— $

1,027

1,086

507

(568)

1,034

462

(586)

117

1,027

Amortisation costs charged to the statement of (loss) income totalled $0.6 million for both years ended 31 December 2017 and 31
December 2016 and was recorded within net operating expenses.

The amortisation periods for our finite-lived intangible assets as of 31 December 2017 and 31 December 2016:

Trademarks and trade names

Software

Note 5. Investments in Subsidiaries

(in thousands)
Net amount at 31 December 2015

Distribution of reserves

Capital conferral

Impairment

Currency translation

Net Amount at 31 December 2016

Additions

Sale of investment (6.93%)
Capital conferral

Impairment

Currency translation

Net Amount at 31 December 2017

(in thousands)

Gross amount

Accumulated impairment

Net book value

Minimum Life in Years
4

Maximum Life in
Years

Cost

3,476,708

(222,904)

212

(35,510)

(22,677)

3,195,829

23,234

(30,814)
59

(89,069)

73,482

3,172,721

31 December 2016

3,231,339

(35,510)

3,195,829

31 December 2017

3,297,300
(124,579)
3,172,721

During the year ended 31 December 2017, LivaNova PLC sold 6.93% of its interest in LivaNova UK Holdco Limited to LivaNova
UK Limited. The consolidated group ownership of UK Holdco Limited remained at 100%.

165

We review for impairment when events or changes in circumstances indicate that a potential impairment exists. Impairments of
$44.9 million and $72.3 million related to the CRM franchise were recorded at the LivaNova consolidated group in the years ended
31 December 2017 and 31 December 2016. For further information, refer to "Note 7. Discontinued Operations" and “Note 10.
Goodwill and Intangible Assets” of LivaNova PLC and Subsidiaries consolidated financial statements. As a result of the impairments
recorded at the LivaNova consolidated group level, we reviewed the fair value of our investments in subsidiaries and determined
that impairments of $89.1 million and $35.5 million were necessary for the years ended 31 December 2017 and 31 December 2016,
respectively.

The detail of investments in subsidiary undertakings as at 31 December 2017 is shown as follows (in thousands, except ownership
percent):

% Ownership

31 December 2017

31 December 2016

100.00

139,862

Sorin CRM SAS

Livanova Switzerland SA

LivaNova Nederland NV

Sorin Group USA Inc.

LivaNova Canada Corp.

Livn UK Holdco Limited.

Livn US 1, LLC
Livn Luxco Sarl

Livn Irishco 1 UC.

Cyberonics Holdings LLC

Cyberonics Netherlands CV

Sorin Group Italia S.r.l.

LivaNova Site Management S.r.l.

100.00

42.07

100.00
100.00

100.00

99.00

90.37

86.42

6,312

61,287

886,268

111,013

187,064

147,330
3,000

228,931

6,312

61,287

886,268

111,013

217,878

147,330
3,000

1,000,271

1,000,212

23,141

587,671

19,409

—

516,538

17,060

3,172,721

3,195,829

The Company had the following directly and indirectly owned subsidiaries and associates as of 31 December 2017:

LivaNova PLC (Italian Branch)

Caisson Interventional LLC

Cardiosolutions Inc.

Cyberonics Holdings LLC

Cyberonics Latam SRL

Cyberonics Netherlands CV

Cyberonics Spain SL

Enopace Biomedical Ltd

ImThera Medical, Inc.

La Bouscarre S.C.I.

LivaNova Australia PTY Limited

Registered Office

Via Benigno Crespi 17 20159
Milan, Italy

10900 73rd Ave N Ste 116,
Maple Grove, MN 55339 USA

375 West Street, West
Bridgewater, MA 02379 USA

100 Cyberonics Boulevard,
Houston, TX 77058 USA

Edificio B49, 51 Ave O, Zona
Franca Coyo, Coyo-Alajeuela,
Costa Rica 20113

100 Cyberonics Boulevard,
Houston, TX 77058 USA

15 Alon Hatavor St, Caesaria
38900 Israel

12555 High Bluff Dr, Ste 310,
San Diego, CA 92130 USA

Route de Revel 31450
Fourquevaux France

16-18 Hydrive Close -
Dandenong South - Victoria
3175, Australia

Functional
Currency

% Consolidated
Group
Ownership

Name

%
Ownership

EUR

USD

CRC

EUR

USD

EUR

100

LivaNova USA Inc.

Sorin Group USA Inc.

Cyberonics Inc

Cyberonics Spain S.L.

LivaNova Plc

Cyberonics Netherlands
C.V.

Sorin CRM SAS

Cyberonics Inc

LivaNova France SAS

100

AUD

100

LivaNova Nederland NV

100

166

LivaNova Austria GmbH

LivaNova Belgium NV

Livanova Brasil Comércio e
Distribuição de Equipamentos
Médico-hospitalares Ltda

LivaNova Canada Corp.

LivaNova Colombia Sas

LivaNova Deutschland GmbH

LivaNova Espana, S.L.

LivaNova Finland OY

LivaNova France SAS

LivaNova Holding S.r.l.

LivaNova Holding SAS

LivaNova Holding USA Inc.

LivaNova Inc.

LivaNova India Private Limited

LivaNova IP Limited

LivaNova Japan K.K.

LivaNova Nederland N.V.

LivaNova Norway AS

LivaNova Poland Sp. Z o.o.

LivaNova Portugal, Lda

LivaNova Scandinavia AB

LivaNova Singapore Pte Ltd

LivaNova Site Management S.r.l.

LivaNova Switzerland SA

LivaNova UK Limited

LivaNova USA Inc.

Registered Office

Donau City Strasse 11/16 1220
Wien, Austria

Ikaroslaan 83, 1930 Zaventem,
Belgium

Rua Liege, 54 – Vila Vermelha,
04298-070 – São Paulo - SP -
Brasil

280 Hillmount Road, Unit 8,
Markham, ON L6C 3A1 Canada

Avenida Calle 80 No. 69-70
Bodega 37, Bogotá, Colombia

Lindberghstrasse 25, D - 80939
München, Germany

Avenida Diagonal 123, planta 10,
08005, Barcelona, Spain

c/o Kalliolaw Asianajotoimisto
Oy, Södra kajen 12, 00130
Helsinki, Finland

4 avenue Reaumur 92134
Clamart, France

Via Benigno Crespi, 17 - 20159
Milano, Italy

4 avenue Reaumur 92134
Clamart, France

14401 W. 65th Way - Arvada, CO
80004 USA

1570 Sunland LN, Costa Mesa,
CA 92626 USA

Barakhamba Road 110001 New
Delhi, India

20 Eastbourne Terrace, London,
England W2 6LG, United
Kingdom

11-1 Nagatacho 2 chome,
Chiyoda-ku, Tokyo, 100-6110
Japan

Westerdoksdijk 423, 1013 BX,
Amsterdam, Netherlands

c/o AmestoAccounthouse AS,
Smeltedigelen 1, 0195 Oslo,
Norway

Park Postepu Bud A Ul. Postepu
21 PL-02 676 Warszawa, Poland

Edificio Zenith, Rua Dr. António
L. Borges n. 9/9 a - 6a -
Miraflores - 1495-131 Algés,
Portugal

Djupdalsvägen 16, 192 51
Sollentuna, Scandinavia

The Adelphi, 1 Coleman Street,
#10-07, Singapore 179803

Via Benigno Crespi 17 20159
Milan, Italy

WTC Av. Grattapaille 2 1018
Lausanne CH, Switzerland

1370 Montpellier Court,
Gloucester Business Park,
Gloucester, Gloucestershire, GL3
4AH, United Kingdom

100 Cyberonics Boulevard,
Houston, TX 77058 USA

Functional
Currency

% Consolidated
Group
Ownership

EUR

BRL

CAD

COP

EUR

USD

INR

EUR

JPY

EUR

NOK

PLN

EUR

SGD

EUR

100

Name

LivaNova Nederland NV

Sorin Group Italia Srl

LivaNova PLC

Sorin Group Italia S.r.l.

LivaNova Nederland NV

Sorin Group Italia S.r.l.

Sorin CRM SAS

Sorin Group Italia S.r.l.

Sorin CRM SAS

LivaNova PLC

LivaNova USA Inc.

LivaNova Nederland NV

LivaNova PLC

LivaNova Nederland NV

LivaNova PLC

LivaNova Scandinavia AB

LivaNova Nederland NV

Sorin CRM SAS

Sorin Group Italia S.r.l.

LivaNova Plc
Sorin Group Italia S.r.l.

LivaNova PLC

LivaNova Nederland NV

USD

100

LIVN US Holdco LTD

167

%
Ownership

100

86
14

100

Livn Irishco 2 UC

Livn Irishco 3 Unlimited Company

Livn Irishco Unlimited Company

Livn Luxco 2 Sarl

Livn Luxco Sarl

Livn UK 2 Co Limited

Livn UK 3 Co Limited

Livn UK Holdco Limited

Livn US 1, LLC

Livn US 3 LLC

Livn US Holdco, Inc.

Livn US Lp

Registered Office

70 Sir John Rogerson’s Quay,
Dublin 2, Ireland

15 Rue Edward Steichen L-2540
Luxembourg

20 Eastbourne Terrace, London,
England W2 6LG, United
Kingdom

2711 Centerville Road, Suite 400,
Wilmington, DE 19808

2711 Centerville Road, Suite 400,
Wilmington, DE 19808 USA

1209 Orange Street, Wilmington,
DE 19801 USA

2711 Centerville Road, Suite 400,
Wilmington, DE 19808 USA

Functional
Currency

% Consolidated
Group
Ownership

EUR

USD

100

Name

LIVN UK Holdco LTD

LivaNova PLC

LIVN UK Holdco LTD

LivaNova PLC

LIVN US 1 LLC

LIVN US LP

LIVN UK 2 CO Limited
LivaNova Plc
LivaNova UK Limited

LivaNova PLC

Sorin Group USA Inc.

LIVN US Lp
LIVN UK 3 Co Limited

Livn US Lp
Livn US 3 LLC.

MicroPort Sorin CRM (Shanghai)
Co. Ltd

Room 101 Bleg 2 501 Newtone
Rd 201203 Shanghaî, China

CNY

LivaNova Holding SAS

MicroPort CRM Srl

Sobedia Energia

Sorin CRM SAS

Sorin Group Czech Republic

Sorin Group DR, S.r.l.

Sorin Group Italia S.r.l.

Sorin Group Rus LLC

Sorin Medical (Shanghai) Co. Ltd

Saluggia (Vercelli) - Italy, via
Crescentino snc

Via Crescentino sn 13040
Saluggia (VC), Italy

4 avenue Reaumur 92134
Clamart, France

Na poriçi 1079/3a Nové Mesto
Praha 110 00 Praha 1, Czech
Republic

Edificio I-3Zona Franca
Industrial de las Americas,
Autopista Las Americas Km 22
Z.F. Santo Domingo Este,
Dominican Republic

Via Benigno Crespi, 17 - 20159
Milano, Italy

Marshal Proshlyakov str. 30
office 304 123458 Moscow,
Russia

Room 218, 2nd Floor, No. 56
Meisheng Road, China
(Shanghai) Pilot Free Trade Zone

EUR

USD

EUR

RUB

CNY

100

Sorin Group Italia Srl

LivaNova Site Mgmt S.r.l.
Sorin Group Italia Srl

LivaNova Plc

Sorin Group Italia S.r.l.

100

Sorin CRM SAS

100

LivaNova PLC
LivaNova Site Mgmt S.r.l.
Sorin CRM SAS

Sorin Group Italia S.r.l.

LivaNova Holding S.r.l.

Sorin Medical Devices (Suzhou) Co.
Ltd

No. 130, Weihe Road, Suzhou
Industrial Park, Jiangsu Province,
PRC

CNY

100

LivaNova Holding S.r.l.

%
Ownership

100

51
42
7

100

56
44

83
17

100

25
50

100

90
7
3

100

168

Note 6. Other Financial Assets

Our current financial assets in the balance sheet include receivables from subsidiaries. These represent loans and current receivable
balances due from our subsidiaries and are repayable on demand.

(in thousands)

Financial receivables due from subsidiaries

31 December 2017

31 December 2016

321,649

250,172

Note 7. 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

Total

31 December 2017

31 December 2016

281

5,442
(276)
5,447

260

14,628

(243)

14,645

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

Currency translation gains/losses

End of period

Note 8. Derivative Financial Instruments

31 December 2017

31 December 2016

243

—

276

250

—

(7)

243

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 2017 and 31 December 2016 was $231.9 million and $489.1 million, respectively.

The amount and location of the gains (losses) in the statements of (loss) income related to derivative instruments, not designated as
hedging instruments, are as follows (in thousands):

Derivatives Not Designated as Hedging Instruments
Foreign currency exchange rate contracts

Location
Foreign exchange

Year Ended
31 December 2017

(11,678) $

Year Ended
31 December 2016
10,960

Interest rate swaps

The Company has a long-term loan from a 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 2017 and 31 December 2016 was $56.0 million and
$63.2 million, respectively. The interest rate swap agreements mature in June 2021 and have periodic interest settlements. The interest rate

169

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 months floating-rate to a fixed-rate loan.

Presentation in Financial Statements

The amount of gains (losses) and location of the gains (losses) in the statements of income and accumulated OCI related to interest
rate swap derivative instruments designated as cash flow hedges are as follows (in thousands):

Derivatives in Cash Flow Hedging Relationships

Amount

Location

Amount

Interest rate swap contracts

— Interest expense

939

Year Ended 31 December 2017

Gross Gains Recognised in
OCI on Effective Portion
of Derivative

Effective Portion of Gains (Losses) on
Derivative Reclassified from:

Year Ended 31 December 2016

Gross Gains Recognised in
OCI on Effective Portion
of Derivative

Effective Portion of Gains (Losses) on
Derivative Reclassified from:

Derivatives in Cash Flow Hedging Relationships

Amount

Location

Amount

Interest rate swap contracts

Interest expense

458

The following tables summarize the location and fair value amounts of derivative instruments reported in the Company’s balance
sheet as of 31 December 2017 (in thousands):

Asset Derivatives

Liability Derivatives

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate contracts

Total derivatives designated as hedging instruments

Derivatives not designated as hedging instruments

Foreign currency exchange rate contracts

Current financial
derivative assets

Total derivatives not designated as hedging instruments

Total derivatives

Non-current financial
derivative liabilities

Current financial
derivative liabilities

—

941

1,294

751

2,045

—

2,045

170

The following tables summarize the location and fair value amounts of derivative instruments reported in the Company’s balance
sheet as of 31 December 2016 (in thousands):

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Asset Derivatives

Liability Derivatives

Interest rate contracts

Total derivatives designated as hedging instruments

Derivatives not designated as hedging instruments

Foreign currency exchange rate contracts

Current financial
derivative assets

Total derivatives not designated as hedging instruments

Total derivatives

Note 9. Equity

Share capital.

Non-current financial
derivative liabilities

Current financial
derivative liabilities

—

8,269

1,392

942

2,334

—

2,334

The Company’s authorised share capital is as follows:

(in number of shares)

31 December 2017

31 December 2016

Authorised share capital, ordinary shares of £1 each, unlimited shares authorized
Issued - fully paid

Outstanding

48,290,276

48,156,690

Merger relief reserve. On 19 October 2015 pursuant to the Mergers the merger relief reserve of $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”.

Share repurchase plans. On 1 August 2016, the Board of Directors authorized a share repurchase plan pursuant to an authority granted by
shareholders at the 2016 annual general meeting held on 15 June 2016. The repurchase program was structured to enable us to buy back
up to $30 million of Ordinary Shares on Nasdaq in the period ended 31 December 2017 and an aggregate of $150 million of Ordinary Shares
(inclusive of the $30 million of Ordinary Shares set out above) also on Nasdaq up to and including 31 December 2018. In November 2016,
the share repurchase plan was amended to authorize the repurchase up to $50 million of Ordinary Shares through 31 December 2017 (instead
of the originally authorized $30 million). Shares repurchased under the repurchase plan are cancelled. As of 31 December 2016, the
Company purchased 993,339 shares under this plan at a cost of $50.0 million at an average price per share of $50.32. All the
repurchased shares have been cancelled and are no longer considered issued or outstanding. The Company did not purchase any
additional shares during the year ended 31 December 2017.

Capital Reduction. In March 2016 the Company capitalised $2,583.1 million of the Merger Reserve in order to create distributable
reserves in the accounts of the Company. The reserves may be used for any corporate purpose of the Company for which realized
profits are required.

171

Accumulated other 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
(in thousands):

Ending Balance - 31 December 2015

(22,665) $

(5) $

(22,587)

Change in
unrealised
gain (loss) on
derivatives

Foreign
currency
translation
adjustments

Revaluation of
net liability
(asset) for
defined benefits

Total

Reclassification of (gain)/loss from accumulated other
comprehensive income, before tax

Tax effect

Reclassification of (gain)/loss from accumulated other
comprehensive income, after tax

Reclassification of (gain)/loss from accumulated other
comprehensive income, before tax

Ending Balance - Tax effect

Ending Balance - Reclassification of (gain)/loss from
accumulated other comprehensive income, after tax

Ending Balance - Net current-period other comprehensive
income (loss), net of tax

Ending Balance - 31 December 2016

Reclassification of (gain)/loss from accumulated other
comprehensive income, before tax

Tax effect

Reclassification of (gain)/loss from accumulated other
comprehensive income, after 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

85
(28)

458
(268)

190

247

330

—

(939)
402

(537)

606

—

606

—

606

(22,059)

59,367

—

59,367

—

(6)
1

(5)

—

(5)

(10)

(6)
—

(6)

—

685

(27)

658

458

(268)

190

848

(21,739)

59,361

—

59,361

(939)

402

(537)

Net current-period other comprehensive income (loss), net of
tax

(537)

59,367

Ending Balance - 31 December 2017

(207) $

37,308

(6)

(16) $

58,824

37,085

Note 10. Financial Liabilities

The outstanding principal amount of long-term debt consisted of the following (in thousands, except interest rates):

Principal Amount at
31 December 2017

Principal Amount at
31 December 2016

Maturity

Effective
Interest
Rate in 2017

European Investment Bank

Loans payable to LivaNova subsidiaries

Total long-term facilities

Less current portion of long-term debt

Total long-term debt

69,894

78,987

June 2021

0.95%

134,247

204,141
(19,964)
184,177

111,013

190,000
(17,542)
172,458

172

The outstanding principal amount of short-term debt consisted of the following (in thousands, except interest rates):

Intesa San Paolo Bank

Barclays

Unicredit Banca

BNL BNP Paribas

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 2017

Principal Amount at
31 December 2016

Effective Interest
Rate in 2017

23,985

20,000

7,196

—

136

526,938

578,255

19,964

598,219

—

8,433

7,379

469,909

485,771

17,542

503,313

2.33%

0.20%

0.13%

The EIB 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.

The EIB loan is subject to 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
from subsidiaries which generate cash.

In December 2015 LivaNova PLC issued a promissory note in favor of LIVN UK Holdco, in the amount of $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 an
expiry date on 31 December 2022.

Note 11. 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

Total

Note 12. Share-Based Incentive Plans

Share-Based Incentive Plans

31 December 2017

31 December 2016

4,093

4,457

3,163
461
1,535

3,211

2,916

3,000
753
109

684

13,805

10,673

173

awards and dividend equivalents. As of 31 December 2017, there were approximately 6,115,000 shares available for future grants
under the 2015 Plan.

Share Options and Share Appreciation Rights

Options and SARs
Exercised
Outstanding - end of year

The Year Ended 31 December 2017

Number of
Optioned Shares

Wtd. Avg. Exercise
Price

23,939
833,892

$
$

52.43
57.86

The weighted average remaining contractual life for the share options and SARs outstanding at 31 December 2017 is 6.0 years.

The aggregate intrinsic value of the options and SARs outstanding at 31 December 2017 is $18.4 million. 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 2017 are categorised in exercise price ranges as
follows:

Outstanding Options
$21-30
$41-50
$51-60
$61-70
$71-80
Total

31 December 2017

3,340
183,250
367,900
275,301
4,101
833,892

Restricted Share and Restricted Share Units Awards

The following tables detail the activity for service-based restricted share and restricted share unit awards:

Non-vested at end of year

(in thousands)
Aggregate fair value of service-based share grants that vested during the year (in thousands)

Year Ended 31 December 2017

Number of
Shares

Wtd. Avg. Grant
Date Fair Value

317,211

44.84

Year Ended 31
December 2017

5,857

The following tables detail the activity for performance-based and market-based restricted share and restricted share unit awards:

Non-vested at end of year

(in thousands)

Aggregate fair value of service-based share grants that vested during the year

Year Ended 31 December 2017

Number of
Shares

Wtd. Avg. Grant
Date Fair Value

33,202

56.17

Year Ended 31
December 2017

692,303

174

Note 13. Income Taxes

Income tax (benefit) expense consists of the following (in thousands):

Current tax

Deferred tax

Income tax (benefit) expense

Year Ended 31
December 2017

Year Ended 31
December 2016

1,425

2,930

4,355

(1,094)

3,117

2,023

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:

Statutory tax rate at U.K. Rate

Change in tax rate

Permanent differences
Adjustment to Italian branch NOL deferred tax asset resulting from the merger

Adjustment to Italian branch NOL deferred tax asset from the Italian tax litigation

Italian branch tax rate differential

Distribution of subsidiary earnings

Change in unrecognized deferred tax assets

Tax on UK CFC Interest

Other, net

Effective tax rate

Deferred income tax assets and liabilities are summarised as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards

Accruals and reserves

Share-based compensation

Depreciation & amortisation

Total deferred tax assets

Property, equipment & amortization

Other
Total deferred tax liabilities

Total deferred tax asset (liability)

Year Ended 31
December 2017

Year Ended 31
December 2016

19.0%
(1.0)
(20.0)
—

—
(0.3)
9.8
(2.2)
(1.8)
0.8

20.0 %

(6.1)

(0.3)
(29.1)

(18.7)

10.0

—

0.9

4.3%

(23.4)%

31 December 2017

31 December 2016

4,855

1,521

7,149

13,572
(9)
52
43

—

1,409

—

1,481

(38)

33
(5)

13,615

1,476

Deferred tax assets have not been recognized with respect of the following items (in thousands):

Tax loss carryforwards

Note 14. Commitments and Contingencies

FDA Warning Letter

31 December 2017

31 December 2016

73,104

61,613

On 29 December 2015, the FDA issued a Warning Letter alleging certain violations of FDA regulations applicable to medical device
manufacturers at our Munich, Germany and Arvada, Colorado facilities.

175

CDC and FDA Safety Communications and Company Field Safety Notice Update

On 13 October 2016, the CDC and FDA separately released safety notifications regarding the 3T devices. The CDC’s MMWR and
HAN reported that tests conducted by CDC and its affiliates indicate that there appears to be genetic similarity between both patient
and 3T device strains of the non-tuberculous mycobacterium bacteria M. chimaera isolated in hospitals in Iowa and Pennsylvania.
Citing the geographic separation between the two hospitals referenced in the investigation, the report asserts that 3T devices
manufactured prior to 18 August 2014 could have been contaminated during the manufacturing process. The CDC’s HAN and FDA’s
Safety Communication, issued contemporaneously with the MMWR report, each assess certain risks associated with 3T devices and
provide guidance for providers and patients. The CDC notification states that the decision to use the 3T device during a surgical
operation is to be taken by the surgeon based on a risk approach and on patient need. Both the CDC’s and FDA’s communications
confirm that 3T devices are critical medical devices and enable doctors to perform life-saving cardiac surgery procedures.

176

Litigation

Civil Investigative Demand

On 31 May 2017, the Company received a Civil Investigative Demand (CID) from the US Attorney’s Office for the Northern District
of Georgia. The CID requested certain documents relating to sales and marketing of VNS devices and related products in the State
of Georgia. We have not recognized an expense related to this matter because any potential loss is not currently probable or reasonably
estimable. In addition we cannot reasonably estimate a range of potential loss, if any, that may result from this matter.

Other Legacy Sorin Matters

SNIA Litigation

Our subsidiary, Sorin S.p.A. was created as a result of a spin-off from SNIA S.p.A. in January 2004. SNIA subsequently became
insolvent and the Italian Ministry of the Environment and the Protection of Land and Sea, sought compensation from SNIA in an
aggregate amount of approximately $4 billion for remediation costs relating to the environmental damage at chemical sites previously
operated by SNIA’s other subsidiaries.

In September 2011 and July 2014, the Bankruptcy Court of Udine and the Bankruptcy Court of Milan held (in proceedings to which
we are not parties) that the Public Administrations were not creditors of either SNIA or its subsidiaries in connection with their claims
in the Italian insolvency proceedings. The Public Administrations appealed and in January 2016, the Court of Udine rejected the
appeal. The Public Administrations have also appealed that decision.

Environmental Remediation Order

On 28 July 2015, Sorin received an administrative order from the Italian Ministry of the Environment directing prompt commencement
of environmental remediation at the chemical sites previously operated by SNIA’s other subsidiaries. We challenged the Remediation
Order before the TAR, and the TAR annulled the Remediation Order. The Italian Ministry of the Environment appealed. We have
not recognized an expense in connection with this matter because any potential loss is not currently probable or reasonably estimable.
In addition, we cannot reasonably estimate a range of potential loss, if any, that may result from this matter.

177

Opposition to Merger Proceedings

Tax Litigation

The appeals submitted against the first-level decisions for 2005 and 2006 were rejected. We appealed these adverse decisions to the
Italian Supreme Court, where the matters are still pending.

Other Matters

Lease Agreements

We have operating leases for facilities and equipment. Rent expense from all operating leases amounted to approximately $1.8 million
and $2.4 million for the years ended 31 December 2017 and 31 December 2016, respectively.

Future minimum lease payments for operating leases as of 31 December 2017 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

178

1,669

5,971

3,591

11,231

Note 15. Related Parties

Interests in subsidiaries are set out in “Note 5. Investments In subsidiaries”. In the normal course of business the Company issues
loans, purchases and sells services from/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.

The Company provided LivaNova group companies with support and assistance for human resource development, financial
management, legal, tax and corporate assistance.

Payment for the services rendered is made in arrears each month, and interest rates are at arm’s length.

Note 16. Statement of (Loss) Income - Expenses by Nature

(in thousands)
Revenue

Other income
Cost of materials and services used

Personnel expense

Amortisation, depreciation and impairments

Interest expense

Interest income

Foreign exchange
(Loss) profit before taxes

Income tax (benefit) expense
(Loss) profit for the period

Year Ended 31
December 2017

Year Ended 31
December 2016

23,630

104
(46,353)
(31,322)
(89,807)
(15,327)
58,493
(455)
(101,037)
(4,355)
(96,682) $

15,915

129
(39,836)

(26,092)

(36,226)

(9,540)

272,341

(17,304)

159,387

2,023

157,364

Note 17. Employee and Key Management Compensation Costs

Details of Directors’ remuneration are included in pages 53 to 66 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, including executive directors were 44 for the years ended
31 December 2017 and 31 December 2016.

Note 18. Exceptional Items

The following exceptional items are included within operating loss (in thousands):

Integration expenses

Restructuring expenses

CRM investment impairment

Total

Year Ended 31
December 2017

Year Ended 31
December 2016

9,945

2,661

89,069

101,675

7,552

2,448

35,510

45,510

Integration Expenses. Integration expenses consisted primarily of consultation with regard to: our systems integration, organization
structure integration, finance, synergy and tax planning and certain re-branding efforts.

179

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.

CRM Investment Impairment. During the years ended 31 December 2017 and 31 December 2016, we recorded $89.1 million and
$35.5 million of impairment related to the investment in the Sorin CRM SAS subsidiary. Refer to “Note 5. Investments in Subsidiaries”
for further details.

Note 19. Auditors’ Remuneration

(in thousands)
LivaNova auditors

Year Ended 31
December 2017

Year Ended 31
December 2016

Fees payable to the Company’s auditors and its associates for the audit of parent
company financial statements

Total audit fees payable to the Company’s auditors

Note 20. Events After Reporting Period

ImThera Acquisition

TandemLife Acquisition

On 4 April 2018, we announced the closing of our acquisition of CardiacAssist, Inc., dba TandemLife,, a privately-held Delaware
corporation. TandemLife designs, manufactures and commercializes advanced cardiac and respiratory temporary support solutions.
We agreed to pay up to $250 million to acquire TandemLife, with upfront costs of approximately $200 million and with up to $50
million in contingent consideration based on achieving regulatory milestones.

Bridge Facility Agreement

The proceeds of the Bridge Facility are intended to be used to fund the acquisition and pay related expenses, refinance certain
indebtedness and for general corporate and working capital purposes.

180

GLOSSARY AND DEFINITIONS

The following definitions apply throughout this UK Annual Report (other than in the Financial Statements) unless the context requires
otherwise:

"Act"
“Affordable Care Act”

U.S. enacted the Tax Cuts and Jobs Act;

the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Educational
Reconciliation Act;

"AFS"

Available-for-Sale;

“Anti-Kickback Statute”

the U.S. federal Anti-Kickback Statute;

“Auditor”

"Award Value"

"Brexit"

“business unit”

“Caisson”

"CDC"

“CEO”

“CE Mark”

"CFC"

“CFO”

"CGUs"

"CID"

"closing price"

“CMS”

“Code”

"CODM"

“Company”

PricewaterhouseCoopers LLP, the Company’s independent UK statutory auditor;

the equity award value;

the UK government's process to withdraw from the EU;

LivaNova’s three principal business units, Neuromodulation, Cardiac Surgery and CRM;

Caisson Interventional LLC;

Centers for Diseases Control and prevention;

Chief Executive Officer;
certification demonstrating 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);

the UK's Controlled Foreign Company

Chief Financial Officer;

Cash Generating Units;

Civil Investigative Demand;

the most recent closing price of an ordinary share of our stock on the Nasdaq as of the grant date;

the Centers for Medicare and Medicaid Services;

the US Internal Revenue Code;

the Chief Operating Decision Maker;

LivaNova PLC, a company incorporated in England and Wales;

“Companies Act”

the Companies Act 2006 of England and Wales;

“CRM”

“CSA”

"CS"
“Cyberonics”

Cardiac Rhythm Management business franchise;

Central Sleep Apnoea;

Cardiac Surgery business franchise;

Cyberonics. Inc., a Delaware corporation, including (whether the context requires) its subsidiaries and
subsidiary undertakings;

“Cyberonics merger”

the merger of Merger Sub with and into Cyberonics, with Cyberonics continuing as the surviving company
and a wholly-owned subsidiary of the Company;

“DAB”

the Departmental Appeals Board of the US Department of Health and Human Services;

“Data Protection Directive”

the Directive 95/46/EC;

"D.S.O."

"DTC"

"EC"

“EEA”

“EIB”

"EIR"

"EPS"

“EU”

"EVP"

“False Claims Act”

Days of Sales Outstanding;

Depository Trust & Clearing Corporation;

the European Commission;

the European Economic Area;

European Investment Bank;

Effective Interest Rate;

Earnings Per Share;

the European Union;

the Employment Value Proposition;

the U.S. Federal False Claims Act;

181

"FCF"

“FCPA”

"FDA"
"FDCA"

"FIFO"

“FSCAs”

"FX"

"GBP"

"GDPR"

"GHG"

"HAFTA"

"HAN"

“Highlife”

“HIPAA”

“HITECH”

"HLM"

"HMRC"
“IDE”

“IFRS”

Free Cash Flow;

the U.S. Foreign Corrupt Practices Act of 1977;

Food and Drug Administration;

Food, Drug and Cosmetics Administration;

First-In First-Out;

Field Safety Corrective Actions;

Foreign Exchange;

British Pound Sterling;

General Data Protection Regulation;

Greenhouse Gas;

the Highway and Transportation Funding Act of 2014;

Health Advisory Notice;

Highlife S.A.S.;

the U.S. Health Insurance Portability and Accountability Act of 1996;

the U.S. Health Information Technology and Clinical Health Act;

Heart-Lung Machine;

Her Majesty's Revenue & Customs;

Investigational Device Exemption;

International Financial Reporting Standards, as adopted by the EU;

“Incentive Award Plan”

the LivaNova PLC 2015 Incentive Award Plan;

“ImThera”

“IRBs”

“ISO”

“IRS”

“ISDA”

“KPI”

“LivaNova”

"LOI"

“LSE”

"LTIP"

"main market"

“MDET”

“MDR”
“measurement dates”
"Medical Devices
Regulation"
“Merger”

“MRI”

“MHLW”

"MMWR"

“Nasdaq”
“New Ventures”

"NOLs"

“NTM”
"OCI"

ImThera Medical, Inc.;

Institutional Review Boards;

the International Standards Organisation;

the U.S. Internal Revenue Service;

International Swaps and Derivatives Association, Inc.;

Key Performance Indicator;

the Company and its subsidiaries and subsidiary undertakings, including (where the context so requires)
Cyberonics and Sorin prior to the Mergers becoming effective;

Letter of Intent;

the London Stock Exchange plc;

Long Term Incentive Plan;

the LSE Main Market;

Medical Device Excise Tax;

Medical Device Reporting regulations;

the end of the three-year phase-in period and on the last day of each financial year thereafter;

proposals for the revision of the EU regulatory framework for medical devices which would replace the
Medical Devices Directive and the Active Implantable Medical Devices Directive;

the business combination of Cyberonics and Sorin

Magnetic Resonance Imaging;

the Ministry of Health, Labour and Welfare of Japan;

Morbidity and Mortality Weekly Report;

the Nasdaq Global Market;

LivaNova’s corporate business development;

the Net Operating Losses;

NonTuberculous Mycobacterium;

Other Comprehensive Income;

182

“Official List”

“Ordinary Shares”

“OSA”
"our"

“PAL”

“Pearl Meyer”

“PMA”

“PMDA”

"PP&E"

“Principles”

“PRT”

"PSU"

"Purchase Agreement"

“QSR”

“Restructuring Plan”

“R&D”

“RSUs”

"rTSR"

“SAM”

“SARs”

"SDRT"

“SEC”

“Section 4985 Excise Tax”
“Section 7874”

“Section 7874 Percentage”

“SG&A”

"shares"
“Sorin”

“Sorin merger”
"STIP"
"TFR"
"the Code"
"the Company”

"the Plans"

"the Public
Administrations"
"the TAR"
"TMVR"
“transitional period”

“TRD”

"UK"

“UK Bribery Act”

the official list of listed securities maintained by the FCA;

Ordinary Shares of £1.00 each in the capital of the Company;

Obstructive Sleep Apnoea;

LivaNova Plc collectively with its subsidiaries;

the Pharmaceutical Affairs Law of Japan;

Pearl Meyer & Partners, LLC, an independent compensation consultant with an international
scope;

Pre-Market Approval;

the Pharmaceutical and Medical Devices Agency of Japan;

Property, Plan & Equipment;

the United Nations Guiding Principles on Human Rights;

Phospholipid Reduction Treatment;

Performance Stock Units;

Stock and Purchase Agreement to sell CRM business franchise to Microport cardiac Rhythm B.V.;

the U.S. FDA’s Quality System Regulation under section 520 of the U.S. FDCA;

the restructuring plan initiated by LivaNova after consummation of the Mergers in October 2015;

Research and Development;

Restricted Stock Units;

relative Total Shareholder Return;

Sleep Apnoea Monitoring;

Stock Appreciation Rights;

the UK stamp duty reserve tax;

the U.S. Securities and Exchange Commission;

the tax imposed under section 4985 of the Code;

section 7874 of the Code;

the percentage of ownership requirements imposed by Section 7874 under which a company may be
considered to be a corporation foreign to the U.S.;

Selling, General and Administrative;

LivaNova's ordinary shares of £1 per share;

Sorin S.p.A., a joint stock company organised under the laws of Italy, including (where the context so requires),
its subsidiaries and subsidiary undertakings;

the merger of Sorin with and into the Company, with the Company continuing as the surviving company;

Short Term Incentive Plan;

severance indemnity;

the City Code on Takeovers and Mergers;

LivaNova Plc collectively with its subsidiaries;

LivaNova's 2015 and 2016 Reorganization Plans initiated October 2015 and March 2016, respectively, in
conjunction with the completion of the Cyberonics and Sorin merger;

the Italian Ministry of the Environment and other Italian government agencies;

the Administrative Court of Lazio;

Transcatheter Mitral Valve Replacement

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;

Treatment Resistant Depression;

the United Kingdom;

the UK Bribery Act of 2010;

183

“US”
"USD"

"US EPA"

“US GAAP”
“VNS”

"WACC"

"we"

“$”

"2018 LTIP"

the United States of America;

the U.S. dollar

the U.S. Environmental Protection Agency;

the accounting principles generally accepted in the U.S.;

Vagus Nerve Stimulation;

Weighted Average Cost of Capital;

LivaNova Plc collectively with its subsidiaries;

U.S. dollars;

2018 annual Long-Term Incentive Program;

"2018 rTSR Peer Group"

peer group of 27 companies selected by the Committee’s compensation consultant;

"3T device"

3T Heater-Cooler device;

184

Intentionally Left Blank

LivaNova PLC

20 Eastbourne Terrace
London, W2 6LG
United Kingdom

LivaNova PLC

T +44 20 3325 0660
20 Eastbourne Terrace
London, W2 6LG
United Kingdom