LIVANOVA PLC AND ~~SUBSIDIARIES’~~SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)


	Three Months Ended March 31,
		2021		2020
Net (loss) income		$	(29,698)	$	37,583
Other comprehensive income (loss):
Net change in unrealized gain (loss) on derivatives		(335)		(1,356)
Tax effect		339		325
Net of tax		4		(1,031)
Foreign currency translation adjustment		(25,875)		(32,100)
Total other comprehensive income (loss)		(25,871)		(33,131)
Total comprehensive income (loss)		$	(55,569)	$	4,452

See accompanying notes to the condensed consolidated financial statements

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 27,830
$ (1,569 ) $ 86,599
$ (32,990 )
Other comprehensive income (loss):
Net change in unrealized gain (loss) on derivatives (1,980 ) 2,042
(5,923 ) (5,224 )
Tax effect 473
(673 ) 1,756
1,513
Net of tax (1,507 ) 1,369
(4,167 ) (3,711 )
Foreign currency translation adjustment, net of tax 39,106
(1,805 ) 111,123
32,598
Total other comprehensive income (loss) 37,599
(436 ) 106,956
28,887
Total comprehensive income (loss) $ 65,429
$ (2,005 ) $ 193,555
$ (4,103 )

LIVANOVA PLC AND ~~SUBSIDIARIES’~~SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

(In thousands, except share amounts)


	March 31, 2021		December 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	252,539	$	252,832
Accounts receivable, net of allowance of $11,268 at March 31, 2021 and $10,310 at December 31, 2020	180,707		184,356
Inventories	124,523		126,675
Prepaid and refundable taxes	36,632		60,240
Assets held for sale	67,475		70,539
Prepaid expenses and other current assets	28,754		24,792
Total Current Assets	690,630		719,434
Property, plant and equipment, net	157,892		163,805
Goodwill	909,992		922,318
Intangible assets, net	423,850		437,636
Operating lease assets	49,861		50,525
Investments	36,772		31,094
Deferred tax assets	2,921		2,990
Long-term derivative assets	84,852		72,302
Other assets	12,399		11,247
Total Assets	$	2,369,169	$	2,411,351
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations	$	11,788	$	13,343
Accounts payable	62,448		73,668
Accrued liabilities and other	92,034		95,408
Current litigation provision liability	26,570		28,612
Taxes payable	18,538		16,463
Accrued employee compensation and related benefits	56,860		51,879
Liabilities held for sale	27,118		29,679
Total Current Liabilities	295,356		309,052
Long-term debt obligations	646,369		642,298
Contingent consideration	89,847		89,850
Litigation provision liability	7,740		7,878
Deferred tax liabilities	8,151		8,915
Long-term operating lease liabilities	42,332		42,221
Long-term employee compensation and related benefits	19,010		20,628
Long-term derivative liabilities	148,283		121,940
Other long-term liabilities	46,324		49,740
Total Liabilities	1,303,412		1,292,522
Commitments and contingencies (Note 8)	0		0
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 49,454,726 shares issued and 48,844,543 shares outstanding at March 31, 2021; 49,447,473 shares issued and 48,655,863 shares outstanding at December 31, 2020	76,310		76,300
Additional paid-in capital	1,770,407		1,768,156
Accumulated other comprehensive income	1,938		27,809
Accumulated deficit	(782,100)		(752,402)
Treasury stock at cost, 610,183 ordinary shares at March 31, 2021; 791,610 ordinary shares at December 31, 2020	(798)		(1,034)
Total Stockholders’ Equity	1,065,757		1,118,829
Total Liabilities and Stockholders’ Equity	$	2,369,169	$	2,411,351

See accompanying notes to the condensed consolidated financial statements

September 30, 2017 December 31, 2016
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 65,158
$ 39,789
Accounts receivable, net 314,041
275,730
Inventories 214,593
183,489
Prepaid and refundable taxes 58,969
60,615
Assets held for sale 14,117
4,477
Prepaid expenses and other current assets 55,176
55,973
Total Current Assets 722,054
620,073
Property, plant and equipment, net 213,769
223,842
Goodwill 781,070
691,712
Intangible assets, net 717,646
609,197
Investments 46,380
61,092
Deferred tax assets, net 4,356
6,017
Other assets 117,855
130,698
Total Assets $ 2,603,130
$ 2,342,631
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations $ 52,074
$ 47,650
Accounts payable 102,651
92,952
Accrued liabilities and other 92,212
75,567
Taxes payable 28,954
22,340
Accrued employee compensation and related benefits 80,466
78,302
Total Current Liabilities 356,357
316,811
Long-term debt obligations 71,853
75,215
Deferred income taxes liability 152,133
172,541
Long-term employee compensation and related benefits 33,957
31,668
Other long-term liabilities 74,404
39,487
Total Liabilities 688,704
635,722
Commitments and contingencies (Note 9)

Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 48,250,361 shares issued and 48,200,257 shares outstanding at September 30, 2017; 48,156,690 shares issued and 48,028,413 shares outstanding at December 31, 2016 74,697
74,578
Additional paid-in capital 1,731,565
1,719,893
Accumulated other comprehensive income (loss) 38,469
(68,487 )
Retained earnings (deficit) 72,024
(14,575 )
Treasury stock at cost, 50,104 shares at September 30, 2017 and 128,277 shares at December 31, 2016 (2,329 ) (4,500 )
Total Stockholders’ Equity 1,914,426
1,706,909
Total Liabilities and Stockholders’ Equity $ 2,603,130
$ 2,342,631

LIVANOVA PLC AND ~~SUBSIDIARIES’~~SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS

(UNAUDITED)

(In thousands)


	Three Months Ended March 31,
	2021		2020
Operating Activities:
Net (loss) income	$	(29,698)	$	37,583
Non-cash items included in net loss:
Remeasurement of derivative instruments	7,268		(9,752)
Stock-based compensation	9,536		9,043
Amortization	6,699		10,267
Depreciation	6,079		6,796
Amortization of operating lease assets	5,389		3,136
Remeasurement of Respicardia investment and loan	(4,640)		0
Amortization of debt issuance costs	4,409		543

Remeasurement of contingent consideration to fair value	453		(17,283)
Deferred tax expense (benefit)	37		(22,884)




Other	673		(1,968)
Changes in operating assets and liabilities:
Accounts receivable, net	(3,372)		24,336
Inventories	(2,900)		(12,513)
Other current and non-current assets	26,820		(15,948)
Accounts payable and accrued current and non-current liabilities	(1,858)		(1,792)
Taxes payable	(3,337)		0
Litigation provision liability	(2,078)		(115,609)

Net cash provided by (used in) operating activities	19,480		(106,045)
Investing Activities:
Purchases of property, plant and equipment	(8,220)		(8,597)
Purchase of investments	(1,800)		(3,000)



Proceeds from asset sales	162		834
Other	0		(322)
Net cash used in investing activities	(9,858)		(11,085)
Financing Activities:
Payment of contingent consideration	(4,387)		(4,604)
Shares repurchased from employees for minimum tax withholding	(3,740)		(3,997)
Change in short-term borrowing, net	(643)		(2,477)
Proceeds from long-term debt obligations	0		162,899

Proceeds from short term borrowings (maturities greater than 90 days)	0		46,115



Closing adjustment payment for sale of CRM business	0		(14,891)


Other	442		48
Net cash (used in) provided by financing activities	(8,328)		183,093
Effect of exchange rate changes on cash and cash equivalents	(1,587)		(1,277)
Net (decrease) increase in cash and cash equivalents	(293)		64,686
Cash and cash equivalents at beginning of period	252,832		61,137
Cash and cash equivalents at end of period	$	252,539	$	125,823

See accompanying notes to the condensed consolidated financial statements

Nine Months Ended September 30,
2017 2016
Operating Activities:

Net income (loss) $ 86,599
$ (32,990 )
Non-cash items included in net income (loss):
Depreciation 27,880
30,193
Amortization 35,445
33,959
Stock-based compensation 14,261
15,575
Deferred income tax benefit (27,270 ) (10,224 )
Losses from equity method investments 20,072
19,382
Gain on acquisition of Caisson Interventional, LLC (39,428 ) —
Impairment of property, plant and equipment 4,581
—
Amortization of income taxes payable on inter-company transfers of property 23,831
17,114
Other 3,364
8,765
Changes in operating assets and liabilities:
Accounts receivable, net (19,107 ) (11,040 )
Inventories (11,006 ) 20,607
Other current and non-current assets (17,846 ) (25,845 )
Restructuring reserve (12,753 ) 14,961
Accounts payable and accrued current and non-current liabilities (14,958 ) (31,109 )
Net cash provided by operating activities 73,665
49,348
Investing Activities:

Purchases of property, plant and equipment and other (24,004 ) (28,928 )
Acquisition of Caisson Interventional, LLC, net of cash acquired (14,194 ) —
Proceeds from sale of cost method investment 3,192
—
Proceeds from asset sales 5,346
222
Purchases of cost and equity method investments (5,209 ) (8,059 )
Loans to cost and equity method investees (6,928 ) (6,595 )
Purchases of short-term investments —
(7,054 )
Maturities of short-term investments —
14,051
Net cash used in investing activities (41,797 ) (36,363 )
Financing Activities:
Change in short-term borrowing, net (18,054 ) (33,831 )
Proceeds from short-term borrowing (maturities greater than 90 days) 20,000
—
Repayment of long-term debt obligations (11,615 ) (11,354 )
Proceeds from exercise of stock options 3,221
7,888
Repayment of trade receivable advances —
(23,848 )
Proceeds from long-term debt obligations —
7,994
Share repurchases —
(11,053 )
Other (3,552 ) 1,208
Net cash used in financing activities (10,000 ) (62,996 )
Effect of exchange rate changes on cash and cash equivalents 3,501
1,030
Net increase (decrease) in cash and cash equivalents 25,369
(48,981 )
Cash and cash equivalents at beginning of period 39,789
112,613
Cash and cash equivalents at end of period $ 65,158
$ 63,632

LIVANOVA PLC AND SUBSIDIARIES

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Unaudited Condensed Consolidated Financial Statements

Basis of Presentation

The accompanying condensed consolidated financial statements of LivaNova as of, and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~September 30, 2016,~~2020, have been prepared in accordance with ~~generally accepted accounting principles in the United States of America (“~~U.S.~~” and such principles, “U.S. GAAP”)~~ GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated balance sheet of LivaNova at December 31, ~~2016~~2020 has been derived from audited financial statements contained in our ~~2016~~2020 Form 10-K, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments ~~(consisting of normal recurring adjustments)~~ considered necessary for a fair ~~presentation~~statement of the operating results of LivaNova and its subsidiaries, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, and are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2021. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our ~~2016~~2020 Form 10-K.

~~Description~~Recent Developments Regarding COVID-19

Due to the COVID-19 pandemic (“COVID-19”), we have experienced and may continue to experience significant and unpredictable reductions in the demand for our products as healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19. In addition, public health bodies have delayed elective procedures during the COVID-19 pandemic, which has negatively impacted the usage of our products, including the number of Neuromodulation procedures. Further, some people are avoiding seeking treatment for non-COVID-19 emergency procedures, which has also negatively impacted the demand for our products.

We observed improving market dynamics during the first quarter of 2021, especially in the Unites States; however, we continue to be impacted in regions with COVID-19 case rate variability. We expect the recovery to continue during the remainder of the ~~Mergers~~year as patients and their caregivers return to in-person physician visits and procedure volumes improve.

~~On October 19, 2015 LivaNova became the holding company~~Reclassifications

We have reclassified certain prior period amounts for comparative purposes. These reclassifications did not have a material effect on our financial condition, results of the combined businesses of Cyberonics, Inc. (“Cyberonics”) and Sorin S.p.A. (“Sorin”) (the “Mergers”). Based on the structure of the Mergers, management determined that Cyberonics was considered to be the accounting acquirer and predecessor for accounting purposes.

~~Reclassification of Prior-Year Comparative Period Presentation~~

To conform the condensed consolidated statement of income (loss) for the three and nine months ended September 30, 2016, to the current period presentation, we reclassified $0.7 million and $2.2 million, respectively, of Litigation Related Expenses to the Product Remediation line, and $1.7 million and $2.5 million, respectively, of Litigation Related Expenses to Selling, General and Administrative Expenses.

To conform the condensed consolidated balance sheet as of December 31, 2016 to the current period presentation, we reclassified $4.5 million of Assets Held for Sale, relating to our plan to exit the Costa Rica manufacturing operation, to a separate line item in the condensed consolidated balance sheet from Prepaid Expenses and Other Current Assets. We received $4.9 million in proceeds from the sale of our Costa Rica manufacturing operation during the nine months ended September 30, 2017.

~~To conform the condensed consolidated statement of~~operations or cash flows for the nine months ended September 30, 2016 to the current period presentation, certain amounts were reclassified within Operating Activities. Commencing with nine months ended September 30, 2017, Loans to Equity and Cost Method Investees of 6.9 million were presented as Investing Activities. To conform the condensed consolidated statement of cash flows for the nine months ended September 30, 2016 to the current period presentation, Loans to Equity and Cost Method Investees of $6.6 million were reclassified from Financing Activities to Investing Activities.flows.

Significant Accounting Policies

Our significant accounting policies are detailed in ~~"Note 2:~~“Note 2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting ~~Policies"~~Policies” and “Note 3. Revenue Recognition” of our ~~2016~~2020 Form 10-K. ~~A further explanation of our Foreign Currency accounting policy is discussed below:~~

~~Foreign Currency~~

Our functional currency is the U.S. dollar, however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. We determine the functional currency of our subsidiaries that exist and operate in different economic and currency environments based on the primary economic environment in which the subsidiary operates, that is, the currency of the environment in which an entity primarily generates and expends cash. Our significant foreign subsidiaries are located in Europe and the U.S. The functional currency of our significant European subsidiaries is the Euro and the functional currency of our significant U.S. subsidiaries is the U.S. dollar.

Assets and liabilities for subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars based on a combination of both current and historical exchange rates, while their revenues earned and expenses incurred are translated into U.S. dollars at average period exchange rates. Translation adjustments are included as ‘Accumulated other comprehensive income (loss)’ (“AOCI”) in the condensed consolidated balance sheets. Gains and losses arising from transactions denominated in a currency different from an entity’s functional currency are included in ‘Foreign exchange and other (losses) gains’ in our condensed consolidated statements of income (loss).

Note 2. ~~Acquisitions~~Assets and Liabilities Held For Sale

~~In support~~Heart Valves

On December 2, 2020, LivaNova entered into a Share and Asset Purchase Agreement (“Purchase Agreement”) with Mitral Holdco S.à r.l. (the “Purchaser”), a company incorporated under the laws of ~~our strategic growth initiatives, on May 2, 2017, we acquired~~Luxembourg and wholly owned and controlled by funds advised by Gyrus Capital S.A., a Swiss private equity firm. The Purchase Agreement provides for the ~~remaining 51% equity interests in Caisson Interventional, LLC~~divestiture of certain of LivaNova’s subsidiaries as well as certain other assets and liabilities relating to the Company’s Heart Valve business and site management operations conducted by the Company’s subsidiary LivaNova Site Management S.r.l. (“~~Caisson”~~LSM”) ~~for a~~at the Company’s Saluggia campus. The purchase price of €60.0 million (approximately $70.4 million as of March 31, 2021) will be payable in two tranches: €50.0 million (approximately $58.7 million as of March 31, 2021) payable at closing, subject to customary trade working capital and net indebtedness adjustments, as set forth in the Purchase Agreement, and an additional €10.0 million (approximately $11.7 million as of March 31, 2021) payable on December 30, 2022.

On April 9, 2021, LivaNova and the Purchaser entered into an Amended and Restated Share and Asset Purchase Agreement (the “A&R Purchase Agreement”) which amends and restates the original Purchase Agreement to, among other things, defer the closing of the sale and purchase of LSM by up to ~~$72.0 million, net~~two years and include or amend certain additional terms relating to such deferral, including certain amendments relating to the potential hazardous substances liabilities of ~~$6.3 million~~LSM and the related expense reimbursement provisions.

In addition, the A&R Purchase Agreement includes certain amendments relating to mechanics and timing for the initial closing of ~~debt forgiveness, consisting~~the transaction and subsequent closings of ~~$18.0 million paid at~~the local businesses. The initial closing ~~$14.4 million~~of the transaction with respect to the heart valve business is expected to occur in the first half of 2021.

As a result of entering into the Purchase Agreement, during the fourth quarter of 2020 the Company concluded that the assets and liabilities of the Heart Valve business being sold meet the criteria to be ~~paid after 12 months, and contingent consideration~~classified as held for sale. As a result, we recognized an impairment of up$180.2 million during the fourth quarter of 2020 to ~~$39.6 million to be paid on a schedule driven primarily by regulatory approvals and a sales-based earnout.~~

~~Caisson, a clinical-stage medical device company based in Maple Grove, Minnesota, is focused on~~record the ~~design, development and clinical evaluation of a novel transcatheter mitral valve replacement (“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⁾
$ 15,660
Debt forgiven ⁽²⁾
6,309
Deferred consideration ⁽¹⁾
12,994
Contingent consideration ⁽¹⁾
29,303
Fair value of consideration transferred 64,266
Fair value of our interest prior to the acquisition ⁽²⁾
52,505
Fair value of total consideration $ 116,771

~~(1)~~

Concurrent with the acquisition, we recognized $5.8 million of post-combination compensation expense. Of this amount, $2.4 million is reflected as a reduction of $18.0 million in cash paid at closing of the acquisition, while $3.4 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 condensed consolidated statements of income (loss).

~~The following table presents the preliminary purchase price allocation~~Heart Valves disposal group at fair value ~~for~~less estimated cost to sell. During the ~~Caisson acquisition (in thousands):~~

Cash and cash equivalents $ 1,468
In-process research and development 89,000
Goodwill 42,417
Other assets 918
Current liabilities 1,023
Deferred income tax liabilities, net 16,009
Net assets acquired $ 116,771

~~Acquired goodwill~~first quarter of ~~$9.6 million is expected to be deductible for tax purposes. Additionally, $3.0 million~~2021 we increased the carrying value of the ~~initial cash payment was deposited in escrow~~disposal group by $1.0 million.

The major classes of assets and liabilities held 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’~~sale on the ~~condensed~~ consolidated balance sheet as of ~~September 30, 2017.~~

~~We recognized acquisition-related expenses of approximately $1.0 million for legal~~March 31, 2021 and valuation expenses during the nine months ended September 30, 2017. These expenses are included within ‘Selling, general and administrative’ expenses in the condensed consolidated statements of income (loss). Additionally, the results of Caisson for the period of May 2, 2017 through September 30, 2017 added no revenue and $16.9 million in expenses in our condensed consolidated statement of income (loss).

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 inputsDecember 31, 2020 were as follows (in thousands):


	March 31, 2021		December 31, 2020
Accounts receivable, net	$	20,280	$	20,059
Inventories	44,623		45,081
Prepaid and refundable taxes	2,901		2,751
Prepaid expenses and other current assets	2,488		2,436
Property, plant and equipment, net	24,672		25,042
Intangible assets, net	150,197		153,632
Deferred tax assets	0		0
Operating lease assets	1,508		1,698
Impairment charge of disposal group	(179,194)		(180,160)
Total assets held for sale	$	67,475	$	70,539

Accounts payable	$	7,492	$	9,518
Accrued liabilities and other	3,743		4,205
Taxes payable	543		363
Accrued employee compensation and related benefits	8,829		8,781
Deferred tax liabilities	614		671
Long-term employee compensation and related benefits	5,038		4,994
Long-term operating lease liabilities	531		841
Other long-term liabilities	328		306
Total liabilities held for sale	$	27,118	$	29,679

Caisson Acquisition Fair value at May 2, 2017 Valuation Technique Unobservable Input Ranges
Regulatory milestone-based payments $ 14,883
Discounted cash flow Discount rate 2.6% - 3.4%
Probability of payment 90-95%
Projected payment years 2018-2023

Sales-based earnout 16,805
Monte Carlo simulation Discount rate 11.5-12.7%
Sales volatility 36.9%
Projected years of sales 2019-2033
$ 31,688

The following table provides a reconciliation of the beginning and ending balance of the contingent consideration liability, which consisted of arrangements that arose from the Caisson acquisition and other previous acquisitions that also included contingent consideration (in thousands):

Balance at December 31, 2016 $ 3,890
Purchase price - Caisson contingent consideration 31,688
Payments (1,841 )
Changes in fair value 231
Effect of changes in foreign currency exchange rates 249
Balance at September 30, 2017 ⁽¹⁾
$ 34,217

~~(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 June 30, 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 and is discussed above. Refer to “Note 6. Fair Value Measurements.”

Note 3. Restructuring

~~Our 2015 and 2016 Reorganization Plans (the “Plans”) were initiated October 2015 and March 2016, respectively, in conjunction with the completion of the Mergers.~~ We ~~initiated these~~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’~~restructuring expenses in ~~our~~the operating results ~~in the~~of our condensed consolidated statements of income (loss).

During the fourth quarter of 2020, we initiated a reorganization plan (the “2020 Plan”) to reduce our cost structure. We ~~estimate that~~incurred restructuring expenses of $5.3 million during the ~~Plans will result in~~three months ended December 31, 2020 primarily associated with severance costs for 54 employees, and $6.1 million during the three months ended March 31, 2021 primarily associated with severance costs for 12 additional employees under the 2020 Plan and lease abandonment costs.

The following table provides a ~~net reduction of 326 personnel of which 292 have occurred as of September 30, 2017.~~

~~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~~reconciliation of the ~~building~~beginning and equipment of $4.6 million and accrued $0.5 million of additional costs, primarily related to employee severance, during the nine months ended September 30, 2017. In addition, the remaining carrying valueending balance of the ~~land, building~~accruals and ~~equipment was reclassified to ‘Assets held for sale’~~other reserves recorded in ~~March 2017,~~connection with ~~a balance of $14.1 million as of September 30, 2017,~~our restructuring plans included within accrued liabilities and other and other long-term liabilities on the condensed consolidated balance ~~sheet.~~

~~The following table presents restructuring expense accrual detail~~sheet (in thousands):


	Employee Severance and Other Termination Costs		Other		Total
Balance at December 31, 2020	$	5,749	$	546	$	6,295
Charges	4,110		1,982		6,092
Cash payments and other	(4,652)		(2,129)		(6,781)
Balance at March 31, 2021	$	5,207	$	399	$	5,606

Employee Severance and Other Termination Costs Other Total
Balance at December 31, 2016 $ 21,092
$ 3,056
$ 24,148
Charges 7,126
4,934
12,060
Cash payments and adjustments (23,804 ) (5,480 ) (29,284 )
Balance at September 30, 2017 $ 4,414
$ 2,510
$ 6,924

The following table presents restructuring expense by reportable segment (in thousands):


	Three Months Ended March 31,
		2021		2020
Cardiovascular		$	1,896	$	686
Neuromodulation		1,210		503
Other		2,986		391
Total		$	6,092	$	1,580

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cardiac Surgery $ 441
$ 916
$ 6,944
$ 5,878
Cardiac Rhythm Management (391 ) 571
(1,750 ) 16,592
Neuromodulation 14
2,882
513
7,017
Other 728
12
6,353
7,732
Total $ 792
$ 4,381
$ 12,060
$ 37,219

Note 4. ~~Product Remediation Liability~~Investments

~~At December 31, 2016,~~The following table details the carrying value of our investments in equity securities of non-consolidated affiliates without readily determinable fair values for which we ~~recognized a liability~~do not exert significant influence over the investee. These equity investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly

transactions for ~~a product remediation plan related to our 3T Heater-Cooler device (“3T device”). The remediation plan we developed consists primarily of a modification~~the identical or similar investment 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.same issuer. 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. 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 the remainder of 2017. 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 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.

~~Changes in the carrying amount of the product remediation liability are as follows (in thousands):~~

Balance at December 31, 2016 $ 33,487
Adjustments (15 )
Remediation activity (5,672 )
Effect of changes in foreign currency exchange rates 2,446
Balance at September 30, 2017 ⁽¹⁾
$ 30,246


~~(1)~~	At September 30, 2017, the product remediation liability balance is held within ‘Accrued liabilities and other’ and ‘Other long-term liabilities’ on the condensed consolidated balance sheet. Refer to “Note 15. Supplemental Financial Information.”

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. We recognize changes in estimates on a prospective basis. At this stage, no liability has

been recognized with respect to any lawsuits involving us related to the 3T device, while related legal costs are expensed as incurred. For further information, please refer to “Note 9. Commitments and Contingencies - 3T Heater-Cooler Devices.”

~~Note 5. Investments~~

~~Cost-Method Investments~~

~~Our cost-method~~below equity investments are included in ~~‘Investments’ in~~investments on the condensed consolidated balance sheets ~~and consist of our equity positions in the following privately-held companies~~ (in thousands):


	March 31, 2021		December 31, 2020
Respicardia Inc. (1) (2)	$	21,796	$	17,706
ALung Technologies, Inc. (3)	3,000		3,000
Ceribell, Inc.	3,000		3,000
ShiraTronics, Inc.	2,045		2,045
Noctrix Health, Inc.	3,159		1,359
MD Start II	1,174		1,227
Rainbow Medical Ltd.	1,149		1,201
Highlife S.A.S.	1,113		1,163
	36,436		30,701
Equity method investment	336		393
	$	36,772	$	31,094

September 30, 2017 December 31, 2016
Respicardia Inc. ⁽¹⁾
$ 21,129
$ 17,518
ImThera Medical, Inc. ⁽²⁾
12,000
12,000
Rainbow Medical Ltd. ⁽³⁾
4,178
3,733
MD Start II 1,179
526
Other ⁽⁴⁾
150
—
$ 38,636
$ 33,777

~~(1)~~

Respicardia Inc. (“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 central sleep apnea ("CSA") by transvenously stimulating the phrenic nerve. We have a loan outstanding to Respicardia with a carrying amount of $1.5 million, as of September 30, 2017,(1)Respicardia Inc. (“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 central sleep apnea by transvenously stimulating the phrenic nerve. We have a loan outstanding to Respicardia, with a carrying amount of $1.3 million and $0.8 million as of March 31, 2021 and December 31, 2020, respectively, which ~~is included in ‘Prepaid expenses and other current assets’ on the condensed consolidated balance sheet.~~


~~(2)~~	ImThera Medical Inc. (“ImThera”) is a privately funded U.S. company developing a neurostimulation device system for the treatment of obstructive sleep apnea. We have a loan outstanding to ImThera as of September 30, 2017, with a carrying amount of $1.0 million, which is included in ‘Other assets’ on the condensed consolidated balance sheet.


~~(3)~~	~~Rainbow Medical Ltd. is a private Israeli venture capital company that seeds and grows companies developing medical devices in a diverse range of medical fields.~~


~~(4)~~	During the nine months ended September 30, 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 gains (losses)’ in the condensed consolidated statement of income (loss).

~~Equity Method Investments~~

Our equity-method investments are included in ‘Investments’ in the condensed consolidated balance sheets and consist of our equity position in the following entities (in thousands, except for percent ownership):

% Ownership ⁽¹⁾
September 30, 2017 December 31, 2016
MicroPort Sorin CRM (Shanghai) Co. Ltd. ⁽²⁾
49.0% $ 6,948
$ 4,867
Highlife S.A.S. ⁽³⁾
38.0% 779
6,009
Caisson Interventional LLC ⁽⁴⁾

—
16,423
Other 17
16
Total $ 7,744
$ 27,315


~~(1)~~	~~Ownership percentages as of September 30, 2017.~~


~~(2)~~	~~During the three months ended September 30, 2017 we invested an additional $4.5 million in MicroPort Sorin CRM (Shanghai) Co. Ltd.~~

~~(3)~~

Highlife S.A.S is a privately held clinical-stage medical device company located in France and is focused on the development of a unique transcatheter mitral valve replacement system to treat patients with mitral regurgitation. During the three months ended September 30, 2017, we recognized an impairment of our investment in, and notes receivable from, Highlife. See the paragraph below for further details.


~~(4)~~	On May 2, 2017, we acquired the 51% remaining equity interests in Caisson Interventional LLC (“Caisson”), and we began consolidating the results of Caisson as of the acquisition date. Refer to “Note 2. Acquisitions” and to “Note 6. Fair Value Measurements” for further information.

~~Highlife Impairment~~

We recognized an impairment of our equity-method investment in, and notes receivable from, Highlife S.A.S. (“Highlife”) during the nine months ended September 30, 2017. Certain factors, including a revision in our investment strategy, 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 ‘Losses from equity method investments’ in the condensed consolidated statements of income (loss). The updated carrying value of our notes receivable from Highlife at September 30, 2017 was $0.8 million and is included in ~~‘Other assets’~~prepaid expenses and other current assets on the condensed consolidated balance sheet.

(2)In April 2021, Zoll Medical Corporation acquired Respicardia Inc. As a result of the acquisition we received proceeds of $23.1 million for our investment and loan receivable with carrying values of $17.7 million and $0.8 million as of December 31, 2020, respectively. The Company recorded a gain of $4.6 million during the first quarter of 2021 to adjust the investment and loans receivable to fair value, which is included in foreign exchange and other losses on the condensed consolidated statement of income (loss).

(3)ALung Technologies, Inc. (“ALung”) is a privately held medical device company focused on creating advanced medical devices for treating respiratory failure. ALung’s Hemolung Respiratory Assist System is a dialysis-like alternative or supplement to mechanical ventilation which removes carbon dioxide directly from the blood in patients with acute respiratory failure. We have a loan outstanding to ALung, with a carrying amount of $2.5 million and $2.5 million as of March 31, 2021 and December 31, 2020, respectively, which is included in prepaid expenses and other current assets on the condensed consolidated balance sheet.

Note 6.5. Fair Value Measurements

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. There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2021 and 2020.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


	Fair Value as of March 31, 2021		Fair Value Measurements Using Inputs Considered as:
			Level 1		Level 2		Level 3
Assets:
Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”)	$	1,379	$	0	$	1,379	$	0
Derivative assets - freestanding instruments (FX)	863		0		863		0
Derivative assets - capped call derivatives	84,852		0		0		84,852
Convertible notes receivable	2,758		0		0		2,758
	$	89,852	$	0	$	2,242	$	87,610

Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)	$	724	$	0	$	724	$	0
Derivative liabilities - freestanding instruments (interest rate swaps)	36		0		36		0
Derivative liabilities - freestanding instruments (FX)	705		0		705		0
Derivative liabilities - embedded exchange feature	148,091		0		0		148,091
Derivative liabilities - other	1,123		0		0		1,123
Contingent consideration arrangements	99,271		0		0		99,271
	$	249,950	$	0	$	1,465	$	248,485


	Fair Value as of December 31, 2020		Fair Value Measurements Using Inputs Considered as:
			Level 1		Level 2		Level 3
Assets:
Derivative assets - designated as cash flow hedges (FX)	$	2,893	$	0	$	2,893	$	0
Derivative assets - freestanding instruments (FX)	55		0		55		0
Derivative assets - capped call derivatives	72,302		0		0		72,302
Convertible notes receivable	2,775		0		0		2,775
	$	78,025	$	0	$	2,948	$	75,077

Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)	$	14	$	0	$	14	$	0
Derivative liabilities - freestanding instruments (interest rate swaps)	74		0		74		0
Derivative liabilities - freestanding instruments (FX)	4,073		0		4,073		0
Derivative liabilities - embedded exchange feature	121,756		0		0		121,756
Derivative liabilities - other	4,290		0		0		4,290
Contingent consideration arrangements	103,818		0		0		103,818
	$	234,025	$	0	$	4,161	$	229,864

Fair Value
as of Fair Value Measurements Using Inputs Considered as:
September 30, 2017 Level 1 Level 2 Level 3
Liabilities:
Derivative liabilities - designated as cash flow hedges (foreign currency exchange rate "FX") $ 724
$ —
$ 724
$ —
Derivative liabilities - designated as cash flow hedges (interest rate swaps) 1,807
—
1,807
$ —
Derivative liabilities - freestanding instruments (FX) 1,456
—
1,456
—
Contingent consideration 34,217
—
—
34,217
$ 38,204
$ —
$ 3,987
$ 34,217

Fair Value
as of Fair Value Measurements Using Inputs Considered as:
December 31, 2016 Level 1 Level 2 Level 3
Assets:
Derivative assets - designated as cash flow hedges (FX) $ 4,911
$ —
$ 4,911
$ —
Derivative assets - freestanding instruments (FX) 3,358
—
3,358
—
$ 8,269
$ —
$ 8,269
$ —

Liabilities:
Derivative liabilities - designated as cash flow hedges (FX) $ 942
$ —
$ 942
$ —
Derivative liabilities - designated as cash flow hedges (interest rate swaps) 1,392
—
1,392
—
Contingent consideration 3,890
—
—
3,890

$ 6,224
$ —
$ 2,334
$ 3,890

~~Our~~The following table provides a reconciliation of the beginning and ending balances of our recurring fair value measurements, using significant unobservable inputs ~~(level~~(Level 3)~~, relate solely to our~~ (in thousands):


	Capped Call Derivative Asset		Convertible Notes Receivable		Embedded Exchange Feature Derivative Liability		Other Derivative Liabilities		Contingent Consideration Liability Arrangements
As of December 31, 2020	$	72,302	$	2,775	$	121,756	$	4,290	$	103,818

Payments (1)	0		0		0		0		(5,000)
Changes in fair value	12,550		(17)		26,335		(3,167)		453

Total at March 31, 2021	84,852		2,758		148,091		1,123		99,271
Less current portion at March 31, 2021	0		2,495		0		931		9,424
Long-term portion at March 31, 2021	$	84,852	$	263	$	148,091	$	192	$	89,847

(1)During the three months ended March 31, 2021, we paid $5.0 million under the contingent consideration ~~liability. Refer~~arrangement for the acquisition of Miami Instruments, LLC (“Miami Instruments”).

Embedded Exchange Feature and Capped Call Derivatives

In June 2020, the Company issued $287.5 million in cash exchangeable senior notes and entered into related capped call transactions. The cash exchangeable senior notes include an embedded exchange feature that is bifurcated from the cash exchangeable senior notes. Please refer to “Note ~~2. Acquisitions”~~6. Financing Arrangements” for further details. The embedded exchange feature derivative is measured at fair value using a ~~discussion~~binomial lattice model and discounted cash flows that utilize observable and unobservable market data. The capped call derivative is measured at fair value using the Black-Scholes model utilizing observable and unobservable market data, including stock price, remaining contractual term, expected volatility, risk-free interest rate and expected dividend yield, as applicable.

The embedded exchange feature and capped call derivatives are classified as Level 3 as the Company uses historical volatility and implied volatility from options traded to determine expected stock price volatility which is an unobservable input that is significant to the valuation. In general, an increase in our stock price or stock price volatility would increase the fair value of the ~~changes~~embedded exchange feature and capped call derivatives which would result in an increase in expense. As time to the expiration of the derivatives decreases with passage of time, the fair value of the derivatives would decrease. The future impact on net income depends on how significant inputs such as stock price, stock price volatility and time to the expiration of the derivatives change in relation to other inputs. Changes in the fair value of the embedded exchange feature derivative and capped call derivatives are recognized in foreign exchange and other losses in the condensed consolidated statements of income (loss).

The stock price volatility as of March 31, 2021 was 34%. As of March 31, 2021, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the embedded exchange feature derivative of $131.7 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $165.6 million. As of March 31, 2021, a 10% lower volatility, holding other inputs constant would result in approximate fair value for the capped call derivatives of $88.9 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $78.5 million.

Contingent Consideration Arrangements

The following table provides the fair value of our Level 3 contingent consideration ~~liability.~~

arrangements by acquisition (in thousands):


	March 31, 2021		December 31, 2020
ImThera Medical, Inc. (“ImThera”)	$	89,426	$	89,436
CardiacAssist, Inc., doing business as TandemLife (“TandemLife”)	8,942		8,809
Miami Instruments	903		5,573

	$	99,271	$	103,818

The ImThera business combination involved contingent consideration arrangements composed of potential cash payments upon the achievement of a certain regulatory milestone and a sales-based earnout associated with sales of products. The sales-based earnout is valued using projected sales from our internal strategic plan. Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs as of March 31, 2021:


ImThera Acquisition	Valuation Technique	Unobservable Input	Inputs
Regulatory milestone-based payment	Discounted cash flow	Discount rate	6.7%
		Probability of payment	85%
		Projected payment year	2024

Sales-based earnout	Monte Carlo simulation	Risk-adjusted discount rate	12.0%	-	12.7%
		Credit risk discount rate	7.0%	-	7.8%
		Revenue volatility	32.5%
		Probability of payment	85%
		Projected years of earnout	2025	-	2028

The TandemLife business combination involved a contingent consideration arrangement composed of potential cash payments upon the achievement of certain regulatory milestones. The arrangement is a Level 3 fair value measurement and includes the following significant unobservable inputs as of March 31, 2021:

TandemLife Acquisition

Valuation Technique

Unobservable Input

Inputs

Regulatory milestone-based payment

Discounted cash flow

Discount rate

4.9%

Probability of payment

70%

Projected payment year

2021

Note 7.6. Financing Arrangements

The outstanding principal amount of our long-term debt as of March 31, 2021 and December 31, 2020 was as follows (in thousands, except interest rates):


	March 31, 2021		December 31, 2020		Maturity	Interest Rate
2020 Senior Secured Term Loan	$	425,167	$	424,002	June 2025	LIBOR (1% Floor)		+	6.50%
2020 Cash Exchangeable Senior Notes	215,145		212,073		December 2025	3.00%
Bank of America Merrill Lynch Banco Múltiplo S.A.	5,901		6,515		July 2021	4.27%
Mediocredito Italiano	5,198		5,406		December 2023	0.50	%	-	2.74%
Bank of America, U.S.	2,016		2,019		January 2023	2.75%
Other	641		660
Total long-term facilities	654,068		650,675
Less current portion of long-term debt	7,699		8,377
Total long-term debt	$	646,369	$	642,298

September 30, 2017 December 31, 2016 Maturity Interest Rate
European Investment Bank ⁽¹⁾
$ 78,590
$ 78,987
June 2021 0.95 %
Mediocredito Italiano ⁽³⁾
7,719
7,276
December 2023 0.50% - 3.07%
Banca del Mezzogiorno ⁽²⁾
6,490
6,747
December 2019 0.50% - 3.15%
Bpifrance (ex-Oséo) 1,603
1,909
October 2019 2.58 %
Region Wallonne 831
798
December 2023 and June 2033 0.00% - 2.45%
Mediocredito Italiano - mortgages and other 742
799
September 2021 and September 2026 0.40% - 0.65%
Total debt 95,975
96,516

Less current portion of long-term debt 24,122
21,301

Total long-term debt $ 71,853
$ 75,215


~~(1)~~	The European Investment Bank (“EIB”) loan was obtained in July 2014 to support product development projects. The interest rate for the EIB loan is reset by the lender each quarter based on the Euribor. Interest payments are paid quarterly and principal payments are paid semi-annually.


~~(2)~~	~~The Banca del Mezzogiorno loan was obtained in January 2015 to support R&D projects as a part of the Large Strategic Project program of the Italian Ministry of Education.~~


~~(3)~~	~~We obtained the Mediocredito Italiano Bank loan in July 2016 as part of the Fondo Innovazione Teconologica program implemented by the Italian Ministry of Education.~~

Revolving Credit

The outstanding principal amount of our short-term unsecured revolving credit agreements and other agreements with various banks was ~~$28.0~~$4.1 million and ~~$26.4~~$5.0 million, at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively, with interest rates ranging from ~~0.2%~~3.06% to ~~10.5%~~7.65% and loan terms ranging from ~~one day~~overnight to 365 ~~days.~~days, as of March 31, 2021.

~~European Investment Bank Financing Agreement~~On December 30, 2020, we entered into the $50.0 million 2020 Revolving Credit Facility for working capital needs. The 2020 Revolving Credit Facility has a maturity of June 30, 2024 and borrowings bear interest at either LIBOR (subject to a 1% floor) plus 5.0% or ABR (subject to a 2% floor) plus 4.0%. There were no borrowings under the 2020 Revolving Credit Facility during the three months ended March 31, 2021. The 2020 Revolving Credit Facility has financial covenants consistent with those of the Term Loan described below.

2020 Senior Secured Term Loan

On June ~~29, 2017,~~10, 2020, we entered into a ~~new finance contract~~$450.0 million five-year senior secured term loan (the ~~“Finance Contract”~~“Term Loan”) through our wholly owned subsidiary LivaNova USA Inc., with funds managed by affiliates of Ares Management Corporation, as administrative agent and collateral agent, resulting in cash proceeds of approximately $421.5 million, net of discounts and issuance costs. The obligations under the Term Loan are guaranteed by LivaNova and its existing and future wholly owned material subsidiaries, and are secured by a perfected security interest in substantially all tangible and intangible assets of LivaNova and certain U.S. and UK subsidiaries of LivaNova, subject in each case to certain exceptions contained in the Term Loan. Borrowings under the Term Loan bear interest at a variable annual rate equal to the three-month LIBOR rate (subject to a 1% floor), plus an applicable margin of 6.5% per annum. The effective interest rate of the Term Loan at March 31, 2021 was 9.05%. The Term Loan will mature on June 30, 2025 and includes certain affirmative, negative and financial covenants. The financial covenants under the Term Loan state (i) the net revenue of LivaNova PLC, LivaNova USA, Inc. and any restricted subsidiaries on a consolidated basis shall not be lower than $700 million for each trailing 12 month period, such threshold to decrease pro rata (not below $550 million) upon prepayments of the Term Loan made by LivaNova USA, Inc. out of the proceeds of certain asset sales, and (ii) the total secured leverage ratio (as defined in the debt agreement) for LivaNova PLC, LivaNova USA, Inc. and any restricted subsidiaries on a consolidated basis shall not be greater than the applicable ratio set forth below:


Test Period	Total Secured Leverage Ratio (1)
4 Quarters ending June 30, 2020 through each fiscal quarter thereafter until (and including) the fiscal quarter ending June 30, 2021	5.625	:	1.00
4 Quarters ending September 30, 2021 and ending each fiscal quarter thereafter	4.5	:	1.00

(1)The secured leverage ratio is calculated as the ratio of (a) debt secured by a lien on assets to (b) Consolidated EBITDA as defined under the Term Loan agreement for the period of four consecutive fiscal quarters ended on the calculation date. The Company was in compliance with all financial covenants as of March 31, 2021, as amended.

Debt discounts and issuance costs related to the Term Loan were approximately $28.5 million and included various legal, bank and accounting fees. Amortization of debt discount and issuance costs was $1.2 million for the three months ended March 31, 2021 and is included in interest expense on the condensed consolidated statement of income (loss). The unamortized discount related to the Term Loan as of March 31, 2021 was $24.8 million.

2020 Cash Exchangeable Senior Notes

On June 17, 2020, our wholly-owned subsidiary, LivaNova USA, Inc., issued $287.5 million aggregate principal amount of 3.00% cash exchangeable senior notes (the “Notes”) by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The sale of the Notes resulted in approximately $278.0 million in net proceeds to the Company after deducting issuance costs. Interest is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The effective interest rate of the Notes at March 31, 2021 was 9.95%. The Notes mature on December 15, 2025 unless earlier exchanged, repurchased, or redeemed.

Debt discounts and issuance costs related to the Notes were approximately $82.0 million and included $75.0 million of discount attributable to the embedded exchange feature, discussed below, and $7.0 million of allocated issuance costs to the Notes related to legal, bank and accounting fees. Amortization of debt discount and issuance costs was $3.1 million for the three months ended March 31, 2021 and is included in interest expense on the condensed consolidated statement of income (loss). The unamortized discount related to the Notes as of March 31, 2021 was $72.4 million.

Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option, and are entitled to exchange the Notes during any calendar quarter, if the last reported sale price of LivaNova’s ordinary shares, with a nominal value of £1.00 per share for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price, or $79.27 per share, on each applicable trading day. The Notes are exchangeable solely into cash and are not exchangeable into ordinary shares of LivaNova or any other security under any circumstances. The initial exchange rate for the Notes is 16.3980 ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the Notes.

The Company may redeem the Notes at its option, on or after June 20, 2023 and prior to the 51st scheduled trading day immediately preceding the maturity date, in whole or in part, if the last reported sale price per ordinary share has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Additionally, the Company may redeem the Notes at its option, prior to their stated maturity, in whole but not in part, in connection with certain tax-related events.

Embedded Exchange Feature

The embedded exchange feature of the Notes requires bifurcation from the Notes and is accounted for as a derivative liability. The fair value of the Notes’ embedded exchange feature derivative at the time of issuance was $75.0 million and was recorded as debt discount on the Notes. This discount is amortized as interest expense using the effective interest method over the term of the Notes. The Notes’ embedded exchange feature derivative is carried on the condensed consolidated balance sheets at its estimated fair value and is adjusted at the end of each reporting period, with unrealized gain or loss reflected in the consolidated statements of income (loss). The fair value of the embedded exchange feature derivative liability was $148.1 million as of March 31, 2021.

Capped Call Transactions

In connection with the ~~EIB~~pricing of the Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers of the Notes or their respective affiliates. The capped call transactions cover, subject to ~~support financing~~anti-dilution adjustments substantially similar to those applicable to the Notes, the number of ~~certain R&D projects.~~LivaNova’s ordinary shares underlying the Notes and are expected generally to offset any cash payments the Company is required to make upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per ordinary share, as measured under the capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to an initial cap price of $100.00 per share. The ~~Finance Contract has~~capped call transactions expire on December 15, 2025 and must be settled in cash. The capped calls are carried on the condensed consolidated balance sheets as a ~~borrowing base~~derivative asset at their estimated fair value and are adjusted at the end of ~~€100~~each reporting period, with unrealized gain or loss reflected in the condensed consolidated statement of income (loss). The fair value of capped call derivative assets was $84.9 million ~~(or approximately $118 million USD equivalent)~~as of March 31, 2021.

The current and ~~can be drawn in up to two tranches,~~non-current classification is evaluated at each ~~in a minimum amount~~balance sheet date and may change depending on whether any exchange conditions are met. As of ~~€50 million (or approximately $59 million USD equivalent). Drawdowns must occur by December 30, 2018,~~March 31, 2021, no exchange conditions have been met and the ~~last repayment date of any tranche will be no earlier than four years~~Notes, embedded exchange feature derivative liability, and ~~no later than eight years after~~ the ~~disbursement~~capped call derivative assets are classified as non-current. Please refer to “Note 5. Fair Value

Measurements” for details on the valuation of the ~~relevant tranche. Loans under the Finance Contract are subject to certain covenants~~embedded exchange feature derivative liability and ~~other terms and conditions. No loan drawdowns have occurred as of September 30, 2017.~~capped call derivative assets.

Note 8.7. Derivatives and Risk Management

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 (“FX”)~~FX derivative ~~contracts and interest rate swap~~ contracts to reduce the impact of foreign currency ~~rate and interest~~exchange rate fluctuations on earnings and cash flow. We are also exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our ordinary shares, subject to a capped price per share.

We measure all outstanding derivatives each period end at fair value and report the fair value as either financial assets or liabilities inon the condensed 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 a 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 accumulated other ~~AOCI~~comprehensive income (“AOCI”) until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to ~~the~~our condensed consolidated ~~statement~~statements of income (loss) as shown in the tables ~~below and interest rate swap gains and losses in AOCI are reclassified to interest expense in the consolidated statement of income (loss).~~below. 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.~~inception. Cash flows from derivative contracts are reported as operating activities ~~in the~~on our condensed consolidated statements of cash flows.

Freestanding FX Derivative FX Contracts

The gross notional amount of ~~freestanding derivatives~~FX derivative contracts not designated as hedging instruments outstanding at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 was ~~$239.0~~$200.4 million and ~~$489.1~~$352.6 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans ~~our EIB loan,~~ and trade receivables. We recorded net ~~losses~~gains for these freestanding derivatives of ~~$0.7~~$7.7 million and ~~$7.9~~$8.1 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2021 and ~~net gains (losses) of $(1.8) million and $0.4 million for the three and nine months ended September 30, 2016,~~2020, respectively. These gains ~~and losses~~ are included in ~~‘Foreign~~foreign exchange and other ~~gains (losses)’ in the~~losses on our condensed consolidated ~~statements~~statement of income (loss).

Counterparty Credit Risk

We are exposed to credit risk in the event of non-performance by the counterparties to our derivatives.

The two counterparties to the capped call transactions are financial institutions. To limit our credit risk, we selected financial institutions with a minimum long-term investment grade credit rating. Our exposure to the credit risk of the counterparties is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under the capped call transactions with that counterparty.

To manage credit risk with respect to our other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market positions. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any transactions with the counterparty could be subject to early termination, which could result in substantial losses for the Company.

Cash Flow Hedges

~~Notional~~We utilize FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with our 12 months U.S. dollar forecasts of revenues and costs denominated in British Pound, Japanese Yen and the Euro. We transfer to earnings from AOCI the gain or loss realized on the FX derivative contracts at the time of invoicing.

The gross notional amounts of open derivative contracts designated as cash flow hedges at March 31, 2021 and December 31, 2020 were as follows (in thousands):

Description of Contract September 30, 2017 December 31, 2016
FX derivative contracts to be exchanged for British Pounds $ 16,928
$ 6,663
FX derivative contracts to be exchanged for Japanese Yen 44,618
57,840
FX derivative contracts to be exchanged for Canadian Dollars 13,341
—
Interest rate swap contracts 62,917
63,246
$ 137,804
$ 127,749


Description of Derivative Contract	March 31, 2021		December 31, 2020
FX derivative contracts to be exchanged for British Pounds	$	10,214	$	9,545
FX derivative contracts to be exchanged for Japanese Yen	16,209		18,637
FX derivative contracts to be exchanged for Euros	41,325		47,444
	$	67,748	$	75,626

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

Description of Contract September 30, 2017 Net Amount Expected to be Reclassified to Earnings in the Next 12 Months
FX derivative contracts $ (287 ) $ (287 )
Interest rate swap contracts (261 ) (69 )
$ (548 ) $ (356 )


Description of Derivative Contract	After-Tax Net Gain in AOCI as of March 31, 2021		After-Tax Net Gain in AOCI as of Amount Expected to be Reclassified to Earnings in Next 12 Months
FX derivative contracts	$	1,249	$	1,249

Pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in ~~Other Comprehensive Income (Loss)~~other comprehensive income (loss) (“OCI”) and the amount reclassified to earnings from AOCI were as follows (in thousands):


		Three Months Ended March 31,
		2021				2020
Description of Derivative Contract	Location in Earnings of Reclassified Gain or Loss	Losses Recognized in OCI		(Losses) Gains Reclassified from AOCI to Earnings		Losses Recognized in OCI		Losses Reclassified from AOCI to Earnings
FX derivative contracts	Foreign exchange and other losses	$	(2,223)	$	(1,496)	$	(2,080)	$	(605)
FX derivative contracts	SG&A	0		685		0		(91)
Interest rate swap contracts	Interest expense	0		0		0		(28)
		$	(2,223)	$	(811)	$	(2,080)	$	(724)

Three Months Ended September 30,
2017 2016
Description of Contract Location in Earnings of Reclassified Gain or Loss Losses Recognized in OCI (Losses) Gains Reclassified from AOCI to Earnings (Losses) Gains Recognized in OCI Losses Reclassified from AOCI to Earnings
FX derivative contracts Foreign exchange and other (losses) gains $ (2,537 ) $ (1,623 ) $ 2,535
$ 2,795
FX derivative contracts SG&A —
269
—
(1,876 )
Interest rate swap contracts Interest expense —
797
263
(163 )
$ (2,537 ) $ (557 ) $ 2,798
$ 756

We offset fair value amounts associated with our derivative instruments on our condensed consolidated balance sheets that are executed with the same counterparty under master netting arrangements. Our netting arrangements include a right to set off or net together purchases and sales of similar products in the settlement process.

Nine Months Ended September 30,
2017 2016
Description of Contract Location in Earnings of Reclassified Gain or Loss Losses Recognized in OCI (Losses) Gains Reclassified from AOCI to Earnings Losses Recognized in OCI Gains (Losses) Reclassified from AOCI to Earnings
FX derivative contracts Foreign exchange and other (losses) gains $ (10,124 ) $ (6,833 ) $ (5,932 ) $ 2,943
FX derivative contracts SG&A —
1,623
—
(3,437 )
Interest rate swap contracts Interest expense —
1,009
(38 ) (252 )
$ (10,124 ) $ (4,201 ) $ (5,970 ) $ (746 )

The following tables present the fair value ~~on a gross basis,~~ and the location of derivative contracts reported inon the condensed consolidated balance sheets (in thousands):


March 31, 2021	Asset Derivatives			Liability Derivatives
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value (1)		Balance Sheet Location	Fair Value (1)
FX derivative contracts	Prepaid expenses and other current assets	$	1,048	Accrued liabilities	$	724
FX derivative contracts	Accrued liabilities	331
Total derivatives designated as hedging instruments		1,379			724
Derivatives Not Designated as Hedging Instruments
Interest rate swap contracts				Accrued liabilities	36
FX derivative contracts	Prepaid expenses and other current assets	863		Accrued liabilities	705
Capped call derivatives	Other assets	84,852
Embedded exchange feature				Long-term derivative liability	148,091
Other derivatives				Accrued liabilities	931
Other derivatives				Long-term derivative liability	192
Total derivatives not designated as hedging instruments		85,715			149,955
Total derivatives		$	87,094		$	150,679


December 31, 2020	Asset Derivatives			Liability Derivatives
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value (1)		Balance Sheet Location	Fair Value (1)
FX derivative contracts	Prepaid expenses and other current assets	$	1,998	Accrued liabilities	$	14
FX derivative contracts	Accrued liabilities	895
Total derivatives designated as hedging instruments		2,893			14
Derivatives Not Designated as Hedging Instruments
Interest rate swap contracts				Accrued liabilities	74
FX derivative contracts	Prepaid expenses and other current assets	55		Accrued liabilities	4,073
Capped call derivatives	Long-term derivative assets	72,302
Embedded exchange feature				Long-term derivative liability	121,756
Other derivatives				Accrued liabilities	4,106
Other derivatives				Long-term derivative liability	184
Total derivatives not designated as hedging instruments		72,357			130,193
Total derivatives		$	75,250		$	130,207

(1)For the classification of inputs used to evaluate the fair value of our derivatives, refer to “Note 5. Fair Value Measurements.”

September 30, 2017 Liability Derivatives
Derivatives Designated as Hedging Instruments Balance Sheet Location
Fair Value ₍₁₎
Interest rate swap contracts Accrued liabilities $ 875
Interest rate swap contracts Other long-term liabilities 932
FX derivative contracts Accrued liabilities 724
Total derivatives designated as hedging instruments
2,531
Derivatives Not Designated as Hedging Instruments

FX derivative contracts Accrued liabilities 1,456
Total derivatives not designated as hedging instruments
1,456

$ 3,987

December 31, 2016 Asset Derivatives Liability Derivatives
Derivatives Designated as Hedging Instruments Balance Sheet Location
Fair Value ₍₁₎
Balance Sheet Location
Fair Value ₍₁₎
Interest rate swap contracts Prepaid expenses and other current assets $ —
Accrued liabilities $ 942
Interest rate swap contracts Other assets —
Other long-term liabilities 1,392
FX derivative contracts Prepaid expenses and other current assets 4,911
Accrued liabilities —
Total derivatives designated as hedging instruments 4,911
2,334
Derivatives Not Designated as Hedging Instruments
FX derivative contracts Prepaid expenses and other current assets 3,358
Accrued liabilities —
Total derivatives not designated as hedging instruments 3,358
—
$ 8,269
$ 2,334


~~(1)~~	~~For the classification of input used to evaluate the fair value of our derivatives, refer to “Note 6. Fair Value Measurements.”~~

Note 9.8. Commitments and Contingencies

~~3T Heater-Cooler Devices~~

FDA Warning Letter.

On December 29, 2015, the FDA issued ~~LivaNova~~ a Warning Letter ~~(the “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 August 24, 2015 to August 27, 2015 and the Arvada facility from August 24, 2015 to September 1, 2015. On August 27, 2015, the FDA issued a Form 483 identifying ~~two~~2 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~~were 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~~had informed us that the import alert iswas limited to the 3T devices, but that the agency ~~reserves~~reserved the right to expand the scope of the import alert if future circumstances ~~warrant~~warranted 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~~were 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~~were reasonably related ~~will~~would not be approved until the violations ~~have~~had been ~~corrected. However,~~corrected; however, this restriction ~~applies~~applied only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.

~~We continue~~On February 25, 2020, LivaNova received clearance for K191402, a 510(k) for the 3T devices that addressed issues contained in the 2015 Warning Letter along with design changes that further mitigate the potential risk of aerosolization. Concurrent with this clearance, (1) 3T devices manufactured in accordance with K191402 will not be subjected to ~~work diligently~~the import alert and (2) LivaNova initiated a correction to distribute the updated Operating Instructions cleared under K191402. With this 510(k) clearance, all actions 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~~Letter are complete, and ~~intend to respond timely and fully to~~at this time, LivaNova is awaiting the FDA’s ~~requests.~~close-out inspection.

CDC and FDA Safety Communications and Company Field Safety Notice ~~Update~~

On October 13, 2016, the ~~Centers~~Center for Disease Control ~~and Prevention (“CDC”~~(the “CDC”) and the FDA separately released safety notifications regarding the 3T devices. The CDC’s Morbidity and Mortality Weekly Report (“MMWR”) and Health Advisory Notice (“HAN”) reported that tests conducted by the CDC and its affiliates indicate that there appears to be genetic similarity between both patient and 3T device strains of the non-tuberculous mycobacterium (“NTM”) 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 August 18, 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 October 13, 2016, concurrent with the CDC’s HAN and FDA’s Safety Communication, 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~~worldwide, including a vacuum canister and internal sealing upgrade program ~~began~~and a deep disinfection service. In April 2017, we obtained CE Mark in Europe for the design change of the 3T device, and in October 2018, the FDA concluded that we could commence the vacuum canister and internal sealing upgrade program in the U.S. On February 25, 2020, LivaNova received clearance for K191402, a 510(k) for the 3T devices that addressed issues contained in the 2015 Warning Letter along with design changes that further mitigate the potential risk of aerosolization. Concurrent with this clearance, (1) 3T devices manufactured in accordance with K191402 will not be subjected to the import alert and ~~is being made available progressively on~~(2) LivaNova initiated a ~~global basis, prioritizing~~correction to distribute the updated Operating Instructions cleared under K191402. We are in the process of completing and ~~allocating devices to 3T device users based on pre-established criteria. We anticipate that this~~closing out all

recall activities with the FDA. While our vacuum canister and internal sealing upgrade program and deep cleaning service in the U.S. are substantially complete, these services will continue ~~until we are able to address customer needs through~~as a ~~broader solution that includes implementation of one or more~~servicing option outside of the ~~risk mitigation strategies currently under review with regulatory agencies.~~U.S.

On December 31, 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 ~~September 30, 2017,~~March 31, 2021, the product remediation liability was ~~$30.2~~$0.4 million. ~~Refer~~

Saluggia Site Hazardous Substances

LivaNova Site Management S.r.l. (“LSM”), formerly a subsidiary of Sorin, one of the companies that merged into LivaNova PLC in 2015, manages site services for the campus in Saluggia, Italy. In addition to ~~“Note 4. Product Remediation Liability”~~a LivaNova manufacturing facility, the Saluggia campus is also the location of manufacturing facilities of third parties, a cafeteria for ~~additional information.~~workers, and storage facilities for hazardous substances and equipment previously used in a nuclear research center, later turned nuclear medicine business, between the 1960s and the late 1990s. Pursuant to authorization from the Italian government, LSM has, and continues to, perform ordinary maintenance, secure the facilities, monitor air and water quality and file applicable reports with the competent environmental authorities.

During 2020, LSM received correspondence from ISIN (a sub-body of the Italian Ministry of Economic Development) requesting that within five years, LSM demonstrate the financial capacity to meet its obligations under Italian law to clean and dismantle any contaminated buildings and equipment as well as to deliver hazardous substances to a national repository. This repository will be built by the Italian government at a location and time yet to be determined. ISIN subsequently published Technical Guide n. 30, which identifies the technical criteria, and general safety and protection requirements for the design, construction, operation and dismantling of temporary storage facilities for the hazardous substances. Most recently, in January 2021, a list of 67 potential sites for the national repository was published. There is no legal obligation to begin any work or deliver the hazardous substances, as the performance of these obligations is contingent on the construction of the as-yet unbuilt national repository.

However, as a result of the above correspondence and publication from ISIN and the publication of potential sites for the national repository, some of the substantial uncertainties regarding the obligation became more certain. In connection with developing the plan required by ISIN, we retained a third party specialist to assist in the estimation of the potential costs. Based on the aforementioned factors, the Company concluded its obligation to clean, dismantle, and deliver any hazardous substances to a national repository, was probable and reasonably estimable as of December 31, 2020. Accordingly, in the fourth quarter of 2020, we recognized a $42.2 million provision for this matter. The liability as of December 31, 2020 was $43.0 million which represented the low end of the estimated range of loss of $43.0 million to $55.0 million. At March 31, 2021 the liability was $41.0 million. The decrease in the liability from December 31, 2020 was primarily due to the effects of foreign currency changes during the first quarter of 2021.

Litigation

~~On February 12, 2016, LivaNova was alerted that~~Product Liability

The Company is currently involved in litigation involving our 3T device. The litigation includes a class action complaint ~~had been filed~~ in the U.S. District Court for the Middle District of Pennsylvania, ~~with respect to our 3T devices. The plaintiffs named~~federal multi-district litigation in the ~~complaint underwent open heart surgeries at WellSpan York Hospital~~U.S. District Court for the Middle District of Pennsylvania, various U.S. state court cases and ~~Penn State Milton S. Hershey Medical Center~~cases in ~~2015, and~~jurisdictions outside the complaint alleges that: (i) patients were exposed to a harmful form of bacteria, known as nontuberculous mycobacterium (“NTM”), from our 3T devices; and (ii) we knew or should have known that design or manufacturing defects in 3T devices can lead to NTM bacterial colonization, regardless of the cleaning and disinfection procedures used (and recommended by us).U.S. The class ~~of plaintiffs~~action, filed in ~~the complaint~~February 2016, 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.

~~On October 23, 2017,~~ Members of the ~~U.S. District Court for the Middle District of Pennsylvania issued an order certifying a~~ class ~~with respect to the named plaintiffs. The class action, which is currently against Sorin Group Deutschland GmbH and Sorin Group USA, Inc. seeks: (i)~~seek declaratory relief ~~finding~~that the 3T devices are defective and unsafe for intended ~~uses; (ii)~~uses, medical ~~monitoring; (iii) general damages;~~monitoring, damages, and ~~(iv)~~ attorneys’ fees. ~~Other lawsuits related to surgeries in which~~

On March 29, 2019, we announced a ~~3T device allegedly was used have been filed elsewhere~~settlement framework that provides for a comprehensive resolution of the personal injury cases pending in the multi-district litigation in U.S., federal court, the related class action pending in federal court, as well as certain cases in ~~Canada,~~state courts across the United States. The agreement, which makes no admission of liability, is subject to certain conditions, including acceptance of the settlement by individual claimants and ~~Europe, against~~provides for a total payment of up to $225 million to resolve the claims covered by the settlement. Per the agreed-upon terms, the first payment of $135 million was paid into a qualified settlement fund in July 2019 and the second payment of $90 million was paid in January 2020. Cases covered by the settlement are being dismissed as amounts are disbursed to individual plaintiffs from the qualified settlement fund.

approximately 85 filed and unfiled claims worldwide, with the majority of the claims in various ~~LivaNova entities.~~federal or state courts throughout the United States. This number includes cases that have settled but have not yet been dismissed. 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 or concealment, unjust enrichment, and violations of various state consumer protection statutes.

WeAt March 31, 2021, the provision for these matters was $34.3 million. While the amount accrued represents our best estimate for those filed and unfiled claims that are ~~defending each of these claims vigorously. Given~~both probable and estimable, the ~~relatively early stage~~actual liability for resolution of these matters ~~we cannot give any assurances that additional legal proceedings making~~may vary from our estimate.

Changes in the ~~same or similar allegations will not be filed against us or one~~carrying amount of ~~our subsidiaries, nor that~~ the ~~resolution of these complaints or other related~~ litigation will not have a material adverse effect on our business, results of operations, financial condition or liquidity. 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.provision liability are as follows (in thousands):

~~Other Litigation~~


Total litigation provision liability at December 31, 2020	$	36,490
Payments	(5,122)
Adjustments	3,044
FX and other	(102)
Total litigation provision liability at March 31, 2021	34,310
Less current portion of litigation provision liability at March 31, 2021	26,570
Long-term portion of litigation provision liability at March 31, 2021	$	7,740

~~SNIA Litigation~~Environmental Liability

Sorin was created as a result of a spin-off (the “Sorin spin-off”) from SNIA ~~S.p.A. (“SNIA”). The Sorin spin-off, which involved SNIA’s medical technology division, became effective on~~in January ~~2, 2004. Pursuant to the Italian Civil Code,~~2004, and in a spin-off transaction, the parent and the spun-off company can be held jointly liable, up to the actual value of the shareholders’ equity conveyed or received, for certain indebtedness or liabilities of the pre-spin-off company. We estimate that the value of the shareholders’ equity received byOctober 2015, Sorin was ~~approximately €573 million (approximately $676 million).~~

~~We believe~~merged into LivaNova. SNIA subsequently became insolvent and have argued before the relevant fora that Sorin is not jointly liable with SNIA for its alleged SNIA debts and liabilities. Specifically, between 1906 and 2010, SNIA’s subsidiaries Caffaro Chimica S.r.l. and Caffaro S.r.l. and their predecessors (the “SNIA Subsidiaries”), conducted certain chemical operations (the “Caffaro Chemical Operations”), at sites in Torviscosa, Brescia and Colleferro, Italy (the “Caffaro Chemical Sites”). These activities allegedly resulted in substantial and widely dispersed contamination of soil, water and ground water. In connection with SNIA’s Italian insolvency proceedings, the Italian Ministry of the Environment and the Protection of Land and Sea (the “Italian Ministry of the Environment”), sought compensation from SNIA in an aggregate amount of ~~€3.4~~approximately $4 billion ~~(approximately $4.0 billion)~~ for remediation costs relating to the environmental damage at ~~the Caffaro Chemical Sites.~~chemical sites previously operated by SNIA’s other subsidiaries.

In September 2011 and July 2014, the Bankruptcy Court of Udine and ~~in July 2014,~~ the Bankruptcy Court of Milan ~~each~~ held (in proceedings to which we are not parties) that the Italian Ministry of the Environment and other Italian government agencies (the “Public Administrations”) were not creditors of either SNIA ~~Subsidiaries~~ or ~~SNIA~~its subsidiaries in connection with their claims in the ~~context of their~~ Italian insolvency proceedings. InThe Public Administrations appealed and in January 2016, the Court of Udine rejected the ~~appeal brought by the Italian Public Administrations.~~appeal. The Public Administrations have also appealed that ~~second loss in pending proceedings before~~decision to the ~~Italian~~ Supreme Court. ~~The appeal by~~In addition, the ~~Public Administrations before the~~Bankruptcy Court of ~~Milan remains pending.~~Milan’s decision has been appealed.

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. SNIA’s civil action against Sorin also named~~company; the Public Administrations entered voluntarily into the ~~Italian Ministry of the Environment and other Italian government agencies,~~proceeding, asking Sorin, as ~~defendants, in order~~jointly liable with SNIA, to ~~have them bound to the final ruling.~~

pay compensation for SNIA’s environmental damages. On April 1, 2016, the Court of Milan dismissed all legal actions of SNIA and of the Public Administrations ~~against Sorin,~~ further requiring the Public Administrations to pay Sorin ~~€300,000 (or~~ approximately ~~$353,910),~~€292,000 (approximately $343,000 as of March 31, 2021) for legal ~~fees (of which SNIA is jointly liable for €50,000) (the “2016 Decision”).~~

~~On June 21, 2016, the~~fees. The Public Administrations appealed the 2016 Decision to the Court of Appeal of Milan. ~~The first hearing~~On March 5, 2019, the Court of Appeal issued a partial decision on the merits declaring Sorin/LivaNova jointly liable with SNIA for SNIA’s environmental liabilities in an amount up to the fair value of the ~~appeal proceedings was held in December 2016, and~~net worth received by Sorin because of the ~~final hearing is now scheduled for November 22, 2017. After the hearing, the parties will file their final briefs, and~~Sorin spin-off, an estimated €572.1 million (approximately $671.4 million as of March 31, 2021). Next the Court ~~is expected to render~~will evaluate a report delivered by a panel of three experts assessing the environmental damages, including the costs of clean-up and compensatory damages; conduct a hearing; and review briefs from the parties. Thereafter, the Court will issue its ~~decision in mid-2018. SNIA did not file an appeal.~~

We (as successor to Sorin in the litigation) continue to believe that the risk of material loss relating to the SNIA litigation is not probable as a result of the reasoning contained in, and legal conclusions reached in, the recent court decisions described above. We also believe thatruling on the amount of ~~potential losses relating~~damages attributable to LivaNova. In the interim, we have appealed the partial decision on liability to the Italian Supreme Court (Corte di Cassazione).

In 2011, Caffaro, a SNIA ~~litigation is, in any event, not estimable given that the underlying alleged damages, related remediation costs, allocation and apportionment of any such responsibility, which~~subsidiary, sold its Brescia chemical business to Caffaro Brescia, a third party is responsible, and various time periods involving different parties, all remain issues in dispute and that no final decision on a remediation plan has been approved. As a result, we have not made any accrual in connection with the SNIA litigation.

~~Pursuant to European Union (“EU”), United Kingdom (“UK”) and Italian cross-border merger regulations applicable~~belonging to the ~~Mergers, legacy Sorin liabilities, including any potential liabilities arising from~~Todisco group, and as part of the ~~claims against Sorin relating~~acquisition, Caffaro Brescia agreed to the SNIA litigation, are assumed by us as successor to Sorin. Although we believe the claims against Sorin in connection with the SNIA litigation are without merit and continue to contest them vigorously, there can be no assurance as to the outcome. A finding during any appeal or novel proceedings that we are liable for environmental damagesecure hydraulic barriers at the site and maintain existing environmental security measures. In September 2020, Caffaro ~~Chemical Sites or~~Brescia declared it was withdrawing from its ~~alleged cause(s) could have a material adverse effect on our results of operations, financial condition and/or liquidity.~~

~~Environmental Remediation Order~~

~~On July 28, 2015, Sorin~~agreement to maintain the environmental measures. In January 2021, we (in addition to Caffaro Brescia, and other ~~direct and indirect shareholders of SNIA~~non-LivaNova entities) received an administrative order ~~(the “Remediation~~ (“Order”) from the Italian Ministry of the Environment ~~(the “Ministry”), directing them~~requiring us to ~~promptly commence environmental remediation efforts at~~ensure the Caffaro Chemical Sites (as described above). We (as successor to Sorin) believe that we should not be liable for damages relating to the Caffaro Chemical Operations pursuant to the Italian statute on which the Remediation Order relies because, inter alia, the statute does not apply to activities occurring prior to 2006, the date on which the statute was enacted. (Sorin was spun off from SNIA in 2004.) Additionally, we believe that Sorin should not be subject to the Remediation Order because Italian environmental regulations only permit such an order to be imposed on an “operator” of a remediation site, and Sorin never operated any activity at anymaintenance of the ~~industrial sites concerned~~environmental measures and ~~further, was never identified in any legal proceeding as an operator~~to guarantee that such works remain fully operational, the annual management and maintenance for which is estimated at ~~any~~approximately €1 million per year. LivaNova’s receipt of the ~~Caffaro Chemical Sites and could not and in fact did not cause any environmental damage at any of the Caffaro Chemical Sites.~~

~~Accordingly, we (as successor~~Order appears to ~~Sorin) alongside other parties, challenged the Remediation Order before the Administrative Court of Lazio in Rome (the “TAR”).~~

~~On March 21, 2016 the TAR annulled the Remediation Order~~be based on the ~~fact that (i)~~aforementioned Court of Appeals decision regarding our alleged joint liability with SNIA for SNIA’s environmental liabilities. Our response, dated February 16, 2021, disputes the ~~Remediation~~grounds upon which the Order lacks any detailed analysis of the causal link between the alleged damage and our activities, a pre-condition to imposition of the measures proposed in the Remediation Order, (ii) the situation of the Caffaro site does not require urgent safety measures, because no new pollution events have occurred and no additional information or evidence of a situation of contamination exists, and (iii) there was no proper legal basis for the Remediation Order, and in any event, the Ministry failed to verify the legal elements that could have led to a conclusion of legal responsibility of the recipients of the Remediation Order.is based.

~~The TAR decisions described above have been appealed by the Ministry before the Council of State. No information on the timing of the first hearing of this appeal is presently available.~~ We have not recognized a liability in connection with these related matters matter because any potential loss is not currently probable or reasonably estimable.

Patent Litigation

On May 11, 2018, Neuro and Cardiac Technologies LLC (“NCT”), a non-practicing entity, filed a complaint in the United States District Court for the Southern District of Texas asserting that the VNS Therapy System, when used with the SenTiva Model 1000 generator, infringes the claims of U.S. Patent No. 7,076,307 owned by NCT. The complaint requests damages that include a royalty, costs, interest, and attorneys’ fees. On September 13, 2018, we petitioned the Patent Trial and Appeal Board of the U. S. Patent and Trademark Office (the “Patent Office”) for an ~~expense~~inter partes review (“IPR”) of the validity of the ‘307 patent, and on May 18, 2020, the Patent Office issued a Final Written Decision determining that all challenged claims are unpatentable. NCT is appealing the Final Written Decision. On March 24, 2020 we were granted our request for an ex parte reexamination of the ‘307 patent, and in April 2021, the Patent Office issued a Non-Final Rejection of all the ‘307 claims. The Court has stayed the litigation pending the outcome of the IPR appeal proceeding. We have not recognized a liability 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~~Contract Litigation

On ~~July 28, 2015, the Public Administrations filed an opposition proceeding to the proposed merger between Sorin and Cyberonics (the “Merger”~~November 25, 2019, LivaNova received notice of a lawsuit initiated by former members of Caisson Interventional, LLC (“Caisson”), ~~before the Commercial Courts of Milan, asking the Court to prohibit the execution~~a subsidiary of the ~~Merger. In its initial decision on August 20, 2015,~~Company acquired in 2017. The lawsuit, Todd J. Mortier, as Member Representative of the former Members of Caisson Interventional, LLC v. LivaNova USA, Inc., is currently pending in the United States District Court ~~authorized~~for the ~~Merger~~District of Minnesota. The complaint alleges (i) breach of contract, (ii) breach of the covenant of good faith and the Public Administrations did not appeal this decision. The proceeding then continued as a civil case, with the Public Administration seeking damages against us. The Commercial Court of Milan delivered a decision in October 2016, fully rejecting the Public Administration’s requestfair dealing and awarding us €200,000 (approximately $228,000) in damages for frivolous litigation, plus €200,000 (approximately $228,000) in legal fees. The Public Administrations has appealed this decision to the Court of Appeal of Milan. The final hearing is scheduled on January 17, 2018. The Court of Appeal is likely to make a decision in mid-June 2018. We have not recognized an expense(iii) unjust enrichment in connection with the Company’s operation of Caisson’s Transcatheter Mitral Valve Replacement (“TMVR”) program and the Company’s November 20, 2019 announcement that it was ending the TMVR program at the end of 2019. The lawsuit seeks damages arising out of the 2017 acquisition agreement, including various regulatory milestone payments. We intend to vigorously defend this claim. The Company has not recognized a liability 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.~~

~~Tax Litigation~~

In a tax audit report received in October 2009, the Regional Internal Revenue Office of Lombardy (the “Internal Revenue Office”) informed Sorin Group Italia S.r.l. that, among several issues, it was disallowing in part (for a total of €102.6 million (approximately $121.0 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) in 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 $73.8 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 $20.0 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 income, financial position or liquidity.

Note ~~10. Stockholders’~~9. Stockholders' Equity

~~Comprehensive income~~The tables below present the condensed consolidated statement of stockholders’ equity as of and for the three months ended March 31, 2021 and 2020 (in thousands):


	Ordinary Shares	Ordinary Shares - Amount		Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
December 31, 2020	49,447	$	76,300	$	1,768,156	$	(1,034)	$	27,809	$	(752,402)	$	1,118,829
Stock-based compensation plans	8	10		2,251		236		—		—		2,497
Net loss	—	—		—		—		—		(29,698)		(29,698)
Other comprehensive income	—	—		—		—		(25,871)		—		(25,871)
March 31, 2021	49,455	$	76,310	$	1,770,407	$	(798)	$	1,938	$	(782,100)	$	1,065,757

December 31, 2019	49,411	$	76,257	$	1,734,870	$	(1,263)	$	(19,392)	$	(406,755)	$	1,383,717
Adoption of ASU No. 2016-13	—	—		—		—		—		(639)		(639)
Stock-based compensation plans	3	2		5,003		173		—		—		5,178
Net income	—	—		—		—		—		37,583		37,583
Other comprehensive loss	—	—		—		—		(33,131)		—		(33,131)
March 31, 2020	49,414	$	76,259	$	1,739,873	$	(1,090)	$	(52,523)	$	(369,811)	$	1,392,708

(1)Refer to “Note 15. New Accounting Pronouncements”

The table below presents the change in each component of AOCI, net of tax, and the reclassifications out of AOCI into net ~~earnings~~income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~September 30, 2016~~2020 (in thousands):


	Change in Unrealized Gain (Loss) on Derivatives		Foreign Currency Translation Adjustments Gain (Loss) (1)		Total
December 31, 2020	$	2,319	$	25,490	$	27,809
Other comprehensive income before reclassifications, before tax	(1,146)		(25,875)		(27,021)
Tax expense	534		0		534
Other comprehensive income before reclassifications, net of tax	(612)		(25,875)		(26,487)
Reclassification of loss from accumulated other comprehensive income (loss), before tax	811		0		811
Reclassification of tax benefit	(195)		0		(195)
Reclassification of loss from accumulated other comprehensive income (loss), after tax	616		0		616
Net current-period other comprehensive income, net of tax	4		(25,875)		(25,871)
March 31, 2021	$	2,323	$	(385)	$	1,938

December 31, 2019	$	513	$	(19,905)	$	(19,392)
Other comprehensive loss before reclassifications, before tax	(2,080)		(32,100)		(34,180)
Tax benefit	498		0		498
Other comprehensive loss before reclassifications, net of tax	(1,582)		(32,100)		(33,682)
Reclassification of loss from accumulated other comprehensive income (loss), before tax	724		0		724
Reclassification of tax expense	(173)		0		(173)
Reclassification of loss from accumulated other comprehensive income (loss), after tax	551		0		551
Net current-period other comprehensive loss, net of tax	(1,031)		(32,100)		(33,131)
March 31, 2020	$	(518)	$	(52,005)	$	(52,523)

(1)Taxes are not provided for foreign currency translation adjustments as translation adjustments are related to earnings that are intended to be reinvested in the countries where earned.

Change in Unrealized Gain (Loss) on Derivatives
Foreign Currency Translation Adjustments Gain (Loss) ⁽¹⁾
Total
As of December 31, 2016 $ 3,619
$ (72,106 ) $ (68,487 )
Other comprehensive (loss) income before reclassifications, before tax (10,124 ) 111,123
100,999
Tax benefit 2,784
—
2,784
Other comprehensive (loss) income before reclassifications, net of tax (7,340 ) 111,123
103,783
Reclassification of loss from accumulated other comprehensive income, before tax 4,201
—
4,201
Tax benefit (1,028 ) —
(1,028 )
Reclassification of loss from accumulated other comprehensive income, after tax 3,173
—
3,173
Net current-period other comprehensive (loss) income, net of tax (4,167 ) 111,123
106,956
As of September 30, 2017 $ (548 ) $ 39,017
$ 38,469

As of December 31, 2015 $ 888
$ (55,116 ) $ (54,228 )
Other comprehensive (loss) income before reclassifications, before tax (5,970 ) 32,598
26,628
Tax benefit 1,792
—
1,792
Other comprehensive (loss) income before reclassifications, net of tax (4,178 ) 32,598
28,420
Reclassification of loss from accumulated other comprehensive income, before tax 746
—
746
Tax benefit (279 ) —
(279 )
Reclassification of loss from accumulated other comprehensive income, after tax 467
—
467
Net current-period other comprehensive (loss) income, net of tax (3,711 ) 32,598
28,887
As of September 30, 2016 $ (2,823 ) $ (22,518 ) $ (25,341 )


~~(1)~~	~~Taxes are not provided for foreign currency translation adjustments as translation adjustments are related to earnings that are intended to be reinvested in the countries where earned.~~

Note ~~11.~~10. Stock-Based Incentive Plans

Stock-based incentive plans compensation expense is as follows (in thousands):


	Three Months Ended March 31,
		2021		2020
Service-based restricted stock units (“RSUs”)		$	4,842	$	4,478
Service-based stock appreciation rights (“SARs”)		3,322		2,684
Market performance-based restricted stock units		763		896
Operating performance-based restricted stock units		267		695
Employee share purchase plan		342		290
Total stock-based compensation expense		$	9,536	$	9,043

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Service-based stock appreciation rights ("SARs") $ 2,535
$ 1,983
$ 6,001
$ 6,567
Service-based restricted stock units ("RSUs") 2,225
2,517
6,718
8,419
Market performance-based restricted stock units 301
14
482
17
Operating performance-based restricted stock units 636
254
1,060
572
Total stock-based compensation expense $ 5,697
$ 4,768
$ 14,261
$ 15,575

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, we ~~executed~~issued stock-based compensatory ~~award agreements~~awards with ~~contract~~ terms ~~agreed upon by us and the respective individuals, as~~ approved by the Compensation Committee of our Board of

Directors. ~~Awards~~The awards with service conditions generally vest ratably ~~over~~from two to four years and are subject to forfeiture unless service conditions are met. Market performance-based awards were issued that cliff vest ~~ratably over four~~after three years subject to ~~forfeiture unless certain future prices~~the rank of our ~~shares~~total shareholder return for the three-year period ending December 31, 2023 relative to the total shareholder returns for a peer group of companies. Operating performance-based awards were issued that cliff vest after three years subject to the achievement of a target based on the ~~NASDAQ Stock Market exceed certain threshold prices in the first~~adjusted free cash flow for fiscal year ~~following the grant date. And finally,~~2021. Additionally, operating performance-based awards were issued that cliff vest ~~ratably over four~~after three years subject to ~~forfeiture unless certain thresholds~~the achievement of ~~adjusted net sales and adjusted net income are met~~a target based on the return on invested capital for fiscal year ~~2017.~~2021. Compensation expense related to ~~award agreements executed~~awards granted during ~~2017~~2021 for the three ~~and nine~~ months ended ~~September 30, 2017 were $2.0 million and $3.2 million, respectively.~~March 31, 2021 was $0.1 million.

Stock-based compensation agreements ~~executed~~issued during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, representing potential shares and their weighted average grant date fair values by type follows (shares in thousands, fair value in dollars):


	Three Months Ended March 31, 2021
	Shares	Weighted Average Grant Date Fair Value
Service-based SARs	594,617	$	29.22
Service-based RSUs	322,310	$	73.25
Market performance-based RSUs	47,916	$	114.74
Operating performance-based RSUs	76,040	$	73.25

Nine Months Ended September 30, 2017
Shares Weighted Average Grant Date Fair Value
Service-based SARs 639
$ 17.03
Service-based RSUs 108
$ 57.37
Market performance-based RSUs 158
$ 25.29
Operating performance-based RSUs 189
$ 56.18

Note ~~12.~~11. Income Taxes

~~During the three and nine months ended September 30, 2017, we recorded consolidated income tax expense of $1.9 million and $10.9 million, respectively, with consolidated~~Our effective income tax ~~rates of 6.1% and 9.3%, respectively.~~

rate from continuing operations for the three months ended March 31, 2021 was (10.7)% compared with 744.4% for the three months ended March 31, 2020. Our ~~consolidated~~ effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, changes in valuation allowances, changes in tax credits and incentives, and changes in unrecognized tax benefits associated with uncertain tax positions.

We continually assess the realizability of our worldwide deferred tax asset and valuation allowance positions, and when the need arises, we establish or release valuation allowances accordingly.

We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subjected to review by tax authorities. As a ~~net $4.0~~result, there is an uncertainty in income taxes recognized in our financial statements. Tax benefits totaling $3.3 million ~~deferred tax benefit~~and $3.4 million were unrecognized as of March 31, 2021 and December 31, 2020, respectively. It is reasonably possible that, within the next twelve months, due to the ~~release~~settlement of ~~valuation allowances on~~uncertain tax ~~losses upon~~positions with various tax authorities and the ~~completion~~expiration of ~~a reorganization~~statutes of ~~our legal entities~~limitations, unrecognized tax benefits could decrease by up to approximately $1.7 million.

Note 12. Earnings Per Share

Reconciliation of the shares used in the ~~U.S.~~basic and ~~a $2.1 million tax benefit from the resolution of prior period tax matters. Discrete tax items~~diluted earnings per share computations for the ~~nine~~three months ended ~~September 30, 2017 also included the acquisition of Caisson~~March 31, 2021 and the $38.1 million non-taxable gain recognized to re-measure our existing equity investment in Caisson at fair value on the acquisition date, a $3.9 million deferred tax benefit associated with certain temporary differences arising2020 are as follows (in thousands):


	Three Months Ended March 31,
		2021	2020
Basic weighted average shares outstanding		48,736	48,485
Add effects of share-based compensation instruments (1)		0	284
Diluted weighted average shares outstanding		48,736	48,769

(1)Excluded from ~~the Mergers and the recognition of a $3.0 million deferred tax asset related to a reserve for an uncertain tax position recognized in a prior year, in addition to various other discrete items.~~

During the three and nine months ended September 30, 2016, we recorded consolidated income tax expense of $9.7 million and $16.9 million, respectively, with consolidated effective income tax rates of 45.7% and 514.5%, respectively. The effective tax rate for the nine months ended September 30, 2016 was impacted by the recording of valuation allowances of $23.9 million related to certain tax jurisdictions, including France and the UK, in which we did not record tax benefits generated by their operating losses, as well as the tax expense generated by profitable operations in higher tax jurisdictions, such as the U.S. and Germany, offset by tax savings from our inter-company financing as part of our 2015 tax restructuring.

~~Note 13. Net Income (Loss) Per Share~~

~~The following table sets forth~~ the computation of ~~basic and~~ diluted ~~net income (loss)~~earnings per share ~~(in thousands, except per~~were stock options, SARs and restricted share ~~data):~~units totaling 4.3 million and 1.5 million for the three months ended March 31, 2021 and 2020, respectively, because to include them would have been anti-dilutive under the treasury stock method.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Numerator:
Net income (loss) $ 27,830
$ (1,569 ) $ 86,599
$ (32,990 )

Denominator:
Basic weighted average shares outstanding 48,181
49,075
48,130
49,016
Add effects of share-based compensation instruments ⁽¹⁾
353
—
209
—
Diluted weighted average shares outstanding 48,534
49,075
48,339
49,016
Basic income (loss) per share $ 0.58
$ (0.03 ) $ 1.80
$ (0.67 )
Diluted income (loss) per share $ 0.57
$ (0.03 ) $ 1.79
$ (0.67 )

~~(1)~~

~~Excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2017~~ ~~were~~ 1.6 million stock options and SARs outstanding as of September 30, 2017, because to include them would have been anti-dilutive. Excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2016 were approximately 2.3 million stock options, SARs and restricted share units outstanding as of September 30, 2016, because to include them would have been anti-dilutive due to the net losses.

Note ~~14.~~13. 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, developing and executing our strategy, and assessing performance. We have ~~three~~2 reportable segments: ~~Cardiac Surgery, Neuromodulation,~~Cardiovascular and ~~Cardiac Rhythm Management.~~Neuromodulation.

The ~~Cardiac Surgery~~Cardiovascular segment generates its revenue from the development, production and sale of ~~cardiovascular surgery products. Cardiac Surgery~~cardiopulmonary products, heart valves and related products and advanced circulatory support. Cardiopulmonary products include oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories. Advanced Circulatory

Support includes temporary life support product kits that can include a combination of pumps, oxygenators, and cannulae. Heart Valves include mechanical heart valves, ~~and~~ tissue heart ~~valves.~~valves, related repair products and minimally invasive surgical instruments. Advanced circulatory support includes temporary life support controllers and product kits that can include a combination of pumps, oxygenators, and cannulae.

~~The~~Our Neuromodulation segment generates its revenue from the design, development and marketing of neuromodulation therapy systems for the treatment of drug-resistant epilepsy, difficult-to-treat depression (“DTD”) and ~~treatment resistant depression.~~obstructive sleep apnea. 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.~~

The Cardiac Rhythm Management segment generates its revenue from the development, manufacturing and marketing of products for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. Cardiac Rhythm Management products include high-voltage defibrillators, cardiac resynchronization therapy devices and low-voltage pacemakers.other accessories.

“Other” includes ~~Corporate~~corporate shared ~~services~~service expenses for finance, legal, human resources, ~~and~~ information technology and ~~Corporate~~corporate business ~~development (“New Ventures”). New Ventures, which includes our recent Caisson acquisition, is focused on new growth platforms and identification of other opportunities for expansion.~~development.

Net sales of our reportable segments include ~~end-customer~~ revenues from the sale of products ~~they~~that each ~~develop~~reportable segment develops and ~~manufacture~~manufactures or ~~distribute.~~distributes. We define segment income as operating income before merger and integration, restructuring and amortization of intangibles.

~~Net~~We operate under 3 geographic regions: U.S., Europe, and Rest of World. The table below presents net sales by operating segment and ~~income from operations by segment~~geographic region (in thousands):


	Three Months Ended March 31,
		2021		2020
Cardiopulmonary
United States		$	35,759	$	36,858
Europe		30,626		34,234
Rest of World		42,334		45,275
		108,719		116,367
Heart Valves
United States		2,717		3,373
Europe		8,284		9,529
Rest of World		10,454		12,309
		21,455		25,211
Advanced Circulatory Support
United States		12,560		10,076
Europe		228		370
Rest of World		204		45
		12,992		10,491
Cardiovascular
United States		51,036		50,307
Europe		39,138		44,133
Rest of World		52,992		57,629
		143,166		152,069
Neuromodulation
United States		82,300		73,276
Europe		11,679		10,583
Rest of World		9,720		5,798
		103,699		89,657
Other		738		671
Totals
United States		133,336		123,583
Europe (1)		50,817		54,716
Rest of World		63,450		64,098
Total (2)		$	247,603	$	242,397

Three Months Ended September 30, Nine Months Ended September 30,
Net Sales: 2017 2016 2017 2016
Cardiac Surgery $ 159,822
$ 148,518
$ 457,612
$ 453,012
Neuromodulation 91,016
89,504
275,190
260,901
Cardiac Rhythm Management 58,411
56,768
182,235
188,057
Other 415
478
1,119
1,314
$ 309,664
$ 295,268
$ 916,156
$ 903,284
(1)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.

(2)No single customer represented over 10% of our consolidated net sales. No country’s net sales exceeded 10% of our consolidated sales except for the U.S.

Three Months Ended September 30, Nine Months Ended September 30,
Income from Operations: 2017 2016 2017 2016
Cardiac Surgery $ 23,807
$ 17,791
$ 63,490
$ 29,197
Neuromodulation 45,932
47,049
139,357
134,871
Cardiac Rhythm Management 5,427
(4,598 ) 13,536
(14,432 )
Other (27,947 ) (13,525 ) (79,378 ) (49,090 )
Total Reportable Segments’ Income from Operations 47,219
46,717
137,005
100,546
Merger and integration expenses 2,013
7,576
7,743
20,537
Restructuring expenses 792
4,381
12,060
37,219
Amortization of intangibles 12,350
11,775
35,445
33,959
Income from operations $ 32,064
$ 22,985
$ 81,757
$ 8,831

The ~~following tables present our assets and capital~~table below presents a reconciliation of segment income from continuing operations to consolidated income from continuing operations before tax (in thousands):


	Three Months Ended March 31,
		2021		2020
Cardiovascular		$	5,628	$	8,681
Neuromodulation		34,039		33,858
Other		(30,669)		(26,610)
Total reportable segment income from continuing operations		8,998		15,929
Merger and integration expenses		630		3,474
Restructuring expenses		6,092		1,580
Amortization of intangibles		6,699		10,267
Operating income from continuing operations		(4,423)		608
Interest income		(74)		148
Interest expense		(15,936)		(4,849)
Foreign exchange and other losses		(6,369)		(1,914)
Income from continuing operations before tax		$	(26,802)	$	(6,007)

Assets by segment are as follows (in thousands):


	March 31, 2021		December 31, 2020
Cardiovascular	$	1,319,493	$	1,361,669
Neuromodulation	642,123		673,586
Other	407,553		376,096
Total assets	$	2,369,169	$	2,411,351

Capital expenditures by segment are as follows (in thousands):

Assets: September 30, 2017 December 31, 2016
Cardiac Surgery $ 1,414,260
$ 1,277,799
Neuromodulation 564,785
611,085
Cardiac Rhythm Management 351,390
341,998
Other 272,695
111,749
$ 2,603,130
$ 2,342,631

Three Months Ended September 30, Nine Months Ended September 30,
Capital expenditures: 2017 2016 2017 2016
Cardiac Surgery $ 5,541
$ 6,465
$ 13,292
$ 16,774
Neuromodulation 370
1,781
2,348
5,602
Cardiac Rhythm Management 1,537
1,591
4,343
2,786
Other 1,633
2,435
4,021
3,766
$ 9,081
$ 12,272
$ 24,004
$ 28,928


	Three Months Ended March 31,
		2021		2020
Cardiovascular		$	4,149	$	5,292
Neuromodulation		40		5,239
Other		925		1,843
Total		$	5,114	$	12,374

The changes in the carrying amount of goodwill by ~~reportable~~ segment for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 were as follows (in thousands):


	Cardiovascular		Neuromodulation		Total
December 31, 2020	$	523,564	$	398,754	$	922,318


Foreign currency adjustments	(12,326)		0		(12,326)
March 31, 2021	$	511,238	$	398,754	$	909,992

Neuromodulation Cardiac Surgery Cardiac Rhythm Management Other Total
December 31, 2016 $ 315,943
$ 375,769
$ —
$ —
$ 691,712
Goodwill as a result of acquisitions ⁽¹⁾
—
—
—
42,418
42,418
Foreign currency adjustments —
46,940
—
—
46,940
September 30, 2017 $ 315,943
$ 422,709
$ —
$ 42,418
$ 781,070


~~(1)~~	~~Goodwill recognized as a result of the Caisson acquisition. Refer to “Note 2. Acquisitions.”~~

~~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 to and are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
Net Sales 2017 2016 2017 2016
United States $ 122,208
$ 123,810
$ 366,115
$ 362,358
Europe ^{(1) (2)}
92,953
91,245
294,338
301,727
Rest of world 94,503
80,213
255,703
239,199
Total ⁽³⁾
$ 309,664
$ 295,268
$ 916,156
$ 903,284


~~(1)~~	~~Net sales to external customers in the UK include $9.6 million and $26.8 millionfor the three and nine months ended September 30, 2017, respectively and $8.8 million and $27.9 million for the three and nine months ended September 30, 2016, respectively.~~


~~(2)~~	~~Includes those countries in Europe where we have a direct sales presence. Countries where sales are made through distributors are included in ‘Rest of world’.~~


~~(3)~~	No single customer represented over 10% of our consolidated net sales. Except for the U.S. and France, no country’s net sales exceeded 10% of our consolidated net sales. French sales were $29.6 million and $96.6 million for the three and nine months ended September 30, 2017, respectively, and $28.9 million and $95.9 million for the three and nine months ended September 30, 2016, respectively.

Property, plant and equipment, net by geography are as follows (in thousands):


	March 31, 2021		December 31, 2020
United States	$	64,002	$	64,553
Europe	87,945		93,821
Rest of World	5,945		5,431
Total	$	157,892	$	163,805

PP&E September 30, 2017 December 31, 2016
United States $ 62,630
$ 61,279
Europe 137,682
130,777
Rest of world 13,457
31,786
Total $ 213,769
$ 223,842

Note ~~15.~~14. Supplemental Financial Information

~~Accounts receivable, net, consisted of the following (in thousands):~~

September 30, 2017 December 31, 2016
Trade receivables from third parties $ 326,498
$ 285,336
Allowance for bad debt (12,457 ) (9,606 )
$ 314,041
$ 275,730

Inventories consisted of the following (in thousands):


	March 31, 2021		December 31, 2020
Raw materials	$	42,907	$	43,257
Work-in-process	9,755		8,055
Finished goods	71,861		75,363
	$	124,523	$	126,675

September 30, 2017 December 31, 2016
Raw materials $ 51,628
$ 47,704
Work-in-process 39,873
32,316
Finished goods 123,092
103,469
$ 214,593
$ 183,489

~~Inventories are reported net~~As of ~~the provision for obsolescence which totaled $13.7 million and $9.8 million at September 30, 2017~~March 31, 2021 and December 31, ~~2016, respectively.~~

~~Prepaid expenses~~2020, inventories include adjustments totaling $4.0 million and ~~other current assets consisted~~$6.6 million, respectively, to record balances at lower of ~~the following (in thousands):~~

September 30, 2017 December 31, 2016
Income taxes payable on inter-company transfers of property ⁽¹⁾
$ 19,445
$ 19,445
Deposits and advances to suppliers 7,298
5,417
Earthquake grant receivable 4,983
4,748
Unbilled receivables 4,363
—
Escrow deposit - Caisson 2,000
—
Current loans and notes receivable 1,553
7,093
Derivative contract assets —
8,269
Other prepaid expenses 15,534
11,001
$ 55,176
$ 55,973


~~(1)~~	The income taxes payable on intercompany transfers of property asset is the asset account created to defer the income tax effect of an intercompany intellectual property sale pursuant to ASC 810-10-45-8.

~~Other assets consisted of the following (in thousands):~~

September 30, 2017 December 31, 2016
Income taxes payable on inter-company transfers of property ⁽¹⁾
$ 109,971
$ 124,551
Investments ⁽²⁾
2,316
2,537
Loans and notes receivable 1,964
2,029
Escrow deposit - Caisson 1,000
—
Guaranteed deposits 777
940
Other 1,827
641
$ 117,855
$ 130,698


~~(1)~~	The income taxes payable on intercompany transfers of property asset is the asset account created to defer the income tax effect of an intercompany intellectual property sale pursuant to ASC 810-10-45-8.


~~(2)~~	~~Primarily cash surrender value of company owned life insurance policies.~~

cost or net realizable value.

Accrued liabilities and other consisted of the following (in thousands):


	March 31, 2021		December 31, 2020
Legal and administrative costs	$	15,650	$	15,820
Operating lease liabilities	11,535		11,276
Contingent consideration (1)	9,424		13,968
Contract liabilities	9,234		6,929
Restructuring related liabilities (2)	5,569		6,258
Derivative contract liabilities (3)	2,065		7,372
Research and development costs	4,752		4,257
Provisions for agents, returns and other	2,377		3,063
Other accrued expenses	31,428		26,465
	$	92,034	$	95,408

September 30, 2017 December 31, 2016
Product remediation liability ⁽¹⁾
$ 20,060
$ 23,464
Deferred compensation - Caisson acquisition 14,137
—
Legal and other administrative costs 7,863
6,184
Provisions for agents, returns and other 8,505
7,271
Restructuring related liabilities 5,098
16,859
Product warranty obligations 1,747
2,736
Royalty costs 2,048
2,503
Escrow indemnity liability - Caisson 2,000
—
Deferred income 4,752
—
Government grants 1,275
1,708
Derivative contract liabilities ⁽²⁾
3,055
942
Research and development costs 1,173
839
Other 20,499
13,061
$ 92,212
$ 75,567


~~(1)~~	~~Refer to “Note 4. Product Remediation Liability.”~~


~~(2)~~	~~Refer to “Note 8. Derivatives and Risk Management.”~~

(1)Refer to “Note 5. Fair Value Measurements”

~~Other~~(2)Refer to “Note 3. Restructuring”

(3)Refer to “Note 7. Derivatives and Risk Management”

As of March 31, 2021 and December 31, 2020, contract liabilities of $9.5 million and $8.6 million, respectively, are included within accrued liabilities and other long-term liabilities ~~consisted of~~on the ~~following (in thousands):~~condensed consolidated balance sheets.

September 30, 2017 December 31, 2016
Contingent consideration ⁽¹⁾
$ 34,217
$ 3,890
Uncertain tax positions 12,349
11,108
Product remediation liability ⁽²⁾
10,186
10,023
Government grants 5,889
3,803
Derivative contract liabilities ⁽³⁾
932
1,392
Escrow indemnity liability - Caisson 1,000
—
Unfavorable operating leases ⁽⁴⁾
256
1,672
Other 9,575
7,599
$ 74,404
$ 39,487

~~(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 June 30, 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. Refer to “Note 6. Fair Value Measurements.” The third acquisition, Caisson, occurred in May 2017. Refer to “Note 2. Acquisitions.”


~~(2)~~	~~Refer to “Note 4. Product Remediation Liability.”~~


~~(3)~~	~~Refer to “Note 8. Derivatives and Risk Management.”~~


~~(4)~~	~~Unfavorable operating leases represent the adjustment to recognize future lease obligations at their estimated fair value in conjunction with the Mergers.~~

Note ~~16.~~15. New Accounting Pronouncements

~~In May 2014, the Financial~~Adoption of New Accounting Pronouncements

The following table provides a description of our adoption of new Accounting Standards ~~Board~~Updates (“~~FASB”~~ASUs”) issued ~~ASC Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers.~~ ~~Update No. 2014-09 requires an entity to recognize~~by the ~~amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers~~FASB and will replace most existing revenue recognition guidance when it becomes effective. This new standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. We will adopt the new standard under the cumulative effect transition method.

Based on the Company’s evaluation performed to date, we believe the timing of revenue recognition for products and related revenue streams within our Neuromodulation and Cardiac Rhythm Management segments will not materially change. The Company continues to evaluate the impact of the new standard on the timing of when revenue will be recognized for equipment sales and certain services performed within our Cardiac Surgery segment specifically related to heart-lung machines and preventive maintenance contracts on cardiopulmonary equipment.

~~Upon~~ adoption of the new standard, we expect to implement 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 analyzed. During the fourth quarter of 2017, we expect to finalize our impact assessment and redesign impacted processes, policies and controls.

~~In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~. Update 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with changes recognized in net income. However, an entity may elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The amendments, in addition, reduce complexity of the impairment assessment of equity investments without readily determinable fair values with regard to the other-than-temporary impairment guidance. The amendments also require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and liability. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application of certain provisions is permitted. We are currently evaluating the effect this standard will have on our ~~consolidated~~condensed financial ~~statements and related disclosures.~~statements:

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases.~~ This guidance requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. While many aspects of lessor accounting remain the same, the new standard makes some changes, such as eliminating the current real estate-specific guidance. The new standard requires lessees and lessors to classify most leases using a principle generally consistent with that of “IAS 17 - Leases,” which is similar to U.S. GAAP but without the use of bright lines. The standard also changes what is considered initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The standard is effective for annual periods beginning after December 15, 2018 and interim periods within that year. Early adoption is permitted. We are currently evaluating the effect this standard will have on our consolidated financial statements and related disclosures.

Issue Date & Standard

Description

Date of Adoption

Effect on Financial Statements or Other Significant Matters

August 2018

ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General(Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans

This update adds and removes certain disclosure requirements related to defined benefit plans.

January 1, 2021

There was no material impact to our consolidated financial statements as a result of adopting this ASU.

December 2019

ASU No. 2019-12, Income Taxes(Topic 740): Simplifying the Accounting for Income Taxes

This update simplifies various aspects related to the accounting for income taxes. The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and modifies existing guidance to improve consistent application of Topic 740.

January 1, 2021

There was no material impact to our consolidated financial statements as a result of adopting this ASU.

August 2020

ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

This update simplifies the accounting for convertible debt instruments by removing certain accounting separation models as well as the accounting for debt instruments with embedded conversion features that are not required to be accounted for as derivative instruments. The update also improves the consistency of earnings per share calculations for convertible instruments.

January 1, 2021

There was no material impact to our consolidated financial statements as a result of adopting this ASU.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation—Stock Compensation~~: ~~Improvements to Employee Share-Based Payment Accounting.~~ This simplified the accounting for certain aspects of share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted the amendments of ASU 2016-09 (each “an Amendment”) effective January 1, 2017, using the following methods:

We adopted the Amendment that requires all of the tax effects related to the settlement of share based compensation awards to be recorded through the income statement on a prospective basis. The adoption of this Amendment did not have a material effect on income tax expense for the nine months ended September 30, 2017.

We adopted the Amendment related to cash flow presentation of tax-related cash flows resulting from share based payments on a prospective basis. The Amendment stipulates that all tax-related cash flows resulting from share based payments are to be reported as operating activities in the statement of cash flows, rather than, under past requirements, to present gross windfall tax benefits as an inflow from financing activities and an outflow from operating activities.

Under the Amendment related to forfeitures, entities are permitted to make a company-wide accounting policy election to either estimate forfeitures each period, as required prior to this Amendment’s effective date, or to account for forfeitures as they occur. We elected to continue to account for forfeitures using the estimation method.

We adopted the Amendment related to the timing of when excess tax benefits are recognized, which requires that all windfalls and shortfalls be recognized when they arise. There were no unrecognized excess tax benefits prior to the adoption of the Amendment.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments(Topic 230 -Statement of Cash Flows).~~ Update 2016-15 provides guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination,

proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the effect this standard will have on our consolidated financial statements and related disclosures.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740).~~ This update simplifies the accounting for the income tax consequences of transfers of assets from one unit of a corporation to another unit or subsidiary by eliminating an accounting exception that prevents the recognition of current and deferred income tax consequences for such “intra-entity transfers” until the assets have been sold to an outside party. The amendment should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment directly to retained earnings as of the beginning of the period in which the guidance is adopted. The rule is effective for annual periods after December 15, 2017, including interim periods within those annual reporting periods. We currently estimate the cumulative-effect reduction to retained earnings to be approximately $65.2 million upon adoption at January 1, 2018.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350).~~ This update removes step 2 of the goodwill impairment test that compares the implied fair value of goodwill with its carrying amount. Instead, an impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will be recorded by the amount a reporting unit’s carrying amount exceeds its fair value. The rule is effective for annual periods after December 15, 2019, including interim periods within those annual reporting periods. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

~~In March 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805)—Clarifying the Definition of a Business~~. This update clarifies when a set of assets and activities is a business. The amendments provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This update is effective for annual periods after December 15, 2017, including interim periods within those annual reporting periods. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost~~. This update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this Update also allow only the service cost component to be eligible for capitalization when applicable. This Update is effective for annual periods after December 15, 2017, including interim periods within those annual reporting periods. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

Item 2. Management’sDiscussion and Analysis of Financial Condition andResults of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes which appear elsewhere in this document and with our ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2016 (“2016 Form 10-K”).~~10-K. Our discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our ~~2016~~2020 Form 10-K, as updated and supplemented by our Quarterly Reports on Form 10-Q, including in Part 2, Item 1A and elsewhere in this ~~quarterly report.~~Quarterly Report on Form 10-Q.

The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “LivaNova,” “the Company,” “we,” “us” and “our” refer to LivaNova PLC and its consolidated subsidiaries.

COVID-19

Our business, operations and financial condition and results have been and may continue to be impacted by the COVID-19 pandemic. We have experienced significant and unpredictable reductions in the demand for our products due to healthcare customers diverting medical resources and priorities towards the treatment of COVID-19. In addition, public health organizations have regularly delayed or suspended elective procedures during the COVID-19 pandemic, which has negatively impacted the usage of our products, including the number of Neuromodulation procedures. Further, there has been a decline in treatment for non-COVID-19 emergency procedures, which has also negatively impacted the demand for our products.

We observed improving market dynamics during the first quarter of 2021, especially in the United States; however, we continue to be impacted in regions with COVID-19 case rate variability. We expect the recovery to continue during the remainder of the year as patients and their caregivers return to in-person physician visits and procedure volumes improve. However, COVID-19 case rate variability or delays in global vaccination roll-out efforts could materially adversely impact our business, results of operations and overall financial performance.

Our business operations have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many jurisdictions have imposed, and in some cases reimposed, a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. If the COVID-19 pandemic has a substantial impact on our employee or vendor attendance or productivity, our operations may suffer, and in turn our results of operations and overall financial performance may be harmed.

During the second quarter of 2020, LivaNova paused RECOVER study patients in progressing beyond the first baseline depression scale measurement because the majority of our study sites and their corresponding surgical centers were closed. In order to maintain momentum, we continued activating new sites and identifying, educating and consenting patients at existing sites. During the third quarter of 2020, certain sites and surgical centers began to open and we re-initiated movement within RECOVER. We expect the number of patient implants to accelerate through fiscal year 2021 as study sites are able to progress consented patients and the impact of COVID-19 diminishes. However, there can be no assurance that there will not be closures of sites in the future.

Additionally, our ANTHEM-HFrEF international pivotal trial was temporarily paused in March 2020 due to COVID-19 restrictions after randomizing just over 200 patients. During the second quarter of 2020, we were able to re-initiate enrollment and screening activities in more than half of the sites, and in April 2021 we randomized the 300th patient in the trial. We continue to monitor relevant conditions at medical centers participating in the trial.

We have taken numerous steps, and will continue to take further actions, in our approach to addressing the COVID-19 pandemic. We have successfully implemented our business continuity plans, and our management team is responding to changes in our environment quickly and effectively. We have not closed any of our manufacturing plants. Additionally, the supply of raw materials and the distribution of finished products remain operational with no known or foreseen constraints relating to COVID-19. As a result of the COVID-19 pandemic, we instructed the majority of our employees at many of our facilities across the globe to work from home on a temporary basis and have implemented company-wide travel restrictions. For our manufacturing, operations, and other personnel remaining on site due to the essential nature of their work, we have implemented safety measures such as the use of personal protective equipment and social distancing measures. We have incurred additional expenses in connection with our response to the COVID-19 pandemic, including manufacturing inefficiencies and costs related to enabling our employees to support our customers while working remotely.

We continue to implement cost reduction efforts to mitigate the impact of reduced revenues on our operating income. We have reduced expenses by evaluating whether projects and initiatives are critical to meet the needs of the Company, protecting strategic priorities for future growth, reducing discretionary spending and tightening management of personnel costs.

The extent to which the COVID-19 pandemic continues to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and longevity of COVID-19 and its variants, the resurgence of COVID-19 in regions that have begun to recover from the initial impact of the pandemic, the impact of COVID-19 on economic activity and the actions to contain its impact on public health and the global economy.

Business Overview

We are a public limited company organized under the laws of England and Wales and headquartered in London, ~~United Kingdom.~~England. We are 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,~~Cardiovascular and Neuromodulation, ~~and Cardiac Rhythm Management,~~ we design, develop, manufacture and sell innovative therapeutic solutions that are consistent with our mission to improve our patients’ quality of life, increase the skills and capabilities of healthcare professionals and minimize healthcare costs.

~~Business Franchises~~

~~We operate our business through three~~LivaNova is comprised of two reportable segments: ~~Cardiac Surgery,~~Cardiovascular and Neuromodulation, ~~and Cardiac Rhythm Management. Our three reportable segments correspond~~corresponding to our ~~Business Franchises and each Business Franchise corresponds to one of our three main~~primary therapeutic ~~areas aligned to best serve our customers. Corporate~~areas. Other corporate activities include corporate shared service expenses for finance, legal, human resources, information technology and corporate business ~~development (“New Ventures”). New Ventures is focused on new growth platforms and identification of other opportunities for expansion and investment.~~development.

For further information regarding our business segments, historical financial information and our methodology for the presentation of financial results, please refer to the condensed consolidated financial statements and accompanying notes of this Quarterly Report on Form 10-Q.

~~Cardiac Surgery Update~~

Cardiovascular

Our Cardiovascular segment is engaged in the development, production and sale of cardiopulmonary products, heart valves and advanced circulatory support products. Cardiopulmonary products include oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories. Advanced circulatory support includes temporary life support controllers and product kits that can include a combination of pumps, oxygenators, and cannulae.

Divestiture of Heart Valve Business

On ~~October 5, 2015, we announced~~December 2, 2020, LivaNova entered into a Purchase Agreement with the ~~initiation~~Purchaser for the divestiture of ~~PERSIST-AVR,~~certain of LivaNova’s subsidiaries as well as certain other assets and liabilities relating to the ~~first international, prospective post-market randomized multi-center clinical study evaluating~~Company’s Heart Valve business and site management operations for €60.0 million (approximately $70.4 million as of March 31, 2021), payable in two tranches: €50.0 million (approximately $58.7 million as of March 31, 2021) at closing and an additional €10.0 million (approximately $11.7 million as of March 31, 2021) payable on December 30, 2022. On April 9, 2021, LivaNova and the ~~Perceval sutureless aortic~~Purchaser entered into an A&R Purchase Agreement which amends and restates the original Purchase Agreement to, among other things, defer the closing of the sale and purchase of LSM by up to two years and include or amend certain additional terms relating to such deferral, including certain amendments relating to the potential hazardous substances liabilities of LSM and the related expense reimbursement provisions. The initial closing of the transaction with respect to the heart valve compared to standard sutured bioprostheses in patients with aortic valve disease. The Perceval valve, the only sutureless biological aortic valve replacement (“AVR”) on the market today, employs a unique self-anchoring frame that enables the surgeon to replace the diseased valve without suturing it into place. The studybusiness is expected to ~~enroll 1,234 patients within a two-year enrollment period and patients will be followed until five years post procedure. In January 2017,~~occur in the ~~independent study, “Aortic Valve Replacement With Sutureless Perceval Bioprosthesis: Single-Center Experience With 617 Implants,” was presented to The Society~~first half of ~~Thoracic Surgeons. The study found AVR procedures conducted with the Perceval sutureless valve resulted in low mortality and excellent hemodynamic performance for patients.~~2021.

Cardiopulmonary Product Approval

In ~~January 2016, we announced~~April 2021, the FDA approval of the Perceval sutureless valve. While we have been selling Perceval in other parts of the world for several years, we began commercial distribution of the device in the United States last year, with the first implant announced on March 8, 2016. The Perceval valve has been implanted in more than 25,000 patients in more than 310 hospitals in 34 countries across the world.

~~In early February 2016, we announced that we received FDA approval of our CROWN PRTvalve for the treatment of aortic valve disease. TheCROWN PRT~~valve uses a stented aortic bioprosthesis technology and features a surgeon-friendly design, with optimized hemodynamics and a patented phospholipid reduction treatment (“PRT”), designed to enhance valve durability. We anticipate launching the CROWN PRT valve in the U.S. later this year.

In March 2017, we committed to a plan to sell our Suzhou Industrial Park facility in Shanghai, China, an emerging market greenfield project for the local manufacture of Cardiopulmonary disposable products in Suzhou Industrial Park in China. As a result of this exit plan, we recorded an impairment of the building and equipment of $4.6 million and accrued $0.5 million of additional costs, primarily related to employee severance, during the nine months ended September 30, 2017, included in ‘Restructuring expenses’ in the condensed consolidated statement of income (loss). In addition, the land, building and equipment were recorded as ‘Assets held for sale’ on the condensed consolidated balance sheet, with a carrying value of $14.1 million as of September 30, 2017.

~~In September 2017, we received FDA~~provided 510(k) clearance for B-Capta, the ~~U.S. market launch of our Optiflow Arterial Cannulae Family. Optiflow aortic arch cannulae provide improved hydrodynamics with~~new in-line, blood-gas monitoring system integrated into the Company’s S5 heart-lung machine. The system is designed to easily and accurately monitor arterial and venous blood gas parameters even during long and complex pediatric and adult cardiopulmonary bypass procedures. B-Capta, which received CE Mark in May 2020 and completed a ~~novel dispersive tip design that improves blood flow characteristics resulting~~successful limited commercial release in reduced wall shear stress (“WSS”) profiles. Optiflow Arterial cannulae feature a unique basket tip with large openings that allow a more physiologically compatible dispersive design. This design has been shown to significantly reduce WSS and turbulence, thereby improving hydrodynamics and potentially reducing ischemic complications from extracorporeal circulation during cardiac surgery.Europe, is now available globally.

~~3T Heater-Cooler Devices~~Product Remediation

~~FDA Warning Letter~~.

~~The FDA inspected the Munich facility from August 24, 2015 to August 27, 2015~~facilities and ~~the Arvada facility from August 24, 2015 to September 1, 2015. On August 27, 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~~inspectional observations on 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 partForm-483 applicable to our ~~responses and identified other alleged violations not previously included in the Form 483.~~Munich, Germany facility.

The Warning Letter further stated that our 3T Heater-Cooler devices (the “3T devices”) and other devices we manufactured at our Munich facility ~~are~~were 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 iswas limited to the 3T devices, but that the agency ~~reserves~~reserved the right to expand the scope of the import alert if future circumstances ~~warrant~~warranted 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~~were 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.

~~CDC and FDA Safety Communications and~~Product Liability

The Company ~~Field Safety Notice Update~~

On October 13, 2016 the Centers for Disease Control and Prevention (“CDC”) and FDA separately released safety notifications regarding the 3T devices. The CDC’s Morbidity and Mortality Weekly Report (“MMWR”) and Health Advisory Notice (“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 (“NTM”) bacteria M. chimaera isolatedis currently involved 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 August 18, 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 October 13, 2016, 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.

~~On December 31, 2016, we recognized a liability for our product remediation plan related to~~litigation involving 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 September 30, 2017, the product remediation liability was $30.2 million. Refer to “Note 4. Product Remediation Liability” for additional information.

~~Litigation~~

~~On February 12, 2016, LivaNova was alerted that~~The litigation includes a class action complaint ~~had been filed~~ in the U.S. District Court for the Middle District of Pennsylvania, ~~with respect to our 3T devices. The plaintiffs named~~federal multi-district litigation in the ~~complaint underwent open heart surgeries at WellSpan York Hospital~~U.S. District Court for the Middle District of Pennsylvania, various U.S. state court cases and ~~Penn State Milton S. Hershey Medical Center~~cases in ~~2015, and~~jurisdictions outside the complaint alleges that: (i) patients were exposed to a harmful form of bacteria, known as nontuberculous mycobacterium (“NTM”), from our 3T devices; and (ii) we knew or should have known that design or manufacturing defects in 3T devices can lead to NTM bacterial colonization, regardless of the cleaning and disinfection procedures used (and recommended by us).U.S. The class ~~of plaintiffs~~action, filed in ~~the complaint~~February 2016, 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.

Cases in state courts in the U.S. and in jurisdictions outside the U.S. continue to progress. As of April 28, 2021, including the cases encompassed in the settlement framework described above that have not yet been dismissed, we are aware of approximately 85 filed and unfiled claims worldwide, with the majority of the claims in various ~~LivaNova entities.~~federal or state courts throughout the United States. This includes cases that have settled but have not yet been dismissed. 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 or concealment, unjust enrichment, and violations of various state consumer protection statutes.

~~We are defending each of~~At March 31, 2021, the provision for these ~~claims vigorously. Given~~matters was $34.3 million. While the ~~relatively early stage~~amount accrued represents our best estimate, the actual liability for resolution of these matters ~~we cannot give any assurances that additional legal proceedings making the same or similar allegations will not be filed against us or one of~~may vary from our subsidiaries, nor that the resolution of these complaints or other related litigation will not have a material adverse effect on our business, results of operations, financial condition or liquidity. 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.estimate.

Neuromodulation ~~Update~~

~~Epilepsy~~

Our ~~product development efforts are directed toward improving~~Neuromodulation segment designs, develops and markets Neuromodulation therapy for the ~~VNS Therapy System~~treatment of drug-resistant epilepsy, DTD and ~~developing new products that provide additional features and functionality.~~obstructive sleep apnea. We are ~~conducting ongoing product development activities to enhance the VNS Therapy System pulse generator, lead~~also developing and ~~programming software. We will be required to obtain appropriate U.S. and international regulatory approvals, and clinical studies may be a prerequisite to regulatory approvals for some products.~~

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 CE Mark approval, for our VNS Therapy device for expanded magnetic resonance imaging (“MRI”) labeling 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.

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. SenTiva is the smallest and lightest responsive therapy for epilepsy. The new VNS Therapy Programming System features a wireless wand and new user interface on a small tablet. Together, the components offer patients with drug-resistant epilepsy a physician-directed customizable therapy with smart technology and proven results that reduce the number of seizures, lessen the duration of seizures and enable a faster recovery.

~~Depression~~

In March 2017, the American Journal of Psychiatry published the results of the longest and largest naturalistic study on effective treatments for patients experiencing chronic and severe depression. The findings showed that the addition of VNS Therapy to traditional treatment methods is effective in reducing symptoms in patients with treatment-resistant depression.

~~Cardiac Rhythm Management (“CRM”) Update~~

In September 2017, we announced that we had commenced a process to explore strategic options to realize the full value of our CRM Business Franchise. While our Board of Directors has approved examining strategic options, amongst which is the possibility of divestiture, no commitment to a plan of sale has been made. Accordingly, the CRM business franchise was not reported as an asset held for sale as of September 30, 2017.

Also in September 2017, we announced that the Company’s Shanghai-based joint venture MicroPort Sorin Cardiac Rhythm Management Co. Ltd. obtained approval for its family of Rega™ pacemakers from the China Food and Drug Administration.

~~New Ventures Update~~

~~Heart failure~~

~~With respect to heart failure, New Ventures is focused on the development and~~conducting clinical testing of the ~~VITARIA®~~VITARIA System for treating heart failure through vagus nerve stimulation.

~~We received CE Mark approval~~DTD UNCOVER Study

In April 2021, LivaNova and Verily, a subsidiary of Alphabet, announced that the first patient had been enrolled in their collaborative UNCOVER study, a subset of the ~~VITARIA System~~RECOVER study. Data obtained from Verily-developed digital tools will

complement the clinical outcomes collected in February 2015 for patients who have moderate to severe heart failure (New York Heart Association Class II/III) with left ventricular dysfunction (ejection fraction < 40%) and who remain symptomatic despite stable, optimal heart failure drug therapy. The VITARIA System providesRECOVER, providing clinicians a ~~specific method~~more comprehensive view of VNS called autonomic regulation therapy (“ART”), and it includes the same elements as the VNS Therapy System - pulse generator, lead, programming wand and software, programming computer, tunneling tool and accessory pack - without thedepression patient kit with magnets. We conducted a pilot study, ANTHEM-HF, outside the United States, which concluded in 2014. The study results support the safety and efficacy of ART delivered by the VITARIA System. We submitted the results to our European Notified Body, DEKRA, and on February 20, 2015, we received CE Mark approval. The VITARIA System is not approved in the U.S. During 2014, we also initiated a second pilot study, ANTHEM-HFpEF, to study ART in patients experiencing symptomatic heart failure with preserved ejection fraction. This pilot study is currently underway outside the United States.biomarkers.

~~Obstructive sleep apnea~~

ImThera Medical, Inc. (“ImThera”) is a privately held, emerging-growth company developing an implantable neurostimulation device system for the treatment of obstructive sleep apnea. We have an investment of $12.0 million in ImThera, and a $1.0 million note receivable due from ImThera for a loan made during the nine months ended September 30, 2017 to fund operating expenses.

~~Mitral valve regurgitation~~

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

On May 2, 2017, we agreed to pay up to $72.0 million to acquire the remaining 51% equity interests in Caisson in support of our strategic growth initiatives. Caisson is developing a device for treating mitral regurgitation through replacement of the native mitral valve using a fully transvenous delivery system. As a result of our acquisition of Caisson, we began consolidating the results of Caisson as of May 2, 2017. In April 2016, we obtained FDA approval of an Investigational Device Exemption study using Caisson technology for treating mitral regurgitation heart failure with transcatheter mitral valve replacement and we are currently executing against a defined clinical data development plan designed to enable commercialization of the Caisson technology.

We are also invested in two mitral valve startups. Cardiosolutions Inc. and Highlife. Cardiosolutions, a startup headquartered in the U.S. in which we have held an interest since 2012, is developing an innovative spacer technology for treating mitral regurgitation. Highlife, headquartered in France, is focused on developing devices for treating mitral regurgitation through percutaneous replacement of the native mitral valve. We recognized an impairment of our equity method investment in, and notes receivable from, Highlife during the nine months ended September 30, 2017. The estimated fair value of our investment and notes receivable were below our carrying value by $13.0 million.

Significant Accounting Policies and Critical Accounting Estimates

~~There have been no material changes~~In addition to our critical accounting policies ~~from the information~~ provided in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2016~~2020 Form ~~10-K.~~ 10-K, refer to “Significant Accounting Policies” within “Note 1. Unaudited Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q.

The accompanying unaudited condensed consolidated financial statements of LivaNova and its consolidated subsidiaries have been prepared in accordance with U.S. GAAP on an interim basis.

New accounting pronouncements are disclosed in “Note ~~16.~~15. New Accounting Pronouncements” contained in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Other~~

On June 23, 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit.” On March 29, 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 reliefs 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 reliefs 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 Sates, and our parent company, LivaNova PLC, are party to intercompany transactions and agreements under which we receive various tax reliefs 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 are enacted or the withdrawal becomes effective.

The Trump Administration has included as part of its agenda a potential reform of U.S. tax laws. On September 27, 2017, the White House released its “Unified Framework for Fixing Our Broken Tax Code” (the “Framework”), which was developed by the Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance and which includes specific goals for lower business tax rates. The Framework calls for a 20% corporate tax rate and international reforms that include a territorial tax system and a one-time mandatory repatriation tax. The Framework proposes 100% expensing of new investments in depreciable assets for five years, effective after September 27, 2017, while partially limiting the tax deduction for net business interest expense. Additionally, the Framework would repeal the section 199 domestic manufacturing deduction and “numerous other special exclusions and deductions” but would retain the research tax credit. The content of any final legislation, the timing for enactment, and the reporting periods that would be impacted cannot be determined at this time.

Results of Operations

We are reporting, in this Quarterly Report on Form 10-Q, the results for LivaNova and its consolidated subsidiaries for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016.

The following table summarizes our condensed consolidated results of operations (in thousands):


	Three Months Ended March 31,
		2021		2020
Net sales		$	247,603	$	242,397
Costs and expenses:
Cost of sales - exclusive of amortization		79,216		68,923
Product remediation		68		1,466
Selling, general and administrative		112,618		120,177
Research and development		44,625		35,902
Merger and integration expenses		630		3,474
Restructuring expenses		6,092		1,580
Revaluation of disposal group		(966)		—


Amortization of intangibles		6,699		10,267

Litigation provision, net		3,044		—
Operating (loss) income from continuing operations		(4,423)		608
Interest income		(74)		148
Interest expense		(15,936)		(4,849)
Foreign exchange and other losses		(6,369)		(1,914)
Loss from continuing operations before tax		(26,802)		(6,007)
Income tax expense (benefit)		2,856		(44,714)
Losses from equity method investments		(40)		(129)
Net (loss) income from continuing operations		(29,698)		38,578
Net loss from discontinued operations, net of tax		—		(995)
Net (loss) income		$	(29,698)	$	37,583

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales $ 309,664
$ 295,268
$ 916,156
$ 903,284
Cost of sales 108,233
106,454
318,584
360,675
Product remediation 1,642
689
2,573
2,243
Gross profit 199,789
188,125
594,999
540,366
Operating expenses:
Selling, general and administrative 121,177
109,233
353,943
345,744
Research and development 31,393
32,175
104,051
94,076
Merger and integration expenses 2,013
7,576
7,743
20,537
Restructuring expenses 792
4,381
12,060
37,219
Amortization of intangibles 12,350
11,775
35,445
33,959
Total operating expenses 167,725
165,140
513,242
531,535
Income from operations 32,064
22,985
81,757
8,831
Interest income 199
585
724
1,119
Interest expense (1,421 ) (3,495 ) (5,314 ) (6,665 )
Gain on acquisition of Caisson Interventional, LLC —
—
39,428
—
Foreign exchange and other gains (losses) 491
1,216
957
(2 )
Income before income taxes 31,333
21,291
117,552
3,283
Income tax expense 1,913
9,731
10,881
16,891
Losses from equity method investments (1,590 ) (13,129 ) (20,072 ) (19,382 )
Net income (loss) $ 27,830
$ (1,569 ) $ 86,599
$ (32,990 )

Net Sales

The table below ~~illustrates~~presents net sales by operating segment and ~~market geography~~geographic region (in thousands, except for percentages):


	Three Months Ended March 31,
		2021		2020		% Change
Cardiopulmonary
United States		$	35,759	$	36,858	(3.0)	%
Europe		30,626		34,234		(10.5)	%
Rest of World		42,334		45,275		(6.5)	%
		108,719		116,367		(6.6)	%
Heart Valves
United States		2,717		3,373		(19.4)	%
Europe		8,284		9,529		(13.1)	%
Rest of World		10,454		12,309		(15.1)	%
		21,455		25,211		(14.9)	%
Advanced Circulatory Support
United States		12,560		10,076		24.7	%
Europe		228		370		(38.4)	%
Rest of World		204		45		353.3	%
		12,992		10,491		23.8	%
Cardiovascular
United States		51,036		50,307		1.4	%
Europe		39,138		44,133		(11.3)	%
Rest of World		52,992		57,629		(8.0)	%
		143,166		152,069		(5.9)	%
Neuromodulation
United States		82,300		73,276		12.3	%
Europe		11,679		10,583		10.4	%
Rest of World		9,720		5,798		67.6	%
		103,699		89,657		15.7	%
Other		738		671		10.0	%
Totals
United States		133,336		123,583		7.9	%
Europe (1)		50,817		54,716		(7.1)	%
Rest of World		63,450		64,098		(1.0)	%
Total		$	247,603	$	242,397	2.1	%

(1)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.”

Three Months Ended September 30,
2017 2016 % Change
Cardiac Surgery
United States $ 44,991
$ 46,768
(3.8)%
Europe ⁽¹⁾
40,429
38,009
6.4%
Rest of world 74,402
63,741
16.7%
159,822
148,518
7.6%
Neuromodulation
United States 76,286
74,864
1.9%
Europe ⁽¹⁾
8,057
8,489
(5.1)%
Rest of world 6,673
6,151
8.5%
91,016
89,504
1.7%
Cardiac Rhythm Management
United States 931
2,178
(57.3)%
Europe ⁽¹⁾
44,468
44,747
(0.6)%
Rest of world 13,012
9,843
32.2%
58,411
56,768
2.9%
Other 415
478
(13.2)%
$ 309,664
$ 295,268
4.9%

Nine Months Ended September 30,
2017 2016 % Change
Cardiac Surgery
United States $ 129,160
$ 133,995
(3.6)%
Europe ⁽¹⁾
126,028
128,229
(1.7)%
Rest of world 202,424
190,788
6.1%
457,612
453,012
1.0%
Neuromodulation
United States 231,350
220,892
4.7%
Europe ⁽¹⁾
25,500
24,208
5.3%
Rest of world 18,340
15,801
16.1%
275,190
260,901
5.5%
Cardiac Rhythm Management
United States 5,605
7,471
(25.0)%
Europe ⁽¹⁾
142,811
149,141
(4.2)%
Rest of world 33,819
31,445
7.5%
182,235
188,057
(3.1)%
Other 1,119
1,314
(14.8)%
$ 916,156
$ 903,284
1.4%


~~(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’.~~

The table below ~~illustrates~~presents segment income ~~(loss)~~ from continuing operations (in ~~thousands)~~thousands, except for percentages):


	Three Months Ended March 31,
	2021		2020		% Change
Cardiovascular	$	5,628	$	8,681	(35.2)	%
Neuromodulation	34,039		33,858		0.5	%
Other	(30,669)		(26,610)		15.3	%
Total reportable segment income from continuing operations (1)	$	8,998	$	15,929	(43.5)	%

Three Months Ended September 30,
2017 2016 % Change
Cardiac Surgery $ 23,807
$ 17,791
33.8 %
Neuromodulation 45,932
47,049
(2.4 )%
Cardiac Rhythm Management 5,427
(4,598 ) 218.0 %
Other (27,947 ) (13,525 ) (106.6 )%
Total Reportable Segment's Income from Operations ⁽¹⁾
$ 47,219
$ 46,717
1.1 %
(1)For a reconciliation of segment income from continuing operations to (loss) income from continuing operations before tax refer to “Note 13. Geographic and Segment Information” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Cardiovascular

Nine Months Ended September 30,
2017 2016 % Change
Cardiac Surgery $ 63,490
$ 29,197
117.5 %
Neuromodulation 139,357
134,871
3.3 %
Cardiac Rhythm Management 13,536
(14,432 ) 193.8 %
Other (79,378 ) (49,090 ) (61.7 )%
Total Reportable Segment's Income from Operations ⁽¹⁾
$ 137,005
$ 100,546
36.3 %


~~(1)~~	~~For a reconciliation of segment operating income to consolidated operating income refer to “Note 14. Geographic and Segment Information”~~ i~~n the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.~~

~~Cardiac Surgery~~Cardiovascular net sales ~~increased by 7.6% and 1.0%~~ for the three ~~and nine~~ months ended ~~September 30, 2017, as~~March 31, 2021 compared to the three ~~and nine~~ months ended ~~September 30, 2016, respectively. Net~~March 31, 2020 decreased 5.9% largely due to the impact of COVID-19 in Europe and Rest of World, partially offset by the favorable impact of foreign currency fluctuations. COVID-19 only began to impact Cardiovascular net sales ~~increased $11.3~~late in the first quarter of 2020, whereas uncertainty associated with COVID-19 impacted sales throughout the first quarter of 2021. Cardiopulmonary sales declined 6.6% to $108.7 million for the three months ended ~~September 30, 2017, as compared~~March 31, 2021 primarily due to declines in sales of oxygenators and autotransfusion systems related to the ~~prior-year period due~~impact of COVID-19 on cardiac surgery procedure volumes in Europe and Rest of World, partially offset by an increase in sales of heart lung machines. Heart Valves sales declined 14.9% to ~~growth in both cardiopulmonary product revenue and heart valve revenue and favorable foreign currency exchange rate fluctuations. Cardiopulmonary sales increased 7.6%, or $8.7~~$21.5 million for the three months ended ~~September 30, 2017,~~March 31, 2021 primarily due to ~~strength~~declines in ~~heart-lung machines as~~sales of Perceval largely caused by the decline in cardiac surgery procedures globally resulting from COVID-19. These declines in sales were partially offset by a ~~result of geographic~~23.8% increase in Advanced Circulatory Support sales ~~expansion and continued progress towards upgrading customers from older machines~~ to ~~our current S5 device. Heart valve sales increased by 7.7%, or $2.6~~$13.0 million for the three months ended ~~September 30, 2017, as compared to~~March 31, 2021, resulting from the ~~prior-year period due primarily to increased demand for the Perceval sutureless tissue valve~~continued adoption of LifeSPARC in the U.S. and ~~quarter over quarter improvement~~an increase in Europe, which more than offset declines in mechanical heart valve sales globally. Cardiac Surgery net sales increased $4.6 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due primarily to growth of $5.3 million in cardiopulmonary product revenue, partially offset by a decline in heart value revenues. Year-to-date cardiopulmonary product sales increased over the prior-year period due to heart-lung machine sales expansion outside of the U.S. and Europe. Cardiac Surgeryprocedure volumes.

Cardiovascular operating income for the three months ended September 30, 2017 increased 33.8% over the prior-year period primarily due to increased operating leverage from the $11.3 million increase in sales. The 117.5% increase in operating income for the nine months ended September 30, 2017 over the prior-year period was primarily driven by inventory fair value step-up amortization of $25.2 million that was recognized during the nine months ended September 30, 2016. The inventory fair value step-up was fully amortized by September 30, 2016.

~~Neuromodulation net sales increased by 1.7% and 5.5% for the three and nine months ended September 30, 2017, as~~March 31, 2021 compared to the three ~~and nine~~ months ended ~~September 30, 2016, respectively. The increase~~March 31, 2020 decreased primarily due to the decrease in net sales, as discussed above, as well as the net impact of ~~$1.5 million for~~changes in the ~~three months ended September 30, 2017, over the prior-year period was primarily due to increased average selling prices driven by continued AspireSR penetration~~fair value of the ~~U.S. market,~~milestone-based contingent consideration arrangements associated with the acquisitions of TandemLife and Miami Instruments totaling $3.1 million. These decreases were partially offset by a decline in ~~unit~~selling, general and administrative expenses and product remediation.

Neuromodulation

Neuromodulation net sales for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 increased 15.7% to $103.7 million, largely due to ~~hurricane-related impacts~~improving market dynamics, particularly in the U.S. and customer anticipation of the SenTiva system, our new generation VNS Therapy System, which launched in October 2017. The increase in net sales of $14.3 million for the nine months ended September 30, 2017 over the prior-year period was primarily due to strong new patient sales and price premiums partially offset by hurricane-related impacts in the U.S. and customer anticipation of the SenTiva system. The decrease in Asia Pacific.

Neuromodulation operating income for the three months ended ~~September 30, 2017 as~~March 31, 2021 compared to the ~~prior-year period was~~three months ended March 31, 2020 increased primarily due to ~~increased selling, general and administrative costs driven by sales force expansion and marketing efforts in the U.S. The~~an increase in ~~Neuromodulation operating income for the nine months ended September 30, 2017~~net sales, as ~~compared to the prior-year period was primarily driven by increased operating leverage as a result of higher net sales,~~discussed above, partially offset by the ~~increased costs~~net impact of changes in fair value of the sales-based and milestone-based contingent consideration arrangement associated with ~~sales force expansion and marketing efforts in~~ the ~~U.S.~~

Cardiac Rhythm Management net sales increased by 2.9% for the three months ended September 30, 2017, as compared to the prior-year period primarily due to favorable foreign currency exchange rate fluctuations. Additionally, growthacquisition of ~~the~~

PLATINIUM Cardiac Resynchronization Therapy devices (CRT-Ds) in Europe and continued demand for KORA 250 pacemakers in Japan were mostly offset by a decrease in Implantable Cardiac Defibrillator (ICD) sales. Cardiac Rhythm Management net sales decreased by 3.1% for the nine months ended September 30, 2017, as compared to the prior-year period. This decline was primarily due to a decrease in ICD sales and reduced sales in the U.S. and Europe, bothImThera of which reflect a change in customer preferences. Cardiac Rhythm Management operating income increased $10.0 million and $28.0 million for the three and nine months ended September 30, 2017, respectively, as compared to the prior-year periods. The increase for the three months ended September 30, 2017 over the prior-year period was due to cost reductions resulting from prior restructuring actions, improvements in selling, general and administrative costs driven by reductions in the overall sales force and increased net sales. The increase for the nine months ended September 30, 2017 as compared to the prior-year period was driven by inventory fair value step-up amortization of $10.0 million that was recognized during the nine months ended September 30, 2016, cost reductions resulting from prior restructuring actions and cost reductions associated with a reduction in the overall sales force partially offset by decreased sales during the nine months ended September 30, 2017.

‘Other’ comprises the results from our corporate and new ventures activity. Operating loss from Other increased $14.4 million for the three months ended September 30, 2017, as compared to the prior-year period, primarily due to $3.9 million of Caisson related expenses and $12.9 million in increased Corporate costs. Operating loss from Other increased $30.3 million for the nine months ended September 30, 2017, as compared to the prior-year period, primarily due to $17.9 million of increased Caisson-related expenses and increased Corporate costs of $20.3$14.6 million. Increased Corporate costs during the three and nine months ended September 30, 2017 includes $2.8 million and $8.3 million in legal costs, respectively, primarily associated with litigation related to our 3T devices and investments in building out global capabilities including international expansion, and project-related expenses.

Cost of Sales and Expenses

The table below ~~illustrates~~presents our comparative cost of sales and ~~major~~significant expenses as a percentage of sales:


								Three Months Ended March 31,
	Three Months Ended September 30,								2021		2020		Change
	2017		2016		Change
Cost of sales	35.0	%	36.1	%	(1.1	)%
Cost of sales - exclusive of amortization							Cost of sales - exclusive of amortization		32.0	%	28.4	%	3.6	%
Product remediation	0.5	%	0.2	%	0.3	%	Product remediation		0.0	%	0.6	%	(0.6)	%
Gross profit	64.5	%	63.7	%	0.8	%
Operating expenses:
Selling, general and administrative	39.1	%	37.0	%	2.1	%	Selling, general and administrative		45.5	%	49.6	%	(4.1)	%
Research and development	10.1	%	10.9	%	(0.8	)%	Research and development		18.0	%	14.8	%	3.2	%
Merger and integration expenses	0.7	%	2.6	%	(1.9	)%	Merger and integration expenses		0.3	%	1.4	%	(1.1)	%
Restructuring expenses	0.3	%	1.5	%	(1.2	)%	Restructuring expenses		2.5	%	0.7	%	1.8	%
Revaluation of disposal group							Revaluation of disposal group		(0.4)	%	0.0	%	(0.4)	%
Amortization of intangibles	4.0	%	4.0	%	—	%	Amortization of intangibles		2.7	%	4.2	%	(1.5)	%

Litigation provision, net							Litigation provision, net		1.2	%	0.0	%	1.2	%

Nine Months Ended September 30,
2017 2016 Change
Cost of sales 34.8 % 39.9 % (5.1 )%
Product remediation 0.3 % 0.2 % 0.1 %
Gross profit 64.9 % 59.8 % 5.1 %
Operating expenses:
Selling, general and administrative 38.6 % 38.3 % 0.3 %
Research and development 11.4 % 10.4 % 1.0 %
Merger and integration expenses 0.8 % 2.3 % (1.5 )%
Restructuring expenses 1.3 % 4.1 % (2.8 )%
Amortization of intangibles 3.9 % 3.8 % 0.1 %

Cost of Sales - Exclusive of Amortization

Cost of sales consisted primarily of direct labor, allocated manufacturing overhead and the acquisition cost of raw materials and components. Cost of sales as a percentage of net sales ~~decreased by 1.1% to 35.0% and by 5.1% to 34.8% for the three and nine months ended September 30, 2017, respectively, as compared to the prior-year periods. The cost improvement~~ for the three months ended ~~September 30, 2017 reflects management’s focus on cost efficiencies~~March 31, 2021 compared to ~~improve gross margin. The cost improvement for~~ the ~~nine~~three months ended ~~September 30, 2017 was~~March 31, 2020 increased primarily due to ~~inventory~~the net impact of changes in fair value ~~step-up amortization in the prior year, which accounted for 3.9%~~ of ~~the decrease in our cost~~sales-based contingent consideration arrangements of ~~sales as a percentage of net sales,~~$8.7 million, as well as ~~the previously mentioned cost efficiencies. The total amount recognized for amortization~~due to unfavorable manufacturing variances of ~~the fair value step-up in inventory~~$4.6 million for the ~~nine~~three months ended ~~September 30, 2016 was $35.2 million. The fair value step-up in inventory basis was fully amortized~~March 31, 2021, partially offset by ~~September 30, 2016.~~favorable product mix.

~~Sales,~~Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses consisted of sales, marketing, general and administrative activities. SG&A expenses ~~for the three months ended September 30, 2017 increased~~ as a percentage of net sales ~~by 2.1% to 39.1%, as~~for the three months ended March 31, 2021 compared to the ~~prior-year period, and was consistent at 38.6% for the nine~~three months ended ~~September 30, 2017, as compared~~March 31, 2020 decreased primarily due to ~~the prior-year period. The 2.1% increase was largely attributable~~sales and marketing reductions from cost containment actions resulting from COVID-19 and a decrease in legal expenses related to litigation ~~related to~~involving our 3T ~~devices and other legal matters.~~device.

Research and Development (“R&D”) Expenses

R&D expenses ~~consisted~~consist of product design and development efforts, clinical ~~trial~~study programs and regulatory ~~activities.~~activities, which are essential to our strategic portfolio initiatives, including DTD, obstructive sleep apnea and heart failure. R&D expenses as a percentage of net sales ~~was consistent~~ for the three months ended ~~September 30, 2017, as~~March 31, 2021 compared to the ~~prior-year period, and increased by 1.0% to 11.4% for the nine~~three months ended ~~September 30, 2017, as compared to the prior-year period. The increase is~~March 31, 2020 increased primarily due to an increase in R&D expense resulting from the ~~acquisition~~net impact of ~~Caisson, inclusive~~changes in fair value of ~~$5.8 million in post-combination compensation expense recognized concurrent with the acquisition~~milestone-based contingent consideration arrangements of ~~Caisson, and $6.4 million in compensation expense associated with the retention of the employees of Caisson.~~$9.1 million.

Merger and Integration (“M&I”) Expenses

~~Merger and integration~~M&I expenses ~~consisted~~consist primarily of ~~consulting~~ costs associated with computer systems integration efforts, ~~organization~~organizational structure integration, synergy and tax ~~planning, as well as the integration of internal controls for the two legacy organizations. In addition, integration~~planning. M&I 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 by 1.9% to 0.7%~~ for the three months ended ~~September 30, 2017 as~~March 31, 2021 compared to the ~~prior-year period, and decreased by 1.5% to 0.8% for the nine~~three months ended ~~September 30, 2017 as compared to the prior-year period. These decreases were~~March 31, 2020 decreased primarily due to ~~a continued decline in~~completion of certain integration ~~activities.~~activities associated with our merger and acquisitions.

Restructuring Expenses

~~Restructuring expenses were primarily due to our efforts under our 2015 and 2016 Reorganization Plans and the Suzhou, China exit plan, to~~Our restructuring plans leverage economies of scale, eliminate duplicate corporate expenses and streamline distributions, logistics and office functions in order to reduce overall costs. Restructuring expenses ~~as a percentage of net sales decreased by 1.2% to 0.3% and 2.8% to 1.3%~~ for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, as~~March 31, 2021 compared to the ~~prior-year periods~~three months ended March 31, 2020 increased primarily due to ~~a continued decline~~severance and lease abandonment costs associated with our 2020 Plan. Refer to “Note 3. Restructuring” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information regarding our restructuring activities.

~~Gain~~Amortization of Intangibles

Amortization of intangible assets consist primarily of the amortization of finite-lived intangible assets, primarily intellectual property and customer relationships. Amortization of intangibles for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 decreased primarily due to the ceasing of amortization of Heart Valves’ intangible assets during the fourth quarter of 2020 upon being classified as held for sale. For further information, refer to “Note 2. Assets and Liabilities Held For Sale” in our condensed consolidated financial statements and accompanying notes of this Quarterly Report on ~~Caisson Acquisition~~Form 10-Q.

~~On May 2, 2017,~~Litigation Provision, Net

During the first quarter of 2021, 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~~$3.0 million adjustment to the provision for litigation involving our 3T device. Refer to “Note 8. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information regarding this provision.

Interest Expense

We incurred interest expense of ~~$1.3 million and $38.1 million, respectively.~~

~~Foreign Exchange and Other Gains (Losses)~~

~~Foreign exchange and other gains were $0.5 million and $1.2~~$15.9 million for the three months ended ~~September 30, 2017 and September 30, 2016, respectively.~~March 31, 2021, as compared to $4.8 million for the three months ended March 31, 2020. The ~~gains were~~increase for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily due to ~~net~~an increase in debt borrowings in June 2020 at increased borrowing rates.

Foreign Exchange and Other Losses

Foreign exchange and other losses consist primarily of gains and losses arising from transactions denominated in a currency different from an entity’s functional currency, foreign currency exchange rate derivative gains ~~associated with~~and losses and changes in the fair value of the embedded exchange feature and capped call derivatives.

We incurred foreign ~~currency commercial transactions, freestanding foreign currency forward contracts, intercompany debt,~~exchange and ~~third-party financial assets and liabilities. The gains~~other losses of ~~$1.0~~$6.4 million for the ~~nine~~three months ended ~~September 30, 2017 included~~March 31, 2021, as compared to $1.9 million for the three months ended March 31, 2020. The increase for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily due to an increase in the fair value of the exchangeable notes embedded exchange feature derivative liability. This loss was partially offset by an increase in the fair value of the capped call derivative asset, a ~~$3.2~~$4.6 million gain on the revaluation of our investment in Respicardia (Refer to “Note 4. Investments” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q) and a ~~sale of the cost-method investment, Istituto Europeo di Oncologia S.R.L, partially offset by~~ net gain on foreign ~~currency~~ exchange ~~losses of $2.2 million.~~

revaluation.

Income Taxes

LivaNova PLC is ~~domiciled and~~ resident in the ~~UK.~~UK for tax purposes. 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~~earnings mix in various ~~tax strategies~~jurisdictions and the changes in tax laws, our consolidated effective income tax rate may vary from one reporting period to another.

Compared with the three months ended March 31, 2020, the change in the effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017 included~~March 31, 2021 was primarily attributable to changes in valuation allowances and other discrete items as compared to the ~~impact of various~~ discrete tax ~~items including a net $4.0 million deferred tax~~ benefit ~~due to the release~~ of valuation allowances on tax losses upon the completion of a reorganization of our legal entities in the U.S. and a $2.1 million tax benefit from the resolution of prior period tax matters. Discrete tax items for the nine months ended September 30, 2017 also included the acquisition of Caisson and the $38.1 million non-taxable gain recognized to re-measure our existing equity investment in Caisson at fair value on the acquisition date, a $3.9 million deferred tax benefit associated with certain temporary differences arising from the Mergers and the recognition of a $3.0 million deferred tax asset related to a reserve for an uncertain tax position recognized in a prior year, in addition to various other discrete items.

During the three and nine months ended September 30, 2016, we recorded consolidated income tax expense of $9.7 million and $16.9 million, respectively, with consolidated effective income tax rates of 45.7% and 514.5%, respectively. The effective tax rate for the nine months ended September 30, 2016 was impacted by the recording of valuation allowances of $23.9$41.3 million related to ~~certain tax jurisdictions, including France~~the Coronavirus Aid, Relief, and the UK, in which we did not record tax benefits generated by their operating losses, as well as the tax expense generated by profitable operations in higher tax jurisdictions, such as the U.S. and Germany, offset by tax savings from our inter-company financing as part of our 2015 tax restructuring.

~~Losses from Equity Method Investments~~

~~Losses from equity method investments were $1.6 million and $20.1 million~~Economic Security Act (“CARES Act”) during ~~the three and nine months ended September 30, 2017, respectively. Losses for~~ the three months ended ~~September 30, 2017 were due~~March 31, 2020.

European Union State Aid Challenge

On April 2, 2019, the EC concluded that “when financing income from a foreign group company, channeled through an offshore subsidiary, derives from UK activities, the group finance exemption is not justified and constitutes State aid under EU rules.” Based upon our assessment of the technical arguments as to whether the UK group exemption is State aid, together with no material UK activities involved in our financing, no reserve relating to our ~~equity method investee losses, primarily from Highlife~~tax position has been recognized related to this matter. Furthermore, in December 2019, we amended our 2017 tax return filing to avail ourselves of different rules to determine UK taxation, which are not subject to the EU decision. We filed our 2018 tax return similarly, and ~~MicroPort. Losses for~~therefore, we do not believe that the ~~nine months ended September 30, 2017 included the impairment of our investment~~EU state aid decision will result in and notes receivable from, Highlife of $13.0 million, which consisted of the investment impairment of $4.7 million and the notes receivable impairment of $8.3 million. We recognized losses of $13.1 million and $19.4 million during the three and nine months ended September 30, 2016, respectively, primarily due to a ~~$9.2 million impairment of our investment in Respicardia and losses from our equity method investees.~~material liability.

Liquidity and Capital Resources

Based on our current business plan, we believe that our existing cash and cash equivalents, future cash generated from operations and ~~available~~ borrowing ~~capacity~~ under our ~~credit~~current debt facilities 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~~twelve-month period beginning from the issuance date of these condensed consolidated financial statements. Our liquidity could be adversely impacted by the factors affecting future operating results, including those referred to in “Part II, Item 1A. Risk Factors” in the 2020 Form 10-K as supplemented by the factors referred to in “Part II, Item 1A, Risk Factors” in this Quarterly Reports on Form 10-Q as well as “Note 8. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

On June 17, 2020, our ~~capital needs~~wholly-owned subsidiary, LivaNova USA, Inc., issued the $287.5 million Notes. Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option, and ~~consider various investing~~are entitled to exchange the Notes during any calendar quarter, if the last reported sale price of LivaNova’s ordinary shares, with a nominal value of £1.00 per share for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and ~~financing alternatives~~including, the last trading day of the immediately preceding calendar quarter is greater than or equal to ~~support~~130% of the exchange price, or $79.27 per share, on each applicable trading day. The Notes are exchangeable solely into cash and are not exchangeable into ordinary shares of LivaNova or any other security under any circumstances. The initial exchange rate for the Notes is 16.3980 ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately

$60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the Notes. If holders elect to exchange their Notes during future periods following the satisfaction of an exchange condition, we would be required to settle our ~~requirements.~~ exchange obligation through the payment of cash, which could adversely affect our liquidity. In addition, if the Notes become redeemable due to the satisfaction of an exchange condition, then we could be required to reclassify all or a portion of the Notes and the associated embedded exchange feature derivative as a current liability, which would result in a material reduction of our net working capital.

Refer to “Note 7.6. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information regarding our ~~debt. Our liquidity could be adversely affected by the factors affecting future operating results, including those referred to in “Part II - Item 1A. Risk Factors” in 2016 Form 10-K.~~debt and debt transactions.

On June 29, 2017, we entered into a new Finance Contract with the EIB to support financing of certain of our R&D projects. The Finance Contract has a borrowing base of €100 million (or approximately $118 million) and can be drawn in up to two tranches, each in a minimum amount of €50 million (or approximately $59 million). Drawdowns must occur by December 30, 2018 and the last repayment date of any tranche will be no earlier than four years and no later than eight years after the disbursement of the relevant tranche. Loans under the Finance Contract are subject to certain covenants and other terms and conditions.

No provision has been made for income taxes on unremitted earnings of our foreign controlled subsidiaries (non-UK subsidiaries) as of September 30, 2017. 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. However, the tax liability on future distributions should not be significant as most jurisdictions with unremitted earnings have various participation exemptions or no withholding tax.

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):


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016				2021		2020
Operating activities	$	73,665		$	49,348		Operating activities	$	19,480	$	(106,045)
Investing activities	(41,797		)	(36,363		)	Investing activities	(9,858)		(11,085)
Financing activities	(10,000		)	(62,996		)	Financing activities	(8,328)		183,093
Effect of exchange rate changes on cash and cash equivalents	3,501			1,030			Effect of exchange rate changes on cash and cash equivalents	(1,587)		(1,277)
Net increase (decrease)	$	25,369		$	(48,981	)
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	$	(293)	$	64,686

Operating Activities

Cash provided by operating activities during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 increased ~~$24.3~~by $125.5 million as compared to the same prior-year period. The increase ~~was~~is primarily due to $115.6 million in 3T litigation settlement payments made during the ~~result~~three months ended March 31, 2020 and the receipt of ~~an increase~~a CARES Act tax refund of $24.6 million during the three months ended March 31, 2021, partially offset by a decrease in net income adjusted for non-cash items of $119.6 million, offset by a $43.2 million change in operating assets and liabilities, a $39.4 million gain recognized in conjunction with the acquisition of Caisson and a $17.0 million increase in deferred income tax benefit.$9.3 million.

Investing Activities

Cash used in investing activities during the ~~nine~~three months ended September 30, 2017 increased $5.4 million as compared to the same prior-year period. The increase was primarily the result of net cash paid for the acquisition of Caisson of $14.2 million as well as $14.1 million received from maturities of short-term investments in the prior-year period, offset by $7.1 million in purchases of short-term investments in the prior-year period.

~~Financing Activities~~

~~Cash used in financing activities during the nine months ended September 30, 2017~~March 31, 2021 decreased ~~$53.0~~$1.2 million as compared to the same prior-year period. The decrease ~~was~~is primarily due to a $1.2 million decrease in purchases of investments.

Financing Activities

Cash provided by financing activities during the ~~result of a~~three months ended March 31, 2021 decreased $191.4 million as compared to the same prior-year period. The decrease is primarily due to an decrease in net ~~debt repayments~~borrowings of ~~$27.5~~$207.2 million, ~~a decrease in share repurchases of $11.1 million and the repayment of trade receivable advances of $23.8 million in the prior-year period,~~partially offset by a ~~reduction~~closing adjustment payment for the sale of our former CRM business of $14.9 million made during the three months ended March 31, 2020.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements.

Contractual Obligations

We had no material changes in ~~proceeds~~our contractual commitments and obligations from ~~stock option exercises~~amounts listed under “Part II, Item 7. Management’s Discussion and Analysis of ~~$4.7 million.~~Financial Condition and Results of Operations - Liquidity and Capital Resources” in our 2020 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations, including risks from foreign currency exchange rates, equity price risk, interest rate risks and concentration of procurement suppliers that could adversely affect our consolidated financial position, results of operations or cash flows. We manage these risks through regular operating and financing activities and, at certain times, derivative financial instruments. Quantitative and qualitative disclosures about these risks are included in this Quarterly Report on Form 10-Q in “Part I, Note ~~8”,~~7. Derivatives and Risk Management,” “Part I, Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and “Part II, Item 1A. Risk Factors”, and in our ~~2016~~2020 Form 10-K in “Part II, Item 7A7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” and “Part I, Item 1A. Risk ~~Factors”. There have been no material changes from the information provided therein.~~Factors.”

Item 4. Controls and Procedures

Disclosure Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017.~~

March 31, 2021.

(b) Changes in Internal Control Over Financial Reporting

We deployed a new enterprise resource planning (ERP) software system, SAP, to our U.S. locations during the quarter ended September 30, 2017. In conjunction with the implementation of SAP, we reorganized certain U.S. legal entities were to align with our strategic and operational focus. Our internal controls have been updated to reflect these changes. There have been no other changesNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f) under the Exchange Act) occurred during the ~~period covered by this Quarterly Report on Form 10-Q~~quarter ended March 31, 2021 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our material pending legal and regulatory proceedings and settlements, refer to “Note 9.8. Commitments and Contingencies” in our condensed consolidated financial statements included in this ~~Report on Form 10-Q.~~

~~Item 1A.~~ ~~RISKFACTORS~~

Our business faces many risks. Any of the risks referenced below or elsewhere in this Report on Form 10-Q, other Reports on Form 10-Qs or our other SEC filings could have a material impact on our business and consolidated financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

For additional detailed discussion of risk factors that should be understood by any investor contemplating investment in our stock, please refer to “Part I. Item 1A. Risk Factors” in our 2016 Form 10-K and elsewhere as described in thisQuarterly Report on Form 10-Q.

~~The results of the UK’s referendum on withdrawal~~

Item 1A. RiskFactors

There have been no material changes in our risk factors from ~~the EU may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our ordinary shares.~~

~~On June 23, 2016, the UK held a referendum~~those disclosed in which voters approved an exit from the EU, commonly referred to as “Brexit.” On March 29, 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 or a withdrawal agreement is negotiated sooner. 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 reliefs 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 reliefs and exemptions. It is also unclear at this stage what financial, trade and legal implications the withdrawal of the UK from the EU will have 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 reliefs and exemptions. If certain treaties applicablePart I, Item 1A 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, the departure of the UK from the EU may have a material adverse impact2020 Annual Report 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 are enacted or the withdrawal becomes effective.Form 10-K.

~~Our acquisition of Caisson may fail to further our strategic objectives or strengthen our existing businesses.~~

Acquisitions of medical technology companies are inherently risky, and we cannot guarantee that such acquisitions will be successful or will not materially adversely affect our consolidated earnings, financial condition, and/or cash flows. Caisson is in the early stages of clinical development, and therefore, there are risks inherent in the outcome of the clinical studies or regulatory approvals that may impact Caisson’s success. Further, our integration of Caisson’s operations requires significant efforts, including the coordination of information technologies, research and development, operations and finance. These efforts result in additional expenses and significant supervision by management. Our failure to manage and coordinate the growth of Caisson successfully could have an adverse impact on our business. In addition, we cannot be certain that the acquisition will become profitable or remain so. These effects, individually or in the aggregate, could cause a deterioration of our credit rating and result in increased borrowing costs and interest expense.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

~~None~~None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

Disclosure Pursuant to Section 13(r) of the Exchange Act of 1934

Section 13(r) of the Exchange Act requires issuers to disclose in their quarterly reports certain types of dealings with Iran, including transactions or dealing with government-owned entities, even when those activities are lawful and do not involve U.S. persons. One of our non-U.S. subsidiaries currently sells medical devices, including cardiac surgery and cardiopulmonary products, to privately held distributors in Iran.

We have limited visibility into the identity of these distributors’ customers in Iran. It is possible that their customers include entities, such as government-owned hospitals or sub-distributors, that are owned or controlled directly or indirectly by the Iranian government. To the best of our knowledge at this time, we do not have any contracts or commercial arrangements with the Iranian government.

Our gross revenues and net profits attributable to the above-mentioned Iranian activities were $1.3 million and $0.6 million for the three months ended March 31, 2021, respectively.

We believe our activities are consistent with applicable law, including U.S., EU, and other applicable sanctions laws, though such laws are complex and continue to evolve rapidly. We intend to continue our business in Iran.

Item 6. Exhibits

The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of Exhibit 32.1) with this Quarterly Report on Form 10-Q. The exhibits marked with the cross symbol (†) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.


Exhibit Number			Document Description















10.1*†			Executive Employment Contract between Sorin Group Italia S.r.l. and Marco Dolci, effective April 20, 2017
31.1*			Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of the Chief Executive Officer and Chief Financial Officer of LivaNova PLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*			Interactive Data Files Pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2021 and 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 2020, (iii) the Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31 2021 and 2020, and (vi) the Notes to the Condensed Consolidated Financial Statements
104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Exhibit
Number
Document Description
Report or Registration Statement
SEC File or
Registration
Number Exhibit
Reference
3.2
Articles of Association of LivaNova PLC (as amended), effective June 14, 2017
LivaNova Plc Current Report on Form 8-K, filed on June 15, 2017 001-37599 3.1
31.1*
Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*
Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*
Certification of the Chief Executive Officer and Chief Financial Officer of LivaNova PLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101* Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statement of Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (ii) the Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) the Condensed Consolidated Balance Sheet as of September 30, 2017 and December 31, 2016, (iv) the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, and (vi) the Notes to the Condensed Consolidated Financial Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	LIVANOVA PLC

Date: April 28, 2021	By:	/s/ DAMIEN MCDONALD
		Damien McDonald
		Chief Executive Officer
		(Principal Executive Officer)



	LIVANOVA PLC

Date: April 28, 2021	By:	/s/ ~~THAD HUSTON~~ALEX SHVARTSBURG
		~~Thad Huston~~Alex Shvartsburg
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

~~Date: November 2, 2017~~

4744



~~(Mark One)~~
þ	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)~~ ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~
	~~For the quarterly period ended September 30, 2017~~
	or
¨	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)~~ ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~
	~~For the transition period from _______________ to _______________~~



~~England and Wales~~		~~98-1268150~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~20 Eastbourne Terrace~~ ~~London, United Kingdom~~	~~W2 6LG~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~
~~(44) (0) 20 3325 0660~~
~~Registrant’s telephone number, including area code:~~



Large accelerated filer	þ ☑	Accelerated filer	¨☐
Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	¨☐
Emerging growth company	¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act			¨☐



Class			Outstanding at ~~October 27, 2017~~April 22, 2021
Ordinary Shares - £1.00 par value per share			~~48,211,559~~48,856,606


•	~~Trademarks for our VNS therapy systems, the VNS Therapy~~^® ~~System, the VITARIA~~^® ~~System and our proprietary pulse generator products: Model 102 (Pulse~~^®~~), Model 102R (Pulse Duo~~^®~~), Model 103 (Demipulse~~^®~~), Model 104 (Demipulse Duo~~^®~~), Model 105 (AspireHC~~^®~~), Model 106 (AspireSR~~^®~~) and Model 1000 (SenTiva™).~~


•	~~Trademarks for our implantable cardiac pacemakers and associated services: REPLY 200™, ESPRIT™, KORA 100™, KORA 250™, SafeR™, the REPLY CRT-P™, the remedé~~^® ~~System.~~


•	~~Trademarks for our Implantable Cardioverter Defibrillators and associated technologies: the INTENSIA™, PLATINIUM™, and PARADYM~~^®~~product families.~~


•	~~Trademarks for our cardiac resynchronization therapy devices, technologies services: SonR~~^®~~, SonRtip™~~^, ~~SonR CRT™, the INTENSIA™, PARADYM RF™, PARADYM 2™and PLATINIUM™ product families and the Respond CRT™ clinical trial.~~


•	~~Trademarks for heart failure treatment product: Equilia~~^®.



	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	65,158		$	39,789
Accounts receivable, net	314,041			275,730
Inventories	214,593			183,489
Prepaid and refundable taxes	58,969			60,615
Assets held for sale	14,117			4,477
Prepaid expenses and other current assets	55,176			55,973
Total Current Assets	722,054			620,073
Property, plant and equipment, net	213,769			223,842
Goodwill	781,070			691,712
Intangible assets, net	717,646			609,197
Investments	46,380			61,092
Deferred tax assets, net	4,356			6,017
Other assets	117,855			130,698
Total Assets	$	2,603,130		$	2,342,631
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations	$	52,074		$	47,650
Accounts payable	102,651			92,952
Accrued liabilities and other	92,212			75,567
Taxes payable	28,954			22,340
Accrued employee compensation and related benefits	80,466			78,302
Total Current Liabilities	356,357			316,811
Long-term debt obligations	71,853			75,215
Deferred income taxes liability	152,133			172,541
Long-term employee compensation and related benefits	33,957			31,668
Other long-term liabilities	74,404			39,487
Total Liabilities	688,704			635,722
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 48,250,361 shares issued and 48,200,257 shares outstanding at September 30, 2017; 48,156,690 shares issued and 48,028,413 shares outstanding at December 31, 2016	74,697			74,578
Additional paid-in capital	1,731,565			1,719,893
Accumulated other comprehensive income (loss)	38,469			(68,487		)
Retained earnings (deficit)	72,024			(14,575		)
Treasury stock at cost, 50,104 shares at September 30, 2017 and 128,277 shares at December 31, 2016	(2,329		)	(4,500		)
Total Stockholders’ Equity	1,914,426			1,706,909
Total Liabilities and Stockholders’ Equity	$	2,603,130		$	2,342,631



Cash ⁽¹⁾	$	15,660
Debt forgiven ⁽²⁾	6,309
Deferred consideration ⁽¹⁾	12,994
Contingent consideration ⁽¹⁾	29,303
Fair value of consideration transferred	64,266
Fair value of our interest prior to the acquisition ⁽²⁾	52,505
Fair value of total consideration	$	116,771



Cash and cash equivalents	$	1,468
In-process research and development	89,000
Goodwill	42,417
Other assets	918
Current liabilities	1,023
Deferred income tax liabilities, net	16,009
Net assets acquired	$	116,771



Caisson Acquisition	Fair value at May 2, 2017		Valuation Technique	Unobservable Input	Ranges
Regulatory milestone-based payments	$	14,883	Discounted cash flow	Discount rate	2.6% - 3.4%
				Probability of payment	90-95%
				Projected payment years	2018-2023

Sales-based earnout	16,805		Monte Carlo simulation	Discount rate	11.5-12.7%
				Sales volatility	36.9%
				Projected years of sales	2019-2033
	$	31,688



Balance at December 31, 2016	$	3,890
Purchase price - Caisson contingent consideration	31,688
Payments	(1,841		)
Changes in fair value	231
Effect of changes in foreign currency exchange rates	249
Balance at September 30, 2017 ⁽¹⁾	$	34,217



Balance at December 31, 2016	$	33,487
Adjustments	(15		)
Remediation activity	(5,672		)
Effect of changes in foreign currency exchange rates	2,446
Balance at September 30, 2017 ⁽¹⁾	$	30,246



	September 30, 2017		December 31, 2016
Respicardia Inc. ⁽¹⁾	$	21,129	$	17,518
ImThera Medical, Inc. ⁽²⁾	12,000		12,000
Rainbow Medical Ltd. ⁽³⁾	4,178		3,733
MD Start II	1,179		526
Other ⁽⁴⁾	150		—
	$	38,636	$	33,777



	% Ownership ⁽¹⁾	September 30, 2017		December 31, 2016
MicroPort Sorin CRM (Shanghai) Co. Ltd. ⁽²⁾	49.0%	$	6,948	$	4,867
Highlife S.A.S. ⁽³⁾	38.0%	779		6,009
Caisson Interventional LLC ⁽⁴⁾		—		16,423
Other		17		16
Total		$	7,744	$	27,315



	Fair Value as of		Fair Value Measurements Using Inputs Considered as:
	September 30, 2017		Level 1		Level 2		Level 3
Liabilities:
Derivative liabilities - designated as cash flow hedges (foreign currency exchange rate "FX")	$	724	$	—	$	724	$	—
Derivative liabilities - designated as cash flow hedges (interest rate swaps)	1,807		—		1,807		$	—
Derivative liabilities - freestanding instruments (FX)	1,456		—		1,456		—
Contingent consideration	34,217		—		—		34,217
	$	38,204	$	—	$	3,987	$	34,217



Description of Contract	September 30, 2017		December 31, 2016
FX derivative contracts to be exchanged for British Pounds	$	16,928	$	6,663
FX derivative contracts to be exchanged for Japanese Yen	44,618		57,840
FX derivative contracts to be exchanged for Canadian Dollars	13,341		—
Interest rate swap contracts	62,917		63,246
	$	137,804	$	127,749



Description of Contract	September 30, 2017			Net Amount Expected to be Reclassified to Earnings in the Next 12 Months
FX derivative contracts	$	(287	)	$	(287	)
Interest rate swap contracts	(261		)	(69		)
	$	(548	)	$	(356	)



	Nine Months Ended September 30, 2017
	Shares	Weighted Average Grant Date Fair Value
Service-based SARs	639	$	17.03
Service-based RSUs	108	$	57.37
Market performance-based RSUs	158	$	25.29
Operating performance-based RSUs	189	$	56.18



	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales:	2017		2016		2017		2016
Cardiac Surgery	$	159,822	$	148,518	$	457,612	$	453,012
Neuromodulation	91,016		89,504		275,190		260,901
Cardiac Rhythm Management	58,411		56,768		182,235		188,057
Other	415		478		1,119		1,314
	$	309,664	$	295,268	$	916,156	$	903,284



	Three Months Ended September 30,						Nine Months Ended September 30,
Income from Operations:	2017			2016			2017			2016
Cardiac Surgery	$	23,807		$	17,791		$	63,490		$	29,197
Neuromodulation	45,932			47,049			139,357			134,871
Cardiac Rhythm Management	5,427			(4,598		)	13,536			(14,432		)
Other	(27,947		)	(13,525		)	(79,378		)	(49,090		)
Total Reportable Segments’ Income from Operations	47,219			46,717			137,005			100,546
Merger and integration expenses	2,013			7,576			7,743			20,537
Restructuring expenses	792			4,381			12,060			37,219
Amortization of intangibles	12,350			11,775			35,445			33,959
Income from operations	$	32,064		$	22,985		$	81,757		$	8,831



	Three Months Ended September 30,				Nine Months Ended September 30,
Capital expenditures:	2017		2016		2017		2016
Cardiac Surgery	$	5,541	$	6,465	$	13,292	$	16,774
Neuromodulation	370		1,781		2,348		5,602
Cardiac Rhythm Management	1,537		1,591		4,343		2,786
Other	1,633		2,435		4,021		3,766
	$	9,081	$	12,272	$	24,004	$	28,928



PP&E	September 30, 2017		December 31, 2016
United States	$	62,630	$	61,279
Europe	137,682		130,777
Rest of world	13,457		31,786
Total	$	213,769	$	223,842



	September 30, 2017			December 31, 2016
Trade receivables from third parties	$	326,498		$	285,336
Allowance for bad debt	(12,457		)	(9,606		)
	$	314,041		$	275,730



	September 30, 2017		December 31, 2016
Income taxes payable on inter-company transfers of property ⁽¹⁾	$	19,445	$	19,445
Deposits and advances to suppliers	7,298		5,417
Earthquake grant receivable	4,983		4,748
Unbilled receivables	4,363		—
Escrow deposit - Caisson	2,000		—
Current loans and notes receivable	1,553		7,093
Derivative contract assets	—		8,269
Other prepaid expenses	15,534		11,001
	$	55,176	$	55,973



	September 30, 2017		December 31, 2016
Product remediation liability ⁽¹⁾	$	20,060	$	23,464
Deferred compensation - Caisson acquisition	14,137		—
Legal and other administrative costs	7,863		6,184
Provisions for agents, returns and other	8,505		7,271
Restructuring related liabilities	5,098		16,859
Product warranty obligations	1,747		2,736
Royalty costs	2,048		2,503
Escrow indemnity liability - Caisson	2,000		—
Deferred income	4,752		—
Government grants	1,275		1,708
Derivative contract liabilities ⁽²⁾	3,055		942
Research and development costs	1,173		839
Other	20,499		13,061
	$	92,212	$	75,567



Exhibit Number	Document Description	Report or Registration Statement	SEC File or Registration Number	Exhibit Reference
3.2	Articles of Association of LivaNova PLC (as amended), effective June 14, 2017	LivaNova Plc Current Report on Form 8-K, filed on June 15, 2017	001-37599	3.1
31.1*	Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer and Chief Financial Officer of LivaNova PLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statement of Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (ii) the Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) the Condensed Consolidated Balance Sheet as of September 30, 2017 and December 31, 2016, (iv) the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, and (vi) the Notes to the Condensed Consolidated Financial Statements.