LIVANOVA PLC AND ~~SUBSIDIARIES’~~SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)


	Three Months Ended March 31,
		2022		2021 (1)
Net income (loss)		$	2,993	$	(30,761)
Other comprehensive (loss) income:
Net change in unrealized loss on derivatives		(695)		(335)
Tax effect		—		339
Net of tax		(695)		4
Foreign currency translation adjustment		(8,260)		(25,875)
Total other comprehensive loss		(8,955)		(25,871)
Total comprehensive loss		$	(5,962)	$	(56,632)

(1)The condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

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, 2022		December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	128,737	$	207,992
Restricted cash	313,647		—
Accounts receivable, net of allowance of $13,493 at March 31, 2022 and $13,512 at December 31, 2021	182,112		185,354
Inventories	114,844		105,840
Prepaid and refundable taxes	29,168		37,621

Current derivative assets	82		106,629
Prepaid expenses and other current assets	41,033		35,745
Total Current Assets	809,623		679,181
Property, plant and equipment, net	147,957		150,066
Goodwill	896,599		899,525
Intangible assets, net	390,455		399,682
Operating lease assets	38,167		40,600
Investments	16,745		16,598
Deferred tax assets	2,699		2,197
Long-term derivative assets	96,717		—
Other assets	17,921		13,102
Total Assets	$	2,416,883	$	2,200,951
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations	$	4,752	$	229,673
Accounts payable	73,921		68,000
Accrued liabilities and other	92,026		88,937
Current derivative liabilities	1,928		183,109
Current litigation provision liability	30,126		32,845
Taxes payable	22,592		15,140
Accrued employee compensation and related benefits	82,569		79,266

Total Current Liabilities	307,914		696,970
Long-term debt obligations	455,810		9,849
Contingent consideration	83,341		86,830

Deferred tax liabilities	7,879		7,728
Long-term operating lease liabilities	30,876		35,919
Long-term employee compensation and related benefits	18,779		19,105
Long-term derivative liabilities	170,660		—
Other long-term liabilities	49,770		49,905
Total Liabilities	1,125,029		906,306
Commitments and contingencies (Note 7)	0		0
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,763,500 shares issued and 53,435,821 shares outstanding at March 31, 2022; 53,761,510 shares issued and 53,263,297 shares outstanding at December 31, 2021	82,298		82,295
Additional paid-in capital	2,121,098		2,117,961
Accumulated other comprehensive loss	(16,132)		(7,177)
Accumulated deficit	(894,791)		(897,784)
Treasury stock at cost, 327,679 ordinary shares at March 31, 2022; 498,213 ordinary shares at December 31, 2021	(619)		(650)
Total Stockholders’ Equity	1,291,854		1,294,645
Total Liabilities and Stockholders’ Equity	$	2,416,883	$	2,200,951

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,
	2022		2021 (1)
Operating Activities:
Net income (loss)	$	2,993	$	(30,761)
Non-cash items included in net income (loss):
Stock-based compensation	10,256		9,536
Amortization	6,465		6,699
Depreciation	5,626		6,079
Amortization of debt issuance costs	4,412		4,409
Remeasurement of contingent consideration to fair value	(3,773)		453
Amortization of operating lease assets	2,653		5,389
Remeasurement of Respicardia investment and loan	—		(4,640)
Remeasurement of derivative instruments	(1,355)		7,268
Other	1,073		498
Changes in operating assets and liabilities:
Accounts receivable, net	1,494		(3,372)
Inventories	(9,637)		(1,625)
Other current and non-current assets	(1,953)		26,820
Accounts payable and accrued current and non-current liabilities	9,957		(1,858)
Taxes payable	709		(3,337)
Litigation provision liability	(3,097)		(2,078)
Net cash provided by operating activities	25,823		19,480
Investing Activities:
Purchases of property, plant and equipment	(5,215)		(8,220)
Purchase of investments	(278)		(1,800)
Proceeds from asset sales	11		162
Net cash used in investing activities	(5,482)		(9,858)
Financing Activities:
Proceeds from long-term debt obligations	218,342		—
Payment of debt issuance costs	(2,426)		—
Shares repurchased from employees for minimum tax withholding	(1,074)		(3,740)
Payment of contingent consideration	—		(4,387)
Other	35		(201)
Net cash provided by (used in) financing activities	214,877		(8,328)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(826)		(1,587)
Net increase (decrease) in cash, cash equivalents and restricted cash	234,392		(293)
Cash, cash equivalents and restricted cash at beginning of period	207,992		252,832
Cash, cash equivalents and restricted cash at end of period	$	442,384	$	252,539

(1)The condensed consolidated statement of cash flows for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

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 and September 30, 2016,~~March 31, 2022, 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~~2021 has been derived from audited financial statements contained in our ~~2016~~2021 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, 2022, and are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2022. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our ~~2016~~2021 Form 10-K.

~~Description~~Global Developments

COVID-19

The COVID-19 pandemic (“COVID-19”) has caused and may continue to cause unpredictable demand for our products. Throughout the pandemic, healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19, and public health bodies have delayed elective procedures, which has negatively impacted the usage of our products. Further, some people have avoided seeking treatment for non-COVID-19 procedures, and hospitals and clinics have experienced staffing shortages, which has negatively impacted the demand for our products. While the recent recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products, our Neuromodulation and Advanced Circulatory Support businesses continue to experience ongoing COVID-19 related headwinds. We are monitoring the potential for various strains of the ~~Mergers~~virus to cause a resumption of high levels of infection and hospitalization that, in turn, may affect the demand for our products.

~~On October 19, 2015 LivaNova became~~Moreover, although our RECOVER study and ANTHEM-HFrEF pivotal trial continue to progress, there may be delays or closures of sites in the ~~holding company~~future should COVID-19 or variants thereof strengthen or reemerge.

Certain conditions improved during 2021, but we continue to experience COVID-19 related headwinds. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. The Company continues to respond to such challenges, and while we have business continuity plans in place, the impact of the ~~combined businesses~~ongoing challenges we are experiencing, along with their potential escalation, may adversely affect our business and the recoverability of ~~Cyberonics, Inc. (“Cyberonics”)~~our tangible and ~~Sorin S.p.A. (“Sorin”) (the “Mergers”). Based on~~intangible assets. The future impact of pandemic-related developments remains uncertain.

Ukraine Invasion

In February 2022, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the ~~structure~~market due to international sanctions, to consider the potential impact of raw material sourced from the region, and to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the ~~Mergers, management determined that Cyberonics was considered~~conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to beevolving laws and regulations imposed by the ~~accounting acquirer~~Russian authorities in response to international sanctions.

Revision of Previously Issued Financial Statements

During the fourth quarter of 2021, the Company identified and ~~predecessor for accounting purposes.~~

~~Reclassification~~corrected an error related to foreign currency exchange rates utilized to calculate inventory and cost of ~~Prior-Year Comparative Period Presentation~~

~~To conform the condensed consolidated statement of income (loss)~~sales for the ~~three and nine months~~years 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 Expenses2017 through 2020 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.~~2021. Using the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated whether our previously issued consolidated financial statements were materially misstated due to these errors. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effects of these errors were not material individually or in the aggregate to any previously reported quarterly or annual period. Accordingly, we have revised our previously issued financial statements as shown below (in thousands):

~~To conform~~Consolidated Statements of Income (Loss)


	Three Months Ended March 31, 2021
	As Previously Reported		Adjustments		As Revised
Cost of sales - exclusive of amortization	$	79,216	$	1,275	$	80,491
Operating loss	(4,423)		(1,275)		(5,698)
Loss before tax	(26,802)		(1,275)		(28,077)
Income tax expense	2,856		(212)		2,644
Net loss	(29,698)		(1,063)		(30,761)




Basic and diluted loss per share	$	(0.61)	$	(0.02)	$	(0.63)

Consolidated Statements of Comprehensive Income (Loss)


	Three Months Ended March 31, 2021
	As Previously Reported		Adjustments		As Revised
Net loss	$	(29,698)	$	(1,063)	$	(30,761)
Total comprehensive loss	(55,569)		(1,063)		(56,632)

Consolidated Statements of Stockholders’ Equity


	As Previously Reported				Adjustments				As Revised
	Accumulated Deficit		Total Stockholders’ Equity		Accumulated Deficit		Total Stockholders’ Equity		Accumulated Deficit		Total Stockholders’ Equity
March 31, 2021	$	(782,100)	$	1,065,757	$	(10,627)	$	(10,627)	$	(792,727)	$	1,055,130

Consolidated Statements of Cash Flows


	Three Months Ended March 31, 2021
	As Previously Reported		Adjustments		As Revised
Net loss	$	(29,698)	$	(1,063)	$	(30,761)
Deferred tax expense (benefit)	37		(212)		(175)
Changes in operating assets and liabilities:
Inventories	(2,900)		1,275		(1,625)
Net cash used in operating activities	19,480		—		19,480

Reclassifications

We have reclassified certain prior period amounts on the condensed consolidated ~~statement~~statements of income (loss), the condensed consolidated balance sheets and the condensed consolidated statements of cash flows for ~~the nine months ended September 30, 2016 to the current~~comparative purposes. These reclassifications did not have a material effect on our financial condition, results of operations or cash flows. The prior 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 conformreclassifications on the condensed consolidated ~~statement~~statements of ~~cash flows for~~income (loss) are summarized and presented below (in thousands):

•Product remediation has been reclassified to cost of sales;

•Merger and integration expenses have been reclassified to other operating expenses;

•Restructuring expenses have been reclassified to other operating expenses;

•Litigation provision, net has been reclassified to other operating expenses;

•Amortization of intangibles has been reclassified to cost of sales or selling, general and administrative based on the ~~nine months ended September 30, 2016 to~~nature of the ~~current period presentation, Loans to Equity and Cost Method Investees~~underlying intangible asset;

•Gain on the sale of ~~$6.6 million were~~Heart Valve business has been reclassified from ~~Financing Activities~~revaluation of disposal group to ~~Investing Activities.~~other operating expenses; and

•Interest income has been reclassified to foreign exchange and other gains/(losses).


	Three Months Ended March 31, 2021
	As Revised		Reclassifications		Current Presentation
Net sales	$	247,603	$	—	$	247,603
Cost of sales	80,491		3,704		84,195
Product remediation	68		(68)		—
Gross profit	167,044		(3,636)		163,408
Operating expenses:
Selling, general and administrative	112,618		3,063		115,681
Research and development	44,625		—		44,625
Merger and integration expenses	630		(630)		—
Restructuring expenses	6,092		(6,092)		—
Revaluation of disposal group	(966)		966		—
Amortization of intangibles	6,699		(6,699)		—
Litigation provision, net	3,044		(3,044)		—
Other operating expenses	—		8,800		8,800
Operating loss	(5,698)		—		(5,698)
Interest income	(74)		74		—
Interest expense	(15,936)		—		(15,936)
Foreign exchange and other gains/(losses)	(6,369)		(74)		(6,443)
Loss before tax	$	(28,077)	$	—	$	(28,077)

Significant Accounting Policies

Our significant accounting policies are detailed below and 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~~2021 Form 10-K. ~~A further explanation of our Foreign Currency accounting policy is discussed below:~~

~~Foreign Currency~~Restricted Cash

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,The Company classifies cash that is ~~the currency of the environment~~not available for use 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~~its operations as restricted cash within 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~~

In support of our strategic growth initiatives, on May 2, 2017, we acquired the remaining 51% equity interests in Caisson Interventional, LLC (“Caisson”) for a purchase price of up to $72.0 million, net of $6.3 million of debt forgiveness, consisting of $18.0 million paid at closing, $14.4 million to be paid after 12 months, and contingent consideration of up to $39.6 million to be paid on a schedule driven primarily by regulatory approvals and a sales-based earnout.

Caisson, a clinical-stage medical device company based in Maple Grove, Minnesota, is focused on the design, development and clinical evaluation of a novel transcatheter mitral valve replacement (“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 at fair value for 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 of $9.6 million is expected to be deductible for tax purposes. Additionally, $3.0 million of the initial cash payment was deposited in escrow for future claims indemnification. Of this amount, $2.0 million is included in ‘Prepaid expenses and other current assets’ and the remaining $1.0 million is included in ‘Other long-term assets’assets on the condensed consolidated balance ~~sheet~~sheet. As of March 31, 2022, our restricted cash balance totaled $313.6 million and was comprised of cash deposits with Barclays held as collateral for a first demand bank guarantee of €270.0 million (approximately $299.5 million as of ~~September 30, 2017.~~March 31, 2022) to obtain the suspension of the Court of Appeal of Milan judgment for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court (the “SNIA Litigation Guarantee”). As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”

Note 2. Divestiture of Heart Valve Business

On December 2, 2020, LivaNova entered into a Purchase Agreement with Mitral Holdco S.à r.l., a company incorporated under the laws of 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 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 (“LSM”) at the Company’s Saluggia campus for €60.0 million. On April 9, 2021, LivaNova and the 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 closing of the sale of the Heart Valve business occurred on June 1, 2021, and we received €34.8 million (approximately $42.5 million as of June 1, 2021), subject to customary trade working capital and net indebtedness adjustments, as set forth in the Purchase Agreement. We ~~recognized acquisition-related expenses~~also received $3.0 million in December 2021. An additional €9.3 million (approximately $10.3 million as of ~~approximately~~March 31, 2022) is payable to LivaNova in 2022. During the three months ended March 31, 2021, we increased the carrying value of the disposal group by $1.0 million, ~~for legal and valuation expenses during the nine months ended September 30, 2017. These expenses are~~which is included within ~~‘Selling, general and administrative’~~other operating expenses inon 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 inputs (in thousands):

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~~Investments

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 plans to leverage economies of scale, streamline distribution and logistics and strengthen operational and administrative effectiveness in order to reduce overall costs. Costs associated with these plans were reported as ‘Restructuring expenses’ in our operating results in the condensed consolidated statements of income (loss). We estimate that the Plans will result in 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 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. In addition, the remaining carrying value of the land, building and equipment was reclassified to ‘Assets held for sale’ in March 2017, with a balance of $14.1 million as of September 30, 2017,Investments on the condensed consolidated balance ~~sheet.~~

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

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 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~~

At December 31, 2016, we recognized a liability for a product remediation plan related to our 3T Heater-Cooler device (“3T device”). The remediation plan we developed consists primarily of a modification of the 3T device design to include internal sealing and the addition of a vacuum system to new and existing devices. These changes are intended to address regulatory actions and to reduce further the risk of possible dispersion of aerosols from 3T devices in the operating room. 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 investments are included in ‘Investments’ in the condensed consolidated balance~~ sheets ~~and consist of our equity positions in the following privately-held companies (in thousands):~~

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, 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 thatrepresent the carrying value of our ~~aggregate~~investments in equity securities of non-consolidated affiliates without readily determinable fair values for which we 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 the identical or similar investment ~~might not be recoverable~~of the same issuer. At March 31, 2022 and ~~that~~December 31, 2021, 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~~investments was $16.7 million and $16.6 million, respectively.

In April 2021, Zoll Medical Corporation acquired Respicardia Inc., a privately funded U.S. company in which we had an equity investment and also to which we had a loan outstanding. As a result of the acquisition, we received proceeds of $23.1 million for both our investment and loan receivable ~~from Highlife at September 30, 2017 was~~which had 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 ~~‘Other assets’~~foreign exchange and other gains/(losses) on the condensed consolidated ~~balance sheet.~~statement of income (loss).

Note 6.4. 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, 2022 and 2021.

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, 2022		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”)	$	262	$	��	$	262	$	—
Derivative assets - freestanding instruments (FX)	21		—		21		—
Derivative assets - capped call derivatives	96,717		—		—		96,717
Convertible notes receivable	2,770		—		—		2,770
	$	99,770	$	—	$	283	$	99,487

Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)	$	1,946	$	—	$	1,946	$	—
Derivative liabilities - freestanding instruments (FX)	183		—		183		—
Derivative liabilities - embedded exchange feature	170,660		—		—		170,660
Contingent consideration arrangements	94,609		—		—		94,609
	$	267,398	$	—	$	2,129	$	265,269


	Fair Value as of December 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”)	$	243	$	—	$	243	$	—
Derivative assets - freestanding instruments (FX)	61		—		61		—
Derivative assets - capped call derivatives	106,629		—		—		106,629
Convertible notes receivable	2,767		—		—		2,767
	$	109,700	$	—	$	304	$	109,396

Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)	$	1,286	$	—	$	1,286	$	—

Derivative liabilities - freestanding instruments (FX)	427		—		427		—
Derivative liabilities - embedded exchange feature	181,700		—		—		181,700
Contingent consideration arrangements	98,382		—		—		98,382
	$	281,795	$	—	$	1,713	$	280,082

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 contingent consideration liability. Refer~~ (in thousands):


	Capped Call Derivative Asset		Convertible Notes Receivable		Embedded Exchange Feature Derivative Liability		Contingent Consideration Liability Arrangements
As of December 31, 2021	$	106,629	$	2,767	$	181,700	$	98,382


Changes in fair value	(9,912)		3		(11,040)		(3,773)

Total at March 31, 2022	96,717		2,770		170,660		94,609
Less current portion at March 31, 2022	—		2,495		—		11,268
Long-term portion at March 31, 2022	$	96,717	$	275	$	170,660	$	83,341

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”~~5. 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, 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 gains/(losses) in the condensed consolidated statements of income (loss).

The stock price volatility as of March 31, 2022 was 36%. As of March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the embedded exchange feature derivative of $154.5 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $188.2 million. As of March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the capped call derivatives of $107.4 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $87.4 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, 2022		December 31, 2021
ImThera	$	83,341	$	86,830
TandemLife	11,268		11,552
	$	94,609	$	98,382

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, 2022:


ImThera Acquisition	Valuation Technique	Unobservable Input	Inputs
Regulatory milestone-based payment	Discounted cash flow	Discount rate	5.3%
		Probability of payment	85%
		Projected payment year	2024

Sales-based earnout	Monte Carlo simulation	Risk-adjusted discount rate	13.9%
		Credit risk discount rate	5.5%	-	6.2%
		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, 2022:

TandemLife Acquisition

Valuation Technique

Unobservable Input

Inputs

Regulatory milestone-based payment

Discounted cash flow

Discount rate

4.9%

Probability of payment

90%

Projected payment year

2023

Note 7.5. Financing Arrangements

The outstanding principal amount of our long-term debt as of March 31, 2022 and December 31, 2021 was as follows (in thousands, except interest rates):


	March 31, 2022		December 31, 2021		Maturity	Interest Rate
2020 Cash Exchangeable Senior Notes	$	228,535	$	225,140	December 2025	3.00%
Bridge Loan Facility	216,366		—		June 2023	4.17%
Bank of America Merrill Lynch Banco Múltiplo S.A.	7,203		6,113		July 2023	9.32%
Mediocredito Italiano	3,312		3,379		December 2023	0.50%	-	2.74%
Bank of America, U.S.	1,500		1,500		January 2023	2.85%
Other	623		663
Total long-term facilities	457,539		236,795
Less current portion of long-term debt	1,729		226,946
Total long-term debt	$	455,810	$	9,849

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~~$3.0 million and ~~$26.4~~$2.7 million at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively, with interest rates ranging from ~~0.2%~~2.85% to ~~10.5%~~9.32% and loan terms ranging from ~~one day~~overnight to ~~365 days.~~364 days, as of March 31, 2022.

~~European Investment~~On August 13, 2021, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc. (the “Borrower”) entered into a First Lien Credit Agreement with the lenders and issuing banks party thereto and Goldman Sachs Bank USA, as First Lien Administrative Agent and First Lien Collateral Agent, relating to a $125 million senior secured multi-currency revolving credit facility to be made available to the Borrower (the “2021 Revolving Credit Facility”). The 2021 Revolving Credit Facility, as amended on March 16, 2022, expires on August 13, 2026 and bears interest at a rate equal to, for U.S. dollar-denominated loans, an adjusted Secured Overnight Financing Rate (“SOFR”) with a floor of 0.00%, or a Base Rate, plus, in each case, a variable margin based on the Company’s senior secured net leverage ratio. Interest is paid monthly or quarterly, as selected by the Borrower, with any outstanding principal due at maturity. The First Lien Credit Agreement also contemplates the payment of commitment fees on the unused portion of the commitments, at a variable percentage based on the Company’s senior secured net leverage ratio. The 2021 Revolving Credit Facility is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. The First Lien Credit Agreement contains customary representations, warranties and covenants, including the requirement to maintain a senior secured first lien net leverage ratio of less than 4.50 to 1.00 for as long as there are any revolving loans outstanding under the 2021 Revolving Credit Facility, as well as in order for the Company to borrow additional revolving loans.

There were no outstanding borrowings under the 2021 Revolving Credit Facility as of March 31, 2022 and December 31, 2021.

Bridge Loan Facility

On February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., entered into an Incremental Facility Amendment No. 1 to the 2021 Revolving Credit Facility, relating to a €200 million bridge loan facility (the “Bridge Loan Facility”). On March 16, 2022, LivaNova entered into Amendment No. 2 to the 2021 Revolving Credit Facility, which converted the available borrowings under the Bridge Loan Facility from €200 million to $220.0 million and converted the EURIBOR rate in the 2021 Revolving Credit Facility to SOFR. LivaNova delivered a borrowing notice for $220.0 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022. On March 18, 2022, LivaNova PLC, acting through its Italian branch, entered into an Indemnity Letter and an Account Pledge Agreement with Barclays, further to which Barclays issued the SNIA Litigation Guarantee. As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. The proceeds of the Bridge Loan Facility were used by LivaNova to post a portion of the cash collateral supporting the SNIA Litigation Guarantee and can be used towards payment of court ordered damages or settlements (including interest, expenses and charges in connection therewith) in the event of a negative decision by the Italian Supreme Court. The cash held as collateral supporting the SNIA Litigation Guarantee of $313.6 million is classified as restricted cash on the condensed consolidated balance sheet as of March 31, 2022. The Bridge Loan Facility bears interest at an adjusted term SOFR, with a floor of 0.5%, plus 3.5% increasing by 0.25% 15 days after drawing and by an additional 0.5%

90 days after drawing and every 90 days thereafter, with a maximum margin of 5.25% over adjusted SOFR. The effective interest rate of the Bridge Loan Facility at March 31, 2022 was 11.04%. The Bridge Loan Facility matures on June 16, 2023 and is subject to mandatory prepayment in connection with certain asset dispositions, equity or debt issuance as well as in the event that collateral securing the SNIA Litigation Guarantee is released. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”

Debt discounts and issuance costs related to the Bridge Loan Facility were approximately $4.5 million. Amortization of debt discount and issuance costs for the Bridge Loan Facility was $0.9 million for the three months ended March 31, 2022 and is included in interest expense on the consolidated statement of income (loss). The unamortized discount related to the Bridge Loan Facility as of March 31, 2022 was $3.6 million.

Outstanding borrowings under the Bridge Loan Facility was $220.0 million as of March 31, 2022.

2020 Cash Exchangeable Senior Notes

On June ~~29, 2017,~~17, 2020, our wholly-owned subsidiary, LivaNova USA, Inc., issued $287.5 million aggregate principal amount of 3.00% 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, 2022 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 for the Notes was $3.4 million and $3.1 million for the three months ended March 31, 2022 and 2021, respectively, and is included in interest expense on the consolidated statement of income (loss). The unamortized discount related to the Notes as of March 31, 2022 and December 31, 2021 was $59.0 million and $62.4 million, respectively.

Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option. This includes the right 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, is greater than or equal to 130% of the exchange price, or $79.27 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. The exchange condition was not satisfied during the quarterly period ending March 31, 2022. As a result, we have included our obligations from the Notes and the associated embedded exchange feature derivative as a long-term liability on the consolidated balance sheet as of March 31, 2022. 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 the unrealized gain or loss reflected within foreign exchange and other gains/(losses) in the condensed consolidated statements of income (loss). The fair value of the embedded exchange feature derivative liability was $170.7 million as of March 31, 2022.

Capped Call Transactions

In connection with the pricing of the Notes, the Company entered into ~~a new finance contract (the “Finance Contract”)~~privately negotiated capped call transactions with ~~the EIB to support financing of~~ certain R&D projects. The Finance Contract has a borrowing base of €100 million (or approximately $118 million USD equivalent) and can be drawn in up to two tranches, each in a minimum amount of €50 million (or approximately $59 million USD equivalent). 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~~initial purchasers of the Notes or their respective affiliates. The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of 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 ~~Finance Contract are~~capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to ~~certain covenants~~an initial cap price of $100.00 per share. The capped call transactions expire on December 15, 2025 and must be settled in cash. If the capped call transactions are converted or redeemed early, settlement occurs at their termination value, which is equal to their fair value at the time of the redemption. The capped call transactions are carried on the condensed consolidated balance sheets as a derivative asset at their estimated fair value and are adjusted at the end of each reporting period, with unrealized gain or loss reflected within foreign exchange and other ~~terms and conditions. No loan drawdowns have occurred~~gains/(losses) in the condensed consolidated statements of income (loss). The fair value of the capped call derivative assets was $96.7 million as of ~~September 30, 2017.~~March 31, 2022. As of March 31, 2022, the capped call derivative assets are classified as long-term.

Note 8.6. 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 do not enter into derivative contracts for speculative purposes.

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, 2022 and December 31, ~~2016~~2021 was ~~$239.0~~$93.8 million and ~~$489.1~~$136.7 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~~$1.0 million and ~~$7.9~~$7.7 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2022 and ~~net gains (losses) of $(1.8) million and $0.4 million for the three and nine months ended September 30, 2016,~~2021, respectively. These gains ~~and losses~~ are included in ~~‘Foreign~~foreign exchange and other ~~gains~~ gains/(losses)~~’ in the~~ on our condensed consolidated statements 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-month 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, 2022 and December 31, 2021 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, 2022		December 31, 2021
FX derivative contracts to be exchanged for British Pounds	$	8,126	$	11,160
FX derivative contracts to be exchanged for Japanese Yen	3,334		6,648
FX derivative contracts to be exchanged for Euros	43,620		58,224
	$	55,080	$	76,032

After-tax net ~~loss~~gain 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 Loss in AOCI as of March 31, 2022		After-Tax Net Loss in AOCI as of March 31, 2022 Expected to be Reclassified to Earnings in Next 12 Months
FX derivative contracts	$	(1,640)	$	(1,640)

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,
		2022				2021
Description of Derivative Contract	Location in Earnings of Reclassified Gain or Loss	Losses Recognized in OCI		Gains (Losses) Reclassified from AOCI to Earnings		Losses Recognized in OCI		(Losses) Gains Reclassified from AOCI to Earnings
FX derivative contracts	Foreign exchange and other gains/(losses)	$	(642)	$	441	$	(2,223)	$	(1,496)
FX derivative contracts	SG&A	—		(388)		—		685
		$	(642)	$	53	$	(2,223)	$	(811)

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, 2022	Asset Derivatives			Liability Derivatives
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value (1)		Balance Sheet Location	Fair Value (1)
FX derivative contracts	Current derivative assets	$	262	Current derivative liabilities	$	1,946
Total derivatives designated as hedging instruments		262			1,946
Derivatives Not Designated as Hedging Instruments
FX derivative contracts	Current derivative assets	3		Current derivative assets	183
FX derivative contracts	Current derivative liabilities	18
Capped call derivatives	Long-term derivative assets	96,717
Embedded exchange feature				Long-term derivative liabilities	170,660
Total derivatives not designated as hedging instruments		96,738			170,843
Total derivatives		$	97,000		$	172,789


December 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	Accrued liabilities	$	243	Accrued liabilities	$	1,286

Total derivatives designated as hedging instruments		243			1,286
Derivatives Not Designated as Hedging Instruments

FX derivative contracts	Accrued liabilities	61		Accrued liabilities	427
Capped call derivatives	Current derivative assets	106,629
Embedded exchange feature				Current derivative liabilities	181,700


Total derivatives not designated as hedging instruments		106,690			182,127
Total derivatives		$	106,933		$	183,413

(1)For the classification of inputs used to evaluate the fair value of our derivatives, refer to “Note 4. 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 9.7. 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.~~Letter were complete, and LivaNova awaited the FDA’s close-out inspection.

On April 28, 2022, the FDA completed its close-out inspection of the Munich, Germany facility and, at the conclusion of the inspection, issued a Form 483 which contained three inspectional observations in the areas of design validation, process validation and complaint investigations. We ~~take these matters seriously~~are preparing a detailed response to the FDA commenting on the Form 483 observations in the context of our previous actions and remediation efforts to the 2015 Warning Letter, including the January 2016 informational Customer Letter; shipment of products pursuant to our certificate of medical necessity program; and the activities that we conducted to obtain clearance of K191402 for the modified 3T device. We intend to ~~respond timely and fully~~submit our response to the ~~FDA’s requests.~~FDA within 15 working days of receiving the Form 483 and will also include our proposed corrective and preventive actions to address the FDA's observations. While we intend to resolve the issues raised by the FDA in our response, whether the FDA will accept our response is uncertain. Refer to “Part II, Item 1A. Risk Factors” in this Form 10-Q for additional information regarding the risks surrounding receipt of the Form 483.

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. We are in the process of completing and ~~is being made available progressively on a global basis, prioritizing~~closing out all recall activities with the FDA. While our vacuum canister and ~~allocating devices to 3T device users based on pre-established criteria. We anticipate that this~~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~~during the fourth quarter of 2016, and furthermore, the cost associated with the plan was reasonably estimable. At ~~September 30, 2017,~~March 31, 2022, the product remediation liability was ~~$30.2~~$0.8 million. ~~Refer~~Since clearance

for K191402 was received, the liability associated with 3T remediation efforts has declined over time such that the Company has concluded that, at this point in time, the current/future liability is immaterial, and we do not intend to ~~“Note 4. Product Remediation Liability”~~provide further disclosure on this matter.

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 ~~additional information.~~the campus in Saluggia, Italy. In addition to a LivaNova manufacturing facility, the Saluggia campus is also the location of manufacturing facilities of third parties, a cafeteria for 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. In January 2021, a list of 67 potential sites for the national repository was published.

Although 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, based on the aforementioned factors, the Company concluded its obligation to clean, dismantle, and deliver any hazardous substances to a national repository is probable and reasonably estimable. The estimated liability as of March 31, 2022 was $38.3 million, which represented the low end of the estimated range of loss of $38.3 million to $48.7 million. The estimated liability as of December 31, 2021 was $39.3 million. The decrease in the liability from December 31, 2021 was primarily due to the effects of foreign currency changes during the three months ended March 31, 2022.

Litigation

~~On February 12, 2016, LivaNova was alerted that a class action complaint had been filed~~Product Liability

The Company is currently involved in litigation involving our 3T device. The litigation includes federal multi-district litigation in the U.S. District Court for the Middle District of Pennsylvania, ~~with respect to our 3T devices. The plaintiffs named~~various U.S. state court cases and cases in jurisdictions outside the U.S. A class action, filed in February 2016 in the ~~complaint underwent open heart surgeries at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center in 2015, and~~U.S. District Court for the ~~complaint alleges that: (i) patients were exposed to a harmful form~~Middle District 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). The class of plaintiffs in the complaint consistsPennsylvania, consisting of all Pennsylvania residents who underwent open heart surgery at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center between 2011 and 2015 and who currently are asymptomatic for NTM ~~infection.~~infection, was dismissed on July 16, 2021.

On ~~October 23, 2017,~~March 29, 2019, we announced a settlement framework that provides for a comprehensive resolution of the personal injury cases pending in the multi-district litigation in U.S. ~~District Court for~~federal court, the ~~Middle District of Pennsylvania issued an order certifying a class with respect to the named plaintiffs. The~~related class action which is currently against Sorin Group Deutschland GmbH and Sorin Group USA, Inc. seeks: (i) declaratory relief finding the 3T devices are defective and unsafe for intended uses; (ii) medical monitoring; (iii) general damages; and (iv) attorneys’ fees. Other lawsuits related to surgeries in ~~which a 3T device allegedly was used have been filed elsewhere in the U.S.,~~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.

Cases in state courts in the U.S. and in jurisdictions outside the U.S. continue to progress. As of May 4, 2022, including the cases encompassed in the settlement framework described above that have not yet been dismissed, we were aware of approximately 90 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 5 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, 2022, the provision for these matters was $36.2 million. While the amount accrued represents our best estimate for those filed and unfiled claims that we believe are ~~defending each~~both probable and estimable at this time, and which are a subset of ~~these~~the filed and unfiled claims ~~vigorously. Given~~worldwide of which we are currently aware, 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. The remaining claims for which a provision has not been recorded are remote or the same or similar allegations will not be filed against us or one 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~~estimable at this time.

Changes in the carrying amount of ~~potential loss, if any, that may result from these matters.~~the litigation provision liability are as follows (in thousands):

~~Other Litigation~~


Total litigation provision liability at December 31, 2021	$	39,470
Payments	(2,754)
Adjustments (1)	(343)
FX and other	(142)
Total litigation provision liability at March 31, 2022	36,231
Less current portion of litigation provision liability at March 31, 2022	30,126
Long-term portion of litigation provision liability at March 31, 2022 (2)	$	6,105

~~SNIA Litigation~~(1)Adjustments to the litigation provision are included within other operating expenses on the condensed consolidated statements of income (loss).

(2)Included within other long-term liabilities on the condensed consolidated balance sheet.

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~~were 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~~ 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 $323,901 as of March 31, 2022) 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~~Milan (“Court of Appeal”). 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~~net worth received by Sorin because of the Sorin spin-off, an estimated €572.1 million (approximately $634.6 million as of March 31, 2022). We appealed the partial decision on liability to the Italian Supreme Court in August 2019.

In November 2021, the Court of Appeal delivered the remainder of its decision, ordering LivaNova to pay damages of approximately €453.6 million (approximately $503.1 million as of March 31, 2022). We appealed the decision on damages in December ~~2016,~~2021, and in early 2022, the ~~final hearing is now scheduled for November 22, 2017. After~~Italian Supreme Court agreed to combine the ~~hearing, the parties will file their final briefs,~~appeals on liability and damages. On February 21, 2022, the Court ~~is expected to render its decision in mid-2018. SNIA did not file an appeal.~~

~~We (as successor to Sorin in~~of Appeal notified the ~~litigation) continue to believe~~Company that it granted the ~~risk of material loss relating~~Company a suspension with respect to the ~~SNIA litigation is not probable~~payment of damages until a decision has been reached on the appeal to the Italian Supreme Court. This suspension was subject to our providing a first demand bank guarantee of €270.0 million (approximately $299.5 million as ~~a result~~of March 31, 2022) within 30 calendar days. On March 21, 2022, LivaNova delivered the guarantee as required by the Court of Appeal, thereby satisfying the condition to obtain the suspension of the ~~reasoning contained in, and legal conclusions reached in,~~Court of Appeal’s judgment for the ~~recent court decisions described above. We also believe that the amount~~payment of ~~potential losses relating to the 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 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 to the Mergers, legacy Sorin liabilities, including any potential liabilities arising from the claims against Sorin relating 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~~until review of such judgment by the Italian Supreme Court. Refer to ~~contest them vigorously, there can be no assurance as~~“Note 5. Financing Arrangements” for information on the financing of the guarantee.

In 2011, Caffaro, a SNIA subsidiary, sold its Brescia chemical business to Caffaro Brescia, a third party belonging to the ~~outcome. A finding during any appeal or novel proceedings that we are liable for environmental damage~~Todisco group, and as part of the acquisition, Caffaro Brescia agreed to secure 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~~ensure the maintenance of the environmental ~~remediation efforts~~measures and to guarantee that such works remain fully operational, the annual management and maintenance for which is estimated at approximately €1 million per year. LivaNova’s receipt of the ~~Caffaro Chemical Sites (as described above). We (as successor~~Order appears to ~~Sorin) believe that we should not~~ be ~~liable~~based

on the aforementioned Court of Appeal decision regarding our alleged joint liability with SNIA for ~~damages relating to~~SNIA’s environmental liabilities. Our response, dated February 16, 2021, disputes the ~~Caffaro Chemical Operations pursuant to the Italian statute on~~grounds upon which the ~~Remediation~~ Order ~~relies because, inter alia,~~is based. We also appealed 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~~Order 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 any of the industrial sites concerned and, further, was never identified in any legal proceeding as an operator at any 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 to Sorin) alongside other parties, challenged the Remediation Order before~~ the Administrative Court ~~of Lazio~~ in ~~Rome (the “TAR”).~~Brescia.

On March 21, 2016 the TAR annulled the Remediation Order based on the fact that (i) the Remediation 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.

~~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 ~~an expense~~a liability in connection with these related matters because any potential loss is not currently probable.

Contract Litigation

On November 25, 2019, LivaNova received notice of a lawsuit initiated by former members of Caisson Interventional, LLC (“Caisson”), a subsidiary of the 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 for the District of Minnesota. The complaint alleges (i) breach of contract, (ii) breach of the covenant of good faith and fair dealing and (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.~~

~~Opposition to Merger Proceedings~~

On July 28, 2015, the Public Administrations filed an opposition proceeding to the proposed merger between Sorin and Cyberonics (the “Merger”), before the Commercial Courts of Milan, asking the Court to prohibit the execution of the Merger. In its initial decision on August 20, 2015, the Court authorized the Merger and the Public Administrations did not appeal this decision. The proceeding then continued as a civil case, with the Public Administration seeking damages against us. The Commercial Court of Milan delivered a decision in October 2016, fully rejecting the Public Administration’s request 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 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.

~~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’~~8. Stockholders' Equity

~~Comprehensive income~~The tables below present the condensed consolidated statements of stockholders’ equity as of and for the three months ended March 31, 2022 and 2021 (in thousands):


	Ordinary Shares	Ordinary Shares - Amount		Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit (1)		Total Stockholders' Equity (1)
December 31, 2021	53,762	$	82,295	$	2,117,961	$	(650)	$	(7,177)	$	(897,784)	$	1,294,645
Stock-based compensation plans	2	3		3,137		31		—		—		3,171
Net income	—	—		—		—		—		2,993		2,993
Other comprehensive loss	—	—		—		—		(8,955)		—		(8,955)
March 31, 2022	53,764	$	82,298	$	2,121,098	$	(619)	$	(16,132)	$	(894,791)	$	1,291,854

December 31, 2020	49,447	$	76,300	$	1,768,156	$	(1,034)	$	27,809	$	(761,966)	$	1,109,265
Stock-based compensation plans	8	10		2,251		236		—		—		2,497
Net loss	—	—		—		—		—		(30,761)		(30,761)
Other comprehensive income	—	—		—		—		(25,871)		—		(25,871)
March 31, 2021	49,455	$	76,310	$	1,770,407	$	(798)	$	1,938	$	(792,727)	$	1,055,130

(1)Accumulated deficit and total stockholders’ equity as of March 31, 2021 and net loss for the three months ended March 31, 2021 have been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

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, 2022 and ~~September 30, 2016~~2021 (in thousands):


	Change in Unrealized Gain (Loss) on Derivatives		Foreign Currency Translation Adjustments Gain (Loss) (1)		Total
December 31, 2021	$	(945)	$	(6,232)	$	(7,177)
Other comprehensive loss before reclassifications, before tax	(642)		(8,260)		(8,902)
Tax benefit	—		—		—
Other comprehensive loss before reclassifications, net of tax	(642)		(8,260)		(8,902)
Reclassification of loss from accumulated other comprehensive income, before tax	(53)		—		(53)
Reclassification of tax benefit	—		—		—
Reclassification of loss from accumulated other comprehensive income, after tax	(53)		—		(53)
Net current-period other comprehensive loss, net of tax	(695)		(8,260)		(8,955)
March 31, 2022	$	(1,640)	$	(14,492)	$	(16,132)

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		—		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		—		811
Reclassification of tax benefit	(195)		—		(195)
Reclassification of loss from accumulated other comprehensive income (loss), after tax	616		—		616
Net current-period other comprehensive income, net of tax	4		(25,875)		(25,871)
March 31, 2021	$	2,323	$	(385)	$	1,938

(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.~~9. Stock-Based Incentive Plans

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


										Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,						2022		2021
	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
Service-based restricted stock units (“RSUs”)									Service-based restricted stock units (“RSUs”)		$	5,344	$	4,842
Service-based stock appreciation rights (“SARs”)									Service-based stock appreciation rights (“SARs”)		2,938		3,322
Market performance-based restricted stock units	301		14		482		17		Market performance-based restricted stock units		851		763
Operating performance-based restricted stock units	636		254		1,060		572		Operating performance-based restricted stock units		785		267
Employee share purchase plan									Employee share purchase plan		338		342
Total stock-based compensation expense	$	5,697	$	4,768	$	14,261	$	15,575	Total stock-based compensation expense		$	10,256	$	9,536

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022, 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 four years and are subject to forfeiture unless service conditions are met. ~~Market~~The market performance-based awards that were issued 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, 2024 relative to the total shareholder returns for a peer group of companies. The adjusted free cash flow and return on ~~the NASDAQ Stock Market exceed certain threshold prices in the first year following the grant date. And finally,~~invested capital operating performance-based awards that were issued cliff vest ~~ratably over four~~after three years subject to ~~forfeiture unless~~the achievement of certain thresholds of ~~adjusted net sales and adjusted net income are met~~cumulative results for ~~fiscal year 2017.~~the three-year period ending December 31, 2024. Compensation expense related to ~~award agreements executed~~awards granted during ~~2017~~2022 for the three ~~and nine~~ months ended ~~September 30, 2017 were $2.0 million and $3.2 million, respectively.~~March 31, 2022 was $0.1 million.

Stock-based compensation agreements ~~executed~~issued during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022, 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, 2022
	Shares	Weighted Average Grant Date Fair Value
Service-based SARs	553,050	$	34.13
Service-based RSUs	246,824	$	82.04
Market performance-based RSUs	44,180	$	103.02
Operating performance-based RSUs	44,174	$	82.04

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.~~10. 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 effective income tax rates of 6.1% and 9.3%, respectively.

Our ~~consolidated~~ effective income tax rate for the three ~~and nine~~ months ended ~~September 30, 2017 included~~March 31, 2022 was 45.6% compared with (9.4)% for the ~~impact of various discrete~~three months ended March 31, 2021. Our effective income tax ~~items, including a net $4.0 million deferred~~rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax ~~benefit due to the release of~~rates, valuation allowances, on tax ~~losses upon~~credits and incentives, and unrecognized tax benefits associated with uncertain tax positions.

We continually assess the ~~completion of a reorganization~~realizability 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 millionworldwide deferred tax asset ~~related to a reserve for an uncertain tax position recognized in a prior year, in addition to various other discrete items.~~and valuation allowance positions, and when the need arises, we establish or release valuation allowances accordingly.

~~During~~Compared with 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~~March 31, 2021, the change in the effective tax rate for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2022 was ~~impacted by~~primarily attributable to changes in the ~~recording of~~ valuation allowances and changes in income before tax in countries with varying statutory tax rates as compared to changes in valuation allowances and other discrete items during the three months ended March 31, 2021.

We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subjected to review by tax authorities. As a result, there is an uncertainty in income taxes recognized in our financial statements. Tax benefits totaling $1.7 million and $1.7 million were unrecognized as of ~~$23.9 million related~~March 31, 2022 and December 31, 2021, respectively. It is reasonably possible that, within the next twelve months, due to ~~certain~~the settlement of uncertain tax ~~jurisdictions, including France~~positions with various tax authorities and the ~~UK, in which we did not record~~expiration of statutes of limitations, unrecognized tax benefits ~~generated~~could decrease 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.

up to approximately $0.6 million.

Note ~~13. Net Income (Loss)~~11. Earnings Per Share

~~The following table sets forth~~Reconciliation of the shares used in the basic and diluted earnings per share computations for the three months ended March 31, 2022 and 2021 are as follows (in thousands):


	Three Months Ended March 31,
		2022	2021
Basic weighted average shares outstanding		53,300	48,736
Add effects of share-based compensation instruments (1)		876	—
Diluted weighted average shares outstanding		54,176	48,736

(1)Excluded from 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 2.2 million and 4.3 million for the three months ended March 31, 2022 and 2021, 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.~~12. 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~~3 reportable segments: ~~Cardiac Surgery,~~Cardiopulmonary, Neuromodulation and ~~Cardiac Rhythm Management.~~Advanced Circulatory Support.

~~The Cardiac Surgery~~Our Cardiopulmonary segment ~~generates its revenue from~~is engaged in the development, production and sale of ~~cardiovascular surgery products. Cardiac Surgery~~cardiopulmonary products, ~~include~~including oxygenators, heart-lung machines, autotransfusion systems, ~~mechanical heart valves~~perfusion tubing systems, cannulae and ~~tissue heart valves.~~other related accessories.

~~The~~Our Neuromodulation segment ~~generates its revenue from~~is engaged in the design, development and marketing of devices that deliver neuromodulation therapy ~~for the treatment of~~to treat drug-resistant epilepsy (“DRE”), difficult-to-treat depression (“DTD”) and ~~treatment resistant depression.~~obstructive sleep apnea (“OSA”). Neuromodulation products include the VNS Therapy System, which consists of an implantable pulse generator, a lead that connects the generator to the vagus nerve, ~~surgical equipment to assist with the implant procedure, equipment to enable the treating physician to set the pulse generator stimulation parameters for the patient, instruction manuals~~ and ~~magnets to suspend or induce stimulation manually.~~other accessories.

~~The Cardiac Rhythm Management~~

Our Advanced Circulatory Support segment ~~generates its revenue from~~is engaged in the development, ~~manufacturing~~production and ~~marketing~~sale of ~~products for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. Cardiac Rhythm Management~~leading-edge temporary life support products. These products include ~~high-voltage defibrillators, cardiac resynchronization therapy devices~~cardiopulmonary and ~~low-voltage pacemakers.~~respiratory support solutions consisting of temporary life support controllers and product kits that can include a combination of pumps, oxygenators, and cannulae.

“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,~~development. For 2021, other also includes the results of our Heart Valves business, which ~~includes our recent Caisson acquisition, is focused~~was disposed of on ~~new growth platforms and identification of other opportunities for expansion.~~June 1, 2021.

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,
	2022		2021
Cardiopulmonary
United States	$	38,096	$	35,759
Europe	32,067		30,626
Rest of World	46,912		42,334
	117,075		108,719
Neuromodulation
United States	87,210		82,300
Europe	12,456		11,679
Rest of World	10,561		9,720
	110,227		103,699
Advanced Circulatory Support
United States	10,963		12,560
Europe	603		228
Rest of World	117		204
	11,683		12,992
Other (1)
United States	—		2,717
Europe	—		8,284
Rest of World	1,190		11,192
	1,190		22,193
Totals
United States	136,269		133,336
Europe (2)	45,126		50,817
Rest of World	58,780		63,450
Total (3)	$	240,175	$	247,603

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)For 2021, other primarily includes the net sales of the Company’s Heart Valves business, which was disposed of on June 1, 2021.

(2)Europe includes those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included in Rest of World.

(3)No single customer represented over 10% of our consolidated net sales. 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~~table below presents a reconciliation of segment income to consolidated income (loss) before tax (in thousands):


	Three Months Ended March 31,
	2022		2021 (1)
Cardiopulmonary	$	6,895	$	1,442
Neuromodulation	37,478		34,083
Advanced Circulatory Support	(5,438)		2,393
Other (2)	(23,082)		(30,195)
Total reportable segment income	15,853		7,723



Other expenses (3)	6,348		13,421
Operating income (loss)	9,505		(5,698)

Interest expense	(7,840)		(15,936)

Foreign exchange and other gains/(losses)	3,904		(6,443)
Income (loss) before tax	$	5,569	$	(28,077)

(1)Segment income for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

(2)Other includes corporate shared service expenses for finance, legal, human resources, information technology and corporate business development. For 2021, other also includes the results of the Company’s Heart Valves business, which was disposed of on June 1, 2021.

(3)Other expenses primarily consist of amortization of intangible assets for the three months ended March 31, 2022, as well as merger and ~~capital~~integration expense and restructuring expense during the three months ended March 31, 2021.

Assets by segment are as follows (in thousands):


	March 31, 2022		December 31, 2021
Cardiopulmonary	$	905,140	$	921,481
Neuromodulation	653,484		646,394
Advanced Circulatory Support	230,278		231,846
Other	627,981		401,230
Total	$	2,416,883	$	2,200,951

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,
	2022		2021
Cardiopulmonary	$	1,829	$	3,049
Neuromodulation	84		40
Advanced Circulatory Support	684		556
Other	2,983		1,469
Total	$	5,580	$	5,114

The changes in the carrying amount of goodwill by ~~reportable~~ segment for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 were as follows (in thousands):

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):


	Cardiopulmonary		Neuromodulation		Advanced Circulatory Support		Total
December 31, 2021	$	398,245	$	398,754	$	102,526	$	899,525


Foreign currency adjustments	(2,926)		—		—		(2,926)
March 31, 2022	$	395,319	$	398,754	$	102,526	$	896,599

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, 2022		December 31, 2021
United States	$	62,099	$	60,852
Europe	80,987		85,313
Rest of World	4,871		3,901
Total	$	147,957	$	150,066

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.~~13. 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, 2022		December 31, 2021
Raw materials	$	48,367	$	43,958
Work-in-process	16,846		14,161
Finished goods	49,631		47,721
	$	114,844	$	105,840

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, 2022 and December 31, ~~2016, respectively.~~

~~Prepaid expenses~~2021, inventories include adjustments totaling $9.8 million and ~~other current assets consisted~~$8.9 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, 2022		December 31, 2021
Contingent consideration (1)	$	11,268	$	11,552
Operating lease liabilities	10,967		11,261
Legal and other administrative costs	10,751		8,948
Amount payable to Gyrus Capital S.A.	9,610		11,418
Contract liabilities	8,722		8,419
Research and development costs	5,638		5,329
Interest payable	2,516		359
Provisions for agents, returns and other	2,029		2,535

Other accrued expenses	30,525		29,116
	$	92,026	$	88,937

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 4. Fair Value Measurements”

~~Other~~As of March 31, 2022 and December 31, 2021, contract liabilities of $10.5 million and $9.8 million, respectively, are included within accrued liabilities and other long-term liabilities ~~consisted~~on the condensed consolidated balance sheets.

The table below presents the items included within foreign exchange and other gains/(losses) on the condensed consolidated statements of ~~the following~~income (loss) (in thousands):


	Three Months Ended March 31,
		2022		2021
Exchangeable Notes fair value adjustment (1)		$	11,040	$	(26,335)
Capped call fair value adjustment (1)		(9,912)		12,550
Investment revaluation (2)		—		4,642
Other derivative liabilities fair value adjustment		—		3,167
Foreign exchange rate fluctuations		2,791		(409)
Interest income		20		(74)
Other		(35)		16
Foreign exchange and other gains/(losses)		$	3,904	$	(6,443)

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.~~

(1)Refer to “Note 4. Fair Value Measurements”

~~Note 16. New Accounting Pronouncements~~(2)Refer to “Note 3. Investments”

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers.~~ ~~Update No. 2014-09 requires an entity to recognize the amount~~The table below presents a reconciliation of ~~revenue to which it expects to be entitled for the transfer of promised goods or services to customers~~cash, cash equivalents 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~~restricted cash reported on the ~~Company’s evaluation performed~~condensed consolidated balance sheets that sum 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 impacttotal of the ~~new standard~~amounts shown 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 ourcondensed consolidated ~~financial statements and related disclosures.~~

~~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.

~~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,~~(in thousands):


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	128,737	$	207,992
Restricted cash (1)	313,647		—
Cash, cash equivalents and restricted cash	$	442,384	$	207,992

(1)Restricted cash represents funds held as collateral for the SNIA Litigation Guarantee. Refer to ~~present gross windfall tax benefits~~“Note 7. Commitments and Contingencies.”

Note 14. Subsequent Event

Acquisition of ALung Technologies, Inc.

As of March 31, 2022, LivaNova owned a 3% investment in ALung Technologies, Inc. (“ALung”), a privately held medical device company focused on creating advanced medical devices for treating respiratory failure, with a carrying value of $3.0 million, as ~~an inflow from financing activities~~well as a note receivable with a carrying value of $2.5 million. On May 2, 2022, we acquired the remaining 97% of equity interests in ALung for a purchase price of up to $110.0 million, consisting of $10.0 million paid at closing, subject to customary adjustments, and ~~an outflow from operating activities.~~

~~Under the Amendment related~~contingent considerations of up 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~~$100.0 million payable upon achievement of certain sales-based milestones beginning in 2023 and ending in 2027. Due 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~~acquisition, 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~~initial 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 earningsthis acquisition is not complete as of the ~~beginning~~filing date 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.this Quarterly Report on Form 10-Q.

~~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~~2021 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 Part I, Item 1A1A. of our ~~2016~~2021 Form 10-K, as updated and supplemented by our Quarterly Reports on Form 10-Q, including in Part II, 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.

Global Developments

COVID-19

The COVID-19 pandemic has caused and may continue to cause unpredictable demand for our products. Throughout the pandemic, healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19, and public health bodies have delayed elective procedures, which has negatively impacted the usage of our products. Further, some people have avoided seeking treatment for non-COVID-19 procedures, and hospitals and clinics have experienced staffing shortages, which has negatively impacted the demand for our products. While the recent recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products, our Neuromodulation and Advanced Circulatory Support businesses continue to experience ongoing COVID-19 related headwinds. We are monitoring the potential for various strains of the virus to cause a resumption of high levels of infection and hospitalization that, in turn, may affect the demand for our products.

Moreover, although our RECOVER study and ANTHEM-HFrEF pivotal trial continue to progress, there may be delays or closures of sites in the future should COVID-19 or variants thereof strengthen or reemerge.

Certain conditions improved during 2021, but we continue to experience COVID-19 related headwinds. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. The Company continues to respond to such challenges, and while we have business continuity plans in place, the impact of the ongoing challenges we are experiencing, along with their potential escalation, may adversely affect our business and the recoverability of our tangible and intangible assets. The future impact of pandemic-related developments remains uncertain.

Importantly, we continue to take actions in managing the health and safety of our employees throughout the pandemic. Though there has been no Company-wide mandate to return to the office, employees are encouraged to return for purposeful collaboration. We continue to maintain enhanced safety protocols and encourage our employees to seek vaccination. 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.

Ukraine Invasion

In February 2022, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the market due to international sanctions, to consider the potential impact of raw material sourced from the region, and to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the Russian authorities in response to international sanctions.

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~~products and therapies for the benefit of patients, healthcare professionals and healthcare systems throughout the world. ~~Working closely with medical professionals in the fields of Cardiac Surgery, Neuromodulation and Cardiac Rhythm Management, we~~We design, develop, manufacture and sell innovative ~~therapeutic solutions~~products and therapies that are consistent with our mission to ~~improve our patients’ quality~~provide hope to patients through innovative technologies, delivering life-changing improvements for both the Head and Heart.

LivaNova is comprised of ~~life, increase the skills and capabilities of healthcare professionals and minimize healthcare costs.~~

~~Business Franchises~~

~~We operate our business through~~ three reportable segments: ~~Cardiac Surgery,~~Cardiopulmonary, Neuromodulation and ~~Cardiac Rhythm Management. Our three reportable segments correspond~~Advanced Circulatory Support, corresponding to our ~~Business Franchises~~primary business units. Other includes corporate shared service expenses for finance, legal, human resources, information technology and ~~each Business Franchise corresponds to one~~corporate business development. For 2021, other also includes the results of our ~~three main therapeutic areas aligned to best serve our customers. Corporate activities include corporate~~Heart Valves business, ~~development (“New Ventures”). New Ventures is focused~~which was disposed of on ~~new growth platforms and identification of other opportunities for expansion and investment.~~June 1, 2021.

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~~Cardiopulmonary

On October 5, 2015, we announced the initiation of PERSIST-AVR, the first international, prospective post-market randomized multi-center clinical study evaluating the Perceval sutureless aortic 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 studyOur Cardiopulmonary segment 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, the independent study, “Aortic Valve Replacement With Sutureless Perceval Bioprosthesis: Single-Center Experience With 617 Implants,” was presented to The Society of Thoracic Surgeons. The study found AVR procedures conducted with the Perceval sutureless valve resulted in low mortality and excellent hemodynamic performance for patients.

In January 2016, we announced 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 deviceengaged in the ~~United States last year, with~~development, production and sale of cardiopulmonary products, including oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories.

Information on Cardiopulmonary that could potentially impact our condensed consolidated financial statements and related disclosures is incorporated by reference to Part I. Note 7. Commitments and Contingencies: FDA Warning Letter, and Part I. Note 7. Commitments and Contingencies: Product Liability.

Neuromodulation

Our Neuromodulation segment designs, develops and markets devices that deliver neuromodulation therapy to treat DRE, and DTD. It encompasses 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~~development and management of clinical testing of our ~~CROWN PRTvalve~~aura6000 System for treating OSA, a device that stimulates 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 valvehypoglossal nerve, which in turn, engages certain muscles in the ~~U.S. later this year.~~

~~In March 2017, we committed~~tongue in order to open the airway while 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 510(k) clearance for the U.S. market launch of our Optiflow Arterial Cannulae Family. Optiflow aortic arch cannulae provide improved hydrodynamics with a novel dispersive tip design that improves blood flow characteristics resulting 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.

~~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 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 not previously included in the Form 483.

The Warning Letter further stated that our 3T devices and other devices we manufactured at our Munich facility are subject to refusal of admission into the U.S. until resolution of the issues set forth by the FDA in the Warning Letter. The FDA has informed us that the import alertpatient is limited to the 3T devices, but that the agency reserves the right to expand the scope of the import alert if future circumstances warrant such action. The Warning Letter did not request that existing users cease using the 3T device, and manufacturing and shipment of all of our products other than the 3T device remain unaffected by the import limitation. To help clarify these issues for current customers, we issued an informational Customer Letter in January 2016, and that same month agreed with the FDA on a process for shipping 3T devices to existing U.S. users pursuant to a certificate of medical necessity program.

Finally, the Warning Letter stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter are reasonably related will not be approved until the violations have been corrected. However, this restriction applies only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.

~~We continue to work diligently to remediate the FDA’s inspectional observations for the Munich facility,~~sleeping, as well as ~~the additional issues identified in the Warning Letter. We take these matters seriously and intend to respond timely and fully to the FDA’s requests.~~

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

On 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 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, 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 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 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 in the complaint underwent open heart surgeries at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center in 2015, and the complaint alleges that: (i) patients were exposed to a harmful form of bacteria, known as 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). The class of plaintiffs in the complaint 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, 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) declaratory relief finding the 3T devices are defective and unsafe for intended uses; (ii) medical monitoring; (iii) general damages; and (iv) attorneys’ fees. Other lawsuits related to surgeries in which a 3T device allegedly was used have been filed elsewhere in the U.S., as well as in Canada, and Europe, against various LivaNova entities.

We are defending each of these claims vigorously. Given the relatively early stage 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 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.

~~Neuromodulation Update~~

~~Epilepsy~~

Our product development efforts are directed toward improving the VNS Therapy System and developing new products that provide additional features and functionality. We are conducting ongoing product development activities to enhance the VNS Therapy System pulse generator, lead 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 clinical testing of the VITARIA®~~VITARIA System for treating heart failure ~~through~~by stimulating the right vagus ~~nerve stimulation.~~nerve.

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

In March 2022, LivaNova announced the 250th unipolar depression patient has been implanted in the RECOVER clinical study. The study is designed with frequent interim analyses to be conducted by an independent Statistical Analysis Committee. The interim analyses will assess if predictive probability of success has been reached for the unipolar cohort of the VITARIA System 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 provides a specific method 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 the 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 Systemstudy.

Advanced Circulatory Support

Our Advanced Circulatory Support segment is ~~not approved~~engaged in the ~~U.S. During 2014, we also initiated~~development, production and sale of leading-edge temporary life support products. These products include cardiopulmonary and respiratory support solutions consisting of temporary life support controllers and product kits that can include a ~~second pilot study, ANTHEM-HFpEF,~~combination of pumps, oxygenators, and cannulae.

Advanced Circulatory Support products simplify temporary extracorporeal cardiopulmonary life support solutions for critically ill patients. Built around a common compact console and pump, LifeSPARC provides temporary support for emergent rescue patients in a variety of settings. Designed for ease of use, the system offers power and versatility for multi-disciplinary programs to ~~study ART~~support more patients in ~~patients experiencing symptomatic heart failure with preserved ejection fraction. This pilot study~~more places. The system is ~~currently underway outside the United States.~~

~~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,accompanied by four specialized 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 planready-to-deploy kits, each designed to ~~enable commercialization of the Caisson technology.~~support diverse cannulation strategies.

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 to~~For a discussion of our critical accounting ~~policies from the information provided in “Part II, Item 7. Management’s~~estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in ~~our 2016~~the 2021 Form 10-K.

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. 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.

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,
		2022		2021 (1)
Net sales		$	240,175	$	247,603
Cost of sales		71,732		84,195
Gross profit		168,443		163,408
Operating expenses:
Selling, general and administrative		118,525		115,681
Research and development		40,918		44,625


Other operating expenses		(505)		8,800
Operating income (loss)		9,505		(5,698)
Interest expense		(7,840)		(15,936)

Foreign exchange and other gains/(losses)		3,904		(6,443)
Income (loss) before tax		5,569		(28,077)
Income tax expense		2,537		2,644
Losses from equity method investments		(39)		(40)


Net income (loss)		$	2,993	$	(30,761)

(1)The condensed consolidated results for the three months ended March 31, 2021 have been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

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,
		2022		2021		% Change
Cardiopulmonary
United States		$	38,096	$	35,759	6.5	%
Europe		32,067		30,626		4.7	%
Rest of World		46,912		42,334		10.8	%
		117,075		108,719		7.7	%
Neuromodulation
United States		87,210		82,300		6.0	%
Europe		12,456		11,679		6.7	%
Rest of World		10,561		9,720		8.7	%
		110,227		103,699		6.3	%
Advanced Circulatory Support
United States		10,963		12,560		(12.7)	%
Europe		603		228		164.5	%
Rest of World		117		204		(42.6)	%
		11,683		12,992		(10.1)	%
Other (1)
United States		—		2,717		(100.0)	%
Europe		—		8,284		(100.0)	%
Rest of World		1,190		11,192		(89.4)	%
		1,190		22,193		(94.6)	%
Totals
United States		136,269		133,336		2.2	%
Europe (2)		45,126		50,817		(11.2)	%
Rest of World		58,780		63,450		(7.4)	%
Total		$	240,175	$	247,603	(3.0)	%

(1)For 2021, other primarily includes the net sales of the Company’s Heart Valves business, which was disposed of on June 1, 2021.

(2)Europe sales include those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included in “Rest of World.”

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 operations~~ (in ~~thousands)~~thousands, except for percentages):


	Three Months Ended March 31,
		2022		2021 (1)		% Change
Cardiopulmonary		$	6,895	$	1,442	378.2	%
Neuromodulation		37,478		34,083		10.0	%
Advanced Circulatory Support		(5,438)		2,393		(327.2)	%
Other (2)		(23,082)		(30,195)		(23.6)	%
Total reportable segment income (3)		$	15,853	$	7,723	105.3	%

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 %

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~~(1)Segment 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 net sales increased by 7.6% and 1.0%~~ for the three ~~and nine~~ months ended ~~September 30, 2017, as~~March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”

(3)For a reconciliation of segment income to income (loss) before tax refer to “Note 12. Geographic and Segment Information” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Cardiopulmonary

Cardiopulmonary net sales for the three months ended March 31, 2022 compared to the three ~~and nine~~ months ended ~~September 30, 2016, respectively. Net~~March 31, 2021 increased 7.7% to $117.1 million primarily driven by oxygenator sales ~~increased $11.3~~due to an increase in cardiac surgery procedure volumes and heart-lung machine sales in the Rest of World region, partially offset by the unfavorable impact of approximately $5 million due to foreign currency fluctuations.

Cardiopulmonary segment income for the three months ended March 31, 2022 was $6.9 million as compared to $1.4 million for the three months ended ~~September 30, 2017,~~March 31, 2021. The increase in segment income was primarily due to an increase in sales, as discussed above, as well as a decrease in the litigation provision related to our 3T Heater-Cooler device and related legal costs.

Neuromodulation

Neuromodulation net sales for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 increased 6.3% to $110.2 million due to growth across all regions driven by replacement implants.

Neuromodulation segment income for the three months ended March 31, 2022 was $37.5 million as compared to the prior-year period due 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$34.1 million for the three months ended ~~September 30, 2017,~~March 31, 2021. The increase in segment income was primarily due to ~~strength~~an increase in ~~heart-lung machines~~sales, as discussed above, as well as the net impact of the change in fair value of the sales-based and milestone-based contingent consideration arrangement associated with the acquisition of ImThera of $3.5 million. These increases in operating income were partially offset by increases in R&D expenses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 totaling $2.6 million associated with our RECOVER clinical trial and OSPREY clinical study.

Advanced Circulatory Support

Advanced Circulatory Support net sales for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 decreased 10.1% to $11.7 million primarily due to a ~~result~~reduction in patients treated with extracorporeal membrane oxygenation (ECMO) related to hospital staffing shortages and less severe COVID-19 cases.

Advanced Circulatory Support segment operating loss for the three months ended March 31, 2022 was $5.4 million as compared to segment income of ~~geographic 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~~$2.4 million for the three months ended ~~September 30, 2017, as compared to the prior-year period due primarily to increased demand for the Perceval sutureless tissue valve~~March 31, 2021. The decrease in the U.S. and quarter over quarter improvement 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 Surgery operatingsegment 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 compared to the three and nine months ended September 30, 2016, respectively. The increase in net sales of $1.5 million for 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 of the U.S. market, partially offset by a decline in unit sales due to hurricane-related impacts in the U.S. and customer anticipation of the SenTiva system, our new generation VNS Therapy System, which launched in October 2017. Thean 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 Neuromodulation operating income for the three months ended September 30, 2017 as compared to the prior-year period was primarily due to increased selling, general and administrative costs driven by sales force expansion and marketing efforts in the U.S. The increase in Neuromodulation operating income for the nine months ended September 30, 2017 as compared to the prior-year period was primarily driven by increased operating leverage as a result of higher net sales, partially offset by the increased costs 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, growth 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, both 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 expenses largely associated with business development costs ~~driven by reductions~~related to the acquisition of ALung. For additional information, please refer to “Note 14. Subsequent Event” in the ~~overall~~condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Additionally, we incurred an increase in 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 recognizedmarketing expenses 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~~March 31, 2022 compared to the ~~prior-year period, primarily~~three months ended March 31, 2021. Sales and marketing expenses in 2021 were reduced as a result of lower commercial related and discretionary spending due to ~~$3.9 million of Caisson related expenses and $12.9 million~~COVID-19. The decrease in ~~increased Corporate costs. Operating loss from Other increased $30.3 million for the nine months ended September 30, 2017,~~segment income was also impacted by a decline in net sales, 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 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.discussed above.

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 September 30,
2017 2016 Change
Cost of sales 35.0 % 36.1 % (1.1 )%
Product remediation 0.5 % 0.2 % 0.3 %
Gross profit 64.5 % 63.7 % 0.8 %
Operating expenses:
Selling, general and administrative 39.1 % 37.0 % 2.1 %
Research and development 10.1 % 10.9 % (0.8 )%
Merger and integration expenses 0.7 % 2.6 % (1.9 )%
Restructuring expenses 0.3 % 1.5 % (1.2 )%
Amortization of intangibles 4.0 % 4.0 % — %

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 %


	Three Months Ended March 31,
		2022		2021		Change
Cost of sales		29.9	%	34.0	%	(4.1)	%
Selling, general and administrative		49.3	%	46.7	%	2.6	%
Research and development		17.0	%	18.0	%	(1.0)	%
Other operating expenses		(0.2)	%	3.6	%	(3.8)	%

Cost of Sales

Cost of sales ~~consisted~~consists primarily of direct labor, allocated manufacturing overhead, 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~~was 29.9% for the three months ended ~~September 30, 2017 reflects management’s focus on cost efficiencies~~March 31, 2022, a decrease of 4.1% compared to ~~improve gross margin. The cost improvement for~~ the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021. The decrease was primarily due to ~~inventory fair value step-up amortization in~~favorable product mix, partially due to the ~~prior year, which accounted for 3.9%~~sale of the ~~decrease in our cost~~Heart Valves business during the second quarter of ~~sales as a percentage of net sales,~~2021, as well as the ~~previously mentioned cost efficiencies. The total amount recognized for amortization~~net impact of the change in fair value ~~step-up in inventory~~of a sales-based contingent consideration arrangement of $1.9 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 by September 30, 2016.~~March 31, 2022 compared to the three months ended March 31, 2021.

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

SG&A expenses ~~consisted~~are comprised of sales, marketing, and 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~~was 49.3% for the three months ended March 31, 2022, an increase of 2.6% compared to the ~~prior-year period, and~~three months ended March 31, 2021. The increase was ~~consistent at 38.6%~~primarily due to business development expenses related to the acquisition of ALung. For additional information, please refer to “Note 14. Subsequent Event” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Additionally, 3T legal costs increased $1.5 million for the ~~nine~~three months ended ~~September 30, 2017, as~~March 31, 2022 compared to the ~~prior-year period. The 2.1% increase was largely attributable to litigation related to our 3T devices and other legal matters.~~three months ended March 31, 2021.

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, OSA and heart failure.

R&D expenses as a percentage of net sales ~~was consistent~~were 17.0% for the three months ended ~~September 30, 2017, as~~March 31, 2022, a decrease of 1.0% 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.~~March 31, 2021. The ~~increase is~~decrease was primarily due to a decrease in R&D expense of $3.5 million resulting from the acquisition of Caisson, inclusive of $5.8 million in post-combination compensation expense recognized concurrent with the acquisition of Caisson, and $6.4 million in compensation expense associated with the retentionsale of the ~~employees of Caisson.~~

~~Merger and Integration Expenses~~

~~Merger and integration expenses consisted primarily of consulting costs associated with computer systems integration efforts, organization structure integration, synergy and tax planning,~~Heart Valve business on June 1, 2021, as well as changes in the ~~integration~~fair value of ~~internal controls~~milestone-based contingent consideration arrangements of $2.0 million, partially offset by increases in R&D expenses of $2.6 million related to DTD and OSA.

Other Operating Expenses

Other operating expenses primarily consists of the provision for ~~the two legacy organizations. In addition, integration expenses include retention bonuses, branding~~litigation involving our 3T Heater-Cooler device, restructuring expense, and ~~renaming efforts and lease cancellation penalties in Milan and Brussels.~~

~~Merger~~merger and integration expense.

Other operating expenses as a percentage of net sales ~~decreased by 1.9% to 0.7%~~was (0.2)% for the three months ended ~~September 30, 2017 as~~March 31, 2022, a decrease of 3.8% compared to the ~~prior-year period, and~~three months ended March 31, 2021. The decrease was primarily due to a decline in restructuring expenses of $6.2 million. Additionally, other operating expenses decreased ~~by 1.5%~~$3.4 million from a decrease in the litigation provision related to ~~0.8%~~our 3T Heater-Cooler device for the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2022 compared to the ~~prior-year period. These decreases were due~~three months ended March 31, 2021. For additional information, please refer to ~~a continued decline~~“Note 7. Commitments and Contingencies” in ~~integration activities.~~the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Restructuring Expenses~~Interest Expense

Restructuring expenses were primarily due to our efforts under our 2015 and 2016 Reorganization Plans and the Suzhou, China exit plan, to 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%Interest expense for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, as~~March 31, 2022 was $7.8 million compared to ~~the prior-year periods due to a continued decline in restructuring activities.~~

~~Gain on Caisson Acquisition~~

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

~~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. The gains were~~March 31, 2021, primarily due to ~~net~~the repayment of the Company’s 2020 senior secured term loan during the third quarter of 2021. For further details, refer to “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Foreign Exchange and Other Gains/(Losses)

Foreign exchange and other gains/(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 foreign currency commercial transactions, freestanding foreign currency forward contracts, intercompany debt,~~ and ~~third-party financial assets~~losses and ~~liabilities. The gains~~changes in the fair value of ~~$1.0~~embedded and capped call derivatives.

Foreign exchange and other gains/(losses) was a gain of $3.9 million for the ~~nine~~three months ended ~~September 30, 2017 included~~March 31, 2022 as compared to a ~~$3.2~~loss of $6.4 million ~~gain~~for the three months ended March 31, 2021. For further details, refer to “Note 13. Supplemental Financial Information” in the condensed consolidated financial statements in this Quarterly Report on ~~a sale of the cost-method investment, Istituto Europeo di Oncologia S.R.L, partially offset by net foreign currency exchange losses of $2.2 million.~~

Form 10-Q.

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 various tax strategies and the changes in tax laws, our consolidated~~Our effective income tax rate ~~may vary from one reporting period to another.~~

~~During the three and nine months ended September 30, 2017, we recorded consolidated~~fluctuates based on, among other factors, changes in pretax income ~~tax expense of $1.9 million and $10.9 million, respectively,~~in countries with ~~consolidated effective income~~varying statutory tax rates, ~~of 6.1%~~valuation allowances, tax credits and ~~9.3%, respectively.~~incentives, and unrecognized tax benefits associated with uncertain tax positions.

Our ~~consolidated~~ effective income tax rate for the three ~~and nine~~ months ended September 30, 2017 included 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 itemsMarch 31, 2022 was 45.6% compared with (9.4)% for the ~~nine~~three 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 associatedMarch 31, 2021. Compared 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~~March 31, 2021, the change in the effective tax rate for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2022 was ~~impacted by~~primarily attributable to changes in the ~~recording of~~ valuation allowances ~~of $23.9 million related~~and changes in income before tax in countries with varying statutory tax rates as compared to ~~certain tax jurisdictions, including France~~changes in valuation allowances 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~~other discrete items during ~~the three and nine months ended September 30, 2017, respectively. Losses for~~ the three months ended September 30, 2017 were due to our equity method investee losses, primarily from Highlife and MicroPort. Losses for the nine months ended September 30, 2017 included the impairment of our investment 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.March 31, 2021.

Liquidity and Capital Resources

Based on our current business plan, we believe that our ~~existing~~sources of liquidity, which primarily consist of cash and cash equivalents, future cash generated from operations and available ~~borrowing capacity~~borrowings under our ~~credit~~current debt facilities, will be sufficient to fund our uses of liquidity, primarily consisting of purchase obligations for expected operating, ~~needs,~~ working capital ~~requirements,~~and R&D ~~opportunities,~~needs, capital expenditures, acquisitions, 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. From time to time, we may decide to access debt and/or equity markets to optimize our capital ~~needs~~structure, raise additional capital or increase liquidity as necessary, including to refinance our Bridge Loan Facility and ~~consider various investing~~satisfy liabilities that may arise in connection with the SNIA litigation. Our liquidity could be adversely impacted by the factors affecting future operating results, including those referred to in “Part I, Item 1A. Risk Factors” in the 2021 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 7. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Our operating, working capital and R&D purchase obligations primarily consist of liabilities arising from the normal course of business including inventory supply contracts, the future settlement of derivative instruments, and future payments of operating leases, as well as contingent consideration arrangements resulting from acquisitions, and obligations associated with legal and other accruals. The following table presents selected financial information related to our liquidity as of March 31, 2022 and December 31, 2021 (in thousands):


	March 31, 2022		December 31, 2021
Sources of liquidity
Cash and cash equivalents	$	128,737	$	207,992
Accounts receivable, net	182,112		185,354
Inventories	114,844		105,840
Short-term derivative assets (1)	82		106,629
Long-term derivative assets (1)	96,717		—
Availability under revolving credit facility (2)	125,000		125,000
Short term uses of liquidity
Short-term derivative liabilities (1)	$	1,928	$	183,109
Short-term debt (2)	4,752		229,673
Short-term operating leases	10,967		11,261
Short-term contingent consideration (3)	11,268		11,552
Short-term 3T litigation provision (4)	30,126		32,845
Long-term uses of liquidity
Long-term debt (2)	$	455,810	$	9,849
Long-term derivative liabilities (1)	170,660		—
Long-term operating leases	30,876		35,919
Long-term contingent consideration (3)	83,341		86,830
Long-term Saluggia site liability (4)	37,923		38,788
Long-term 3T litigation provision (4)	6,105		6,625

(1)For additional information, please refer to “Note 6. Derivatives and Risk Management” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

(2)For additional information, please refer to “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

(3)For additional information, please refer to “Note 4. Fair Value Measurements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

(4)For additional information, please refer to “Note 7. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Significant Liquidity Matters

On February 21, 2022, the Court of Appeal notified the Company that it granted the Company a suspension with respect to the payment of damages in the amount of €453.6 million (approximately $503.1 million at March 31, 2022) in the SNIA litigation until a decision has been reached on our appeal to the Italian Supreme Court. This suspension was subject to providing the SNIA Litigation Guarantee of €270.0 million (approximately $299.5 million at March 31, 2022) within 30 calendar days.

On February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., entered into the Bridge Loan Facility. On March 16, 2022, LivaNova delivered a borrowing notice for $220.0 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022.

On March 18, 2022, LivaNova PLC, acting through its Italian branch, entered into an Indemnity Letter and an Account Pledge Agreement with Barclays, further to which Barclays issued the €270.0 million SNIA Litigation Guarantee. As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. At March 31, 2022, the cash collateral totaled $313.6 million and is classified as Restricted Cash on the condensed consolidated balance sheet.

The proceeds of the Bridge Loan Facility were used by LivaNova to post a portion of the cash collateral supporting the SNIA Litigation Guarantee. The Bridge Loan Facility bears interest at an adjusted term SOFR, with a floor of 0.5%, plus 3.5% increasing by 0.25% 15 days after drawing and by an additional 0.5% 90 days after drawing and every 90 days thereafter, with a maximum margin of 5.25% over adjusted SOFR. The Bridge Loan Facility, which matures on June 16, 2023, will become a current liability at the end of the second quarter 2022, and is subject to mandatory prepayment in connection with certain asset dispositions, equity or debt issuance as well as in the event that collateral securing the SNIA Litigation Guarantee is released. At this point in time, the Company believes it can secure additional debt financing ~~alternatives~~ to ~~support our requirements.~~ replace the Bridge Loan Facility prior to its maturity in mid-2023. While the Company has been successful in raising capital in the past, there can be no assurances as to when the Company will be able to secure replacement financing or whether it can do so on terms acceptable to the Company, in a timely manner, if at all.

On March 21, 2022, LivaNova delivered the SNIA Litigation Guarantee as required by the Court of Appeal, thereby satisfying the condition to obtain the suspension for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court.

Refer to “Note 7.5. 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.~~

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)debt 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.

debt transactions.

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 and restricted cash were as follows (in thousands):


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016				2022		2021
Operating activities	$	73,665		$	49,348		Operating activities	$	25,823	$	19,480
Investing activities	(41,797		)	(36,363		)	Investing activities	(5,482)		(9,858)
Financing activities	(10,000		)	(62,996		)	Financing activities	214,877		(8,328)
Effect of exchange rate changes on cash and cash equivalents	3,501			1,030
Net increase (decrease)	$	25,369		$	(48,981	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash							Effect of exchange rate changes on cash, cash equivalents and restricted cash	(826)		(1,587)
Net increase (decrease) in cash, cash equivalents and restricted cash							Net increase (decrease) in cash, cash equivalents and restricted cash	$	234,392	$	(293)

Operating Activities

Cash provided by operating activities during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 increased ~~$24.3~~by $6.3 million as compared to the same prior-year period. The increase was primarily ~~the result of~~due to an increase in net income adjusted for non-cash items of ~~$119.6~~$23.4 million, largely driven by an increase in Neuromodulation and Cardiopulmonary net sales. This increase was partially offset by a ~~$43.2 million~~net change in ~~operating assets and liabilities,~~working capital of $17.1 million, largely attributable to the receipt of a ~~$39.4~~CARES Act tax refund of $24.5 million ~~gain recognized in conjunction with~~during the ~~acquisition~~first quarter of ~~Caisson and~~2021 compared to the receipt of a ~~$17.0~~CARES Act tax refund of $6.7 million ~~increase in deferred income tax benefit.~~during the three months ended March 31, 2022.

Investing Activities

Cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2017 increased $5.4~~March 31, 2022 decreased $4.4 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-yearprior year period ~~offset by $7.1 million~~largely due to a decline in purchases of ~~short-term investments in the prior-year period.~~property, plant and equipment of $3.0 million.

Financing Activities

Cash ~~used in~~provided by financing activities during the ~~nine~~three months ended ~~September 30, 2017 decreased $53.0~~March 31, 2022 increased $223.2 million as compared to the same ~~prior-year period. The decrease was~~prior year period primarily ~~the result of a decrease in~~due to net ~~debt repayments of $27.5 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, offset by a reduction in~~ proceeds from ~~stock option exercises~~borrowings under the Bridge Loan Facility of ~~$4.7~~$218.3 million.

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”,~~6. 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~~2021 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, 2022.

(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, 2022 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 9.7. Commitments and Contingencies” in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 1A. ~~RISKFACTORS~~RiskFactors

~~Our business faces many risks. Any of the risks referenced~~Other than as described below, ~~or elsewhere~~there have been no material changes in ~~this~~our risk factors from those disclosed in Part I, Item 1A to our 2021 Annual Report on Form ~~10-Q,~~10-K.

Reductions or interruptions in the supply of the materials and components used in manufacturing our products may adversely affect our financial condition and business operations, particularly in the wake of COVID-19.

We maintain manufacturing operations in five countries located throughout the world and purchase many of the components and raw materials used in manufacturing these products from numerous suppliers in various countries. Any problem affecting a supplier (whether due to external or internal causes) could have a negative impact on us. Difficulties and delays in manufacturing, internally or through third-party providers or otherwise within the supply chain, may lead to voluntary or involuntary business interruptions or shutdowns, product shortages, withdrawals or suspensions of products from the market, and potential regulatory action.

In some cases, we purchase specific components and raw materials from primary or main suppliers (or in some cases, a single or sole supplier) for reasons related to quality assurance, cost-effectiveness and availability. While we work closely with our suppliers to ensure supply continuity, minimize the instances in which we rely on a sole supplier and take other ~~Reports~~countermeasures to reduce our supply chain risk, we cannot guarantee that our efforts will always be successful. Moreover, due to strict standards and regulations governing the manufacture and marketing of our products, we may not be able to locate new supply sources quickly or at all in response to a supply reduction or interruption, with negative effects on ~~Form 10-Qs or~~ our ability to manufacture our products effectively and timely.

The COVID-19 pandemic has exacerbated this risk by, among other ~~SEC filings~~things, causing global supply chain shortages. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. We are managing our supply chain by giving long visibility to our suppliers, conducting regular supply critical risk reviews and closely monitoring our inventory, among other things, but any problem could quickly, negatively reverberate throughout the organization. To the extent we are unsuccessful in managing our supply chain, any such issues could have a material ~~impact~~adverse effect on our business, ~~and consolidated financial position or~~ results of ~~operations. Additional risks~~operations, financial condition, cash flows and ~~uncertainties not presently known~~recoverability of our tangible and intangible assets.

Failure to ~~us or that we currently believe to be immaterial~~comply with product-related government regulations may ~~also impair~~materially adversely affect our financial condition and business operations.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA and other applicable non-U.S. government agency regulations. For ~~additional detailed discussion~~instance, many of our facilities and procedures and those of our suppliers are subject to periodic inspections by the FDA, which can result in inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, ~~factors~~the FDA could ban such medical products, detain or seize adulterated or misbranded medical products, order a recall, repair, replacement, or refund of such products, refuse to grant pending PMA applications or require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that ~~should~~the devices present unreasonable risks of substantial harm to the public health. In 2015, we received a warning letter from the FDA alleging certain violations of FDA regulations, which resulted in certain devices that were manufactured in Munich, Germany, to be ~~understood~~denied admission to the U.S. until resolution of the issues set forth by ~~any investor contemplating investment~~the FDA in the warning letter. In April 2022, a Form 483 was issued at the conclusion of the FDA’s inspection of our ~~stock, please refer to “Part I. Item 1A. Risk Factors” in our 2016 Form 10-K~~Germany facility. See “Note 7. Commitments and ~~elsewhere as described~~Contingencies” in this ~~Report~~Form 10-Q for additional information.

If the FDA does not agree with the proposed corrective or preventive actions in the response to the Form 483, or accepts them but finds that we have not implemented them adequately, or if we otherwise fail to comply with applicable regulatory requirements, the FDA could decide not to close out the 2015 Warning Letter based on the most recent inspection, even if they agree with our most recent Form ~~10-Q.~~483 response. In addition, the FDA could require that a successful re-inspection be completed

~~The results of~~

in the ~~UK’s referendum on withdrawal from~~future in order to close out that Warning Letter and/or the ~~EU may have a negative effect on global economic conditions, financial markets and our business, which could reduce~~most recent inspection. As we continue to work with the ~~price of our ordinary shares.~~

~~On June 23, 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred~~FDA, we remain subject 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 UK2015 Warning Letter, which subjected our legacy 3T devices to refusal of admission into the U.S. and which stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter were reasonably related would not be approved until the violations had been corrected; however, with clearance for K191402, 3T devices manufactured in accordance with K191402 are not subjected to the import alert and the ~~EU. The withdrawal must occur within two years, unless~~premarket approval restriction applied only to the ~~deadline is extended~~Munich and Arvada facilities, which do not manufacture or ~~a withdrawal agreement is negotiated sooner. The negotiation process will determine~~design devices subject to Class III premarket approval.

While we work diligently to manage our ongoing responsibilities, the ~~future terms of the UK’s relationship with the EU. The notification does not change the application of existing tax laws,~~FDA 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 ifother non-U.S. government agencies could assess civil 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 affectcriminal penalties against us, our ~~customers, suppliers, vendors,~~officers or employees and impose operating restrictions on a company-wide basis. The FDA could also recommend prosecution to the U.S. Department of Justice. An adverse regulatory action could restrict us from effectively marketing and selling our ~~industry.~~

~~Several of~~products, limit our ~~wholly-owned subsidiaries that are domiciled either~~ability to obtain future pre-market clearances or PMAs, and result 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 applicablea substantial modification to our ~~transactions~~business practices 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~~operations. These potential consequences, as well as any adverse outcome from ~~the EU may~~government investigations, could have a material adverse ~~impact~~effect on our ~~future financial results and~~business, results of ~~operations.~~operations, financial condition, and cash flows.

In addition, in the U.S., device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling (so called “off-label uses”). Our VNS Therapy System, for example, is indicated in the U.S., as an adjunctive therapy in reducing the frequency of seizures in patients 4 years of age and older with partial onset seizures that are refractory to antiepileptic medications, yet a number of physicians elect to prescribe our device for certain patients suffering from generalized seizures. While physicians may exercise their discretion in prescribing a device off-label, any failure on the part of the device manufacturer to comply with off-label regulations could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.

Governmental regulations outside the U.S. have, and may continue to become, increasingly stringent and common. In the EU, for example, Reg MDR (Medical Device Regulation) became effective in May 2021, resulting in significant additional premarket and post-market requirements which must be in place by May 2024. During this transition period, the ~~two-year negotiation period,~~ European Commission is allowing companies to use their MDD (Medical Device Directive) certifications. LivaNova is working to obtain all appropriate approvals and intends to be fully compliant by the May 2024 deadline, as penalties for regulatory non-compliance can be severe, including fines and revocation or suspension of a company’s business license, mandatory price reductions and criminal sanctions.

We ~~will monitor~~are subject to the risks of conducting business internationally.

We develop, manufacture, distribute and sell our products globally, and we intend to continue to pursue growth opportunities worldwide. Our international operations are subject to risks that are inherent in conducting business globally and under non-U.S. laws, regulations and customs. These risks include possible nationalization, invasions, wars, negative consequences associated with Brexit, expropriation, importation limitations, pricing restrictions, government shutdowns and violations of laws, and the resulting issues from any such risks. In February 2022, for example, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the market due to international sanctions, to consider the potential impact of ~~this event~~raw material sourced from the region, and ~~explore possible tax-planning strategies that may mitigate~~ to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation and/or ~~eliminate any such~~continuation of the conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the Russian authorities in response to international sanctions. Our profitability and operations are, and will continue to be, subject to a number of risks and potential ~~adverse impact. We will not account for the impact of Brexit~~costs, including: local product preferences and product requirements; longer-term receivables than are typical 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~~the U.S.; difficulty enforcing agreements; creditworthiness of customers; trade protection measures and import and export licensing requirements; imposition of sanctions; different labor regulations and workforce instability; higher danger of terrorist activity, war or civil unrest; selling our products through distributors and agents; and political and economic instability. Any of the ~~withdrawal becomes effective.~~

~~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~~aforementioned risks could adversely affect our ~~consolidated earnings,~~business, results of operations, financial ~~condition, and/or~~conditions and cash flows. ~~Caisson~~

From time to time, certain of our subsidiaries have limited business dealings in countries subject to comprehensive sanctions, including Iran, Sudan, Syria and now Russia. These business dealings represent an insignificant amount of our consolidated revenues and income, but expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restriction of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations, but there can be no

assurance that our policies and procedures will prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, results of operations, financial conditions and cash flows.

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. For transactions denominated in currencies other than our functional currencies, fluctuations in the ~~early stages~~exchange rate will impact our results 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~~financial condition. Although we may elect to ~~manage and coordinate the growth of Caisson successfully could have an adverse impact on our business. In addition,~~hedge certain foreign currency exposure, we cannot be certain that the ~~acquisition~~hedging activity will ~~become profitable~~ eliminate our currency risk.

In addition, in many of the countries where we operate, employees are covered by various laws and/or ~~remain so. These effects, individually~~collective bargaining agreements that endow them, through their local or national representatives, with the right to be consulted in relation to specific issues, including the ~~aggregate,~~downsizing or closing of departments and staff reductions. The laws and/or collective bargaining agreements that are applicable to these agreements could ~~cause~~have an impact on our flexibility, as they apply to programs to redefine and/or strategically reposition our activities. Our ability to implement staff downsizing programs or even temporary interruptions of employment relationships is predicated on the approval of government entities and the consent of labor unions. A negative response from a ~~deterioration of~~works council or union-organized work stoppages by employees could have a negative impact on our ~~credit rating and result in increased borrowing costs and interest expense.~~business.

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 dealings 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 cardiopulmonary, cardiac surgery and neuromodulation 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 $1.8 million and $0.9 million for the three months ended March 31, 2022, 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~~Exhibits marked with the cross symbol (†), if any, 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*			Amendment 2 to the Credit Agreement, dated as of March 16, 2022, by and among LivaNova PLC, LivaNova USA, Inc., the Lenders and Goldman Sachs Bank USA as First Lien Administrative Agent
10.2			Letter of indemnity in respect of the issuance of Trade Finance guarantee by Barclays Bank Ireland PLC, Italy Branch dated March 18, 2022, by and among LivaNova PLC Italian Branch and Barclays Bank Ireland PLC, Italy Branch, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on March 21, 2022
10.3			Pledge Agreement dated as of March 18, 2022, among LivaNova PLC Italian Branch and Barclays Bank Ireland PLC, Italy Branch, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on March 21, 2022
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, 2022 and 2021, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021, (iii) the Condensed Consolidated Balance Sheet as of March 31, 2022 and December 31, 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, 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

			~~LIVANOVA PLC~~
Date: May 4, 2022			By:
	~~By:~~	/s/ DAMIEN MCDONALD
				Damien McDonald
				Chief Executive Officer
				(Principal Executive Officer)


		LIVANOVA PLC

		~~LIVANOVA PLC~~
Date: May 4, 2022		By:	/s/ ALEX SHVARTSBURG
		~~By:~~	~~/s/ THAD HUSTON~~Alex Shvartsburg
			~~Thad Huston~~
	Chief Financial Officer
			(Principal Accounting and Financial Officer)

~~Date: November 2, 2017~~

4745



~~(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 29, 2022
Ordinary Shares - £1.00 par value per share			~~48,211,559~~53,440,615


•	~~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.