UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
Form 10-Q

(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 _______________
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 001-37599
lnlogomain280x78.jpg
LivaNova PLC
(Exact name of registrant as specified in its charter)
England and Wales ...................98-1268150
(State or other jurisdiction of ..........(I.R.S. Employer
incorporation or organization) ........Identification No.)
20 Eastbourne Terrace, London, United Kingdom, W2 6LG
(Address of principal executive offices) .......................(Zip Code)
Registrant’s telephone number, including area code: (44) (0) 203 325-0660
England and Wales98-1268150
(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:

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares —- £1.00 par value per shareLIVNThe NASDAQ Stock Market LLC
Title of Each Class of StockName of Each Exchange on Which Registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ☑No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ☑No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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

¨
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨☐No þ
☑
ClassOutstanding at October 27, 2017July 21, 2023
Ordinary Shares - £1.00 par value per share48,211,55953,882,976




LIVANOVA PLC
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATIONPAGE NO.
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PART II. OTHER INFORMATION
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2

DEFINITIONS
In this Quarterly Report on Form 10-Q “LivaNova,”for the quarter ended June 30, 2023 (this “Report”), the following terms and abbreviations have the meanings listed below. “LivaNova” and “the Company,” “we,” “us” and “our”Company” refer to LivaNova PLC and its consolidated subsidiaries.
AbbreviationDefinition
2015 PlanLivaNova PLC 2015 Incentive Award Plan
2022 Form 10-KLivaNova PLC’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023
2022 PlanLivaNova PLC 2022 Incentive Award Plan
ACSAdvanced Circulatory Support
ALungALung Technologies, Inc.
AOCIAccumulated other comprehensive income
A&R 2022 PlanAmended and Restated LivaNova PLC 2022 Incentive Award Plan
BEPSBase Erosion and Profit Shifting
Bridge Loan FacilityIncremental Facility Amendment No. 1 to the 2021 First Lien Credit Agreement, relating to a €200 million bridge loan facility, dated February 24, 2022, and repaid on July 6, 2022
CEOChief Executive Officer
CFOChief Financial Officer
CMSU.S. Centers for Medicare & Medicaid Services
Court of AppealCourt of Appeal in Milan
Delayed Draw Term Facility$50 million delayed draw term facility under the 2021 First Lien Credit Agreement resulting from the Incremental Facility Amendment No. 2
DREDrug-resistant epilepsy
DTDDifficult-to-treat depression
ECJEuropean Court of Justice
Exchange ActU.S. Securities Exchange Act of 1934, as amended
ECMOExtracorporeal membrane oxygenation
FDAU.S. Food and Drug Administration
FXForeign currency exchange rate
Hemolung RASHemolung Respiratory Assist System
ImTheraImThera Medical, Inc., acquired by LivaNova in 2018, a company developing an implantable neurostimulation device system for the treatment of obstructive sleep apnea
Incremental Facility Amendment No. 2An incremental facility amendment to the 2021 First Lien Credit Agreement, dated July 6, 2022
Initial Term Facility$300 million term facility under the 2021 First Lien Credit Agreement resulting from the Incremental Facility Amendment No. 2
ISINSub-body of the Italian Ministry of Economic Development
LivaNova USALivaNova USA, Inc.
LSMLivaNova Site Management S.r.l.
MDLFederal multi-district litigation in the U.S. District Court for the Middle District of Pennsylvania
MitralMitral Holdco S.à r.l.
Notes$287.5 million aggregate principal amount of 3.00% senior notes due December 2025, issued June 17, 2020
OCIOther comprehensive income (loss)
OECDOrganisation for Economic Co-operation and Development
OrderAdministrative order
OSAObstructive sleep apnea
OSPREY clinical trialLivaNova’s clinical trial, “Treating Obstructive Sleep Apnea using Targeted Hypoglossal Neurostimulation”
Public AdministrationsThe Italian Ministry of the Environment and other Italian government agencies
3

AbbreviationDefinition
R&DResearch and Development
RECOVER clinical studyLivaNova’s clinical study “A Prospective, Multi-center, Randomized Controlled Blinded Trial Demonstrating the Safety and Effectiveness of VNS Therapy System as Adjunctive Therapy Versus a No Stimulation Control in Subjects With Treatment-Resistant Depression”
RSUsService-based restricted stock units
SARsService-based stock appreciation rights
SECU.S. Securities and Exchange Commission
Securities ActU.S. Securities Act of 1933, as amended
SG&ASelling, general and administrative expense
SNIASNIA S.p.A.
SNIA Litigation GuaranteeA first demand bank guarantee of €270.0 million in connection with the SNIA litigation
SOFRSecured Overnight Financing Rate
Sorin spin-offThe spin-off of Sorin from SNIA in 2004
Term FacilitiesThe Initial Term Facility, together with the Delayed Draw Term Facility
UKUnited Kingdom
UK ActFinance (No.2) Act 2023
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the U.S.
USDU.S. dollar
VNSVagus nerve stimulation

INTELLECTUAL PROPERTY, TRADEMARKS AND TRADE NAMES
This report may contain references to ourLivaNova’s proprietary intellectual property, including among others:
•
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 oxygenator product systems: Inspire™LivaNova’s Neuromodulation systems, the VNS Therapy™ System, the VITARIA™ System and LivaNova’s proprietary pulse generator products: Model 102 (Pulse™), Heartlink™Model 102R (Pulse Duo™), Model 103 (Demipulse™), Model 104 (Demipulse Duo™), Model 106 (AspireSR™), Model 1000 (SenTiva™), Model 1000-D (SenTiva™ Duo), Model 7103 (VITARIA™ and Connect™TitrationAssist™) and Model 8103 (Symmetry™).
•Trademarks for our line of surgical tissueLivaNova’s Cardiopulmonary products and mechanical valve replacementssystems: Essenz™, S5™, S3™, S5 Pro™, B-Capta™, Inspire™, Heartlink™, XTRA™, 3T Heater-Cooler™, Connect™ and repair products: Mitroflow™, Crown PRT™, Solo Smart™, Perceval™, Top Hat™, Reduced Series Aortic Valves™, Carbomedics Carbo-Seal™, Carbo-Seal Valsalva™, Carbomedics Standard™, Orbis™ and Optiform™, and Mitral valve repair products: Memo 3D™, Memo 3D ReChord™, AnnuloFlo™ and AnnuloFlex™Revolution™.
•
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®.
•Trademarks for our bradycardia leads: BEFLEX™ (active fixation)LivaNova’s advanced circulatory support systems: TandemLife™, TandemHeart™, TandemLung™, ProtekDuo™, LifeSPARC™, ALung™, Hemolung™, Respiratory Dialysis™ and XFINE™ (passive fixation)ActivMix™.
•Trademarks for LivaNova’s obstructive sleep apnea system: ImThera™ and aura6000™.
These trademarks and tradenamestrade names are the property of LivaNova or the property of ourLivaNova’s consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, ourLivaNova’s trademarks and tradenamestrade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, symbol, but such references are not intended to indicate in any way that wethe Company will not assert, to the fullest extent under applicable law, ourLivaNova’s rights to these trademarks and tradenames.trade names.

4




CAUTIONARY NOTE ABOUT FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, other than purelystatements of historical information,or current fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Act. These statements include, but are not limited to, LivaNova’s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, ourthe Company’s actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases,Generally, you can identify forward-looking statements by the use of words such as “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “should,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” “foresee” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by LivaNova and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond ourthe Company’s control, that could cause ourthe Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, and include, but are not limited to, the following risks and uncertainties summarized below:
Risksuncertainties: risks related to our business:
reductions, interruptions or increasing costs related to the supply of raw materials and components and the distribution of finished products, including as a result of inflation, war and extreme weather; volatility in the global market and worldwide economic conditions, including as caused by the invasion of Ukraine, inflation, foreign exchange fluctuations, changes to existing trade agreements and relationships between the U.S. and other countries including the implementation of sanctions; changes in our common stock price;
changes in our profitability;
regulatory activities and announcements,technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies; failure to obtain regulatory approvals or reimbursement in relation to the Company’s products; failure to establish, expand or maintain market acceptance of the Company’s products for ourthe treatment of the Company’s approved indications; failure to develop and commercialize new products;
effectivenessproducts and the rate and degree of our internal controls over financial reporting;
fluctuations in future quarterly operating results;
market acceptance of such products; unfavorable results from clinical studies or failure to meet milestones; failure to comply with, or changes in, laws, regulations or administrative practices affecting government regulation of ourthe Company’s products; risks relating to recalls, enforcement actions or product liability claims; changes or reduction in reimbursement for the Company’s products including, but not limitedor failure to U.S. Foodcomply with rules relating to reimbursement of healthcare goods and Drug Administration (“FDA”)services; cyber-attacks or other disruptions to the Company’s information technology systems or those of third parties with which the Company interacts; costs of complying with privacy and security of personal information requirements and laws; failure to comply with anti-bribery laws; risks associated with environmental laws and regulations;
failure to establish, expand or maintain market acceptance of our products for the treatment of our approved indications;
any legislative or administrative reform to the healthcare system, including the U.S. Medicare or Medicaid systems or international reimbursement systems, that significantly reduces reimbursement for our products or procedures or denies coverage for such products or procedures or enhances coverage for competitive products or procedures,regulations as well as adverse decisions by administratorsenvironmental liabilities, violations, protest voting and litigation; losses or costs from pending or future lawsuits and governmental investigations, including in the case of such systems on coverage or reimbursement issues relating to our products;
failure to maintain the current regulatory approvals for our products’ approved indications;
failure to obtain or maintain coverageCompany’s 3T Heater-Cooler and reimbursement for our products’ approved indications;
unfavorable results from clinical studies;
variations in sales and operating expenses relative to estimates;
our dependence on certain suppliers and manufacturers to provide certain materials, components and contract services necessary for the production of our products;
SNIA litigations; product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs;
protection, expiration and validity of our intellectual property;
changes in technology, including the development of superior or alternative technology or devices by competitors;
failure to complyretain key personnel, prevent labor shortages, or manage labor costs; the failure of the Company’s R&D efforts to keep up with applicable U.S. domestic lawsthe rapid pace of technological development in the medical device industry; the impact of climate change and regulations, including federalthe risk of environmental, social and state privacygovernance pressures from internal and security lawsexternal stakeholders; the risk of quality concerns and regulations;
the impacts thereof; failure to comply with non-U.S. lawprotect the Company’s proprietary intellectual property; the potential loss of funds resulting from recent and regulations;
non-U.S. operational and economic risks and concerns;
failure to attract or retain key personnel;


potential future bank failures; failure of new acquisitions to further ourthe Company’s strategic objectives or strengthen ourthe Company’s existing businesses;
losses or costs from pending or future lawsuits the potential for impairments of intangible assets and governmental investigations;
goodwill; risks relating to the Company’s indebtedness including under the exchangeable senior notes, the Company’s revolving credit facility and the Company’s 2022 Term Facilities, as defined herein; effectiveness of the Company’s internal controls over financial reporting; changes in accounting rules that adversely affect the characterization of our consolidated financial position,Company’s profitability and/or failure to manage costs and expenses; fluctuations in future quarterly operating results of operations and/or cash flows;
changesvariations in customer spending patterns;
continued volatility in the global marketrevenue and worldwide economic conditions, including volatility caused by the implementation of Brexit;
operating expenses relative to estimates; changes in tax laws and regulations, including changes related to Brexit, or exposure to additional income tax liabilities;
harsh weather and other unknown or natural disastersunpredictable factors that interrupt our business operations orcould harm the business operations of our hospital-customers; and
failure of the market to adopt new therapies or to adopt new therapies quickly.Company’s financial performance.
Other factors that could cause ourLivaNova’s actual results to differ from our projected results are described in (1) “Part II, Item 1A. Risk Factors” and elsewhere in this and the Company’s other Quarterly ReportReports on Form 10-Q, (2) our Annual Report onthe Company’s 2022 Form 10-K, for(3) the fiscal year ended December 31, 2016 (“2016 Form 10-K”), (3) ourCompany’s reports and registration statements filed and furnished from time to time with the SEC and (4) other announcements we makeLivaNova makes from time to time.
5

Readers are cautioned not to place undue reliance on the Company’s forward-looking statements, which speak only as of the date hereof. We undertakeThe Company undertakes no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. You should read the following discussion and analysis in conjunction with ourthe Company’s unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Operating results for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of future results, including the full fiscal year. You should also refer to ourthe Company’s “Annual Consolidated Financial Statements,” “Notes” thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our 2016LivaNova’s 2022 Form 10-K.10-K and in the Company’s Quarterly Reports on Form 10-Q.
Financial Information and Currency of Financial Statements
All of the financial information included in this quarterly report has been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The reporting currency of ourthe Company’s condensed consolidated financial statements is U.S. dollars.USD.

6





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIVANOVA PLC AND SUBSIDIARIES’SUBSIDIARIES
CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net revenue$293,882 $254,151 $557,300 $494,326 
Cost of sales88,685 69,801 178,020 141,533 
Gross profit205,197 184,350 379,280 352,793 
Operating expenses:
Selling, general and administrative125,872 116,482 250,001 235,007 
Research and development51,124 34,229 101,110 75,147 
Other operating expense10,825 1,883 13,135 1,378 
Operating income17,376 31,756 15,034 41,261 
Interest expense(14,809)(14,388)(28,246)(22,228)
Foreign exchange and other income/(expense)2,713 1,633 28,260 5,537 
Income before tax5,280 19,001 15,048 24,570 
Income tax expense4,097 2,515 6,468 5,052 
Losses from equity method investments(28)(42)(55)(81)
Net income$1,155 $16,444 $8,525 $19,437 
Basic income per share$0.02 $0.31 $0.16 $0.36 
Diluted income per share$0.02 $0.30 $0.16 $0.36 
Shares used in computing basic income per share53,803 53,506 53,713 53,420 
Shares used in computing diluted income per share53,977 54,080 53,942 54,144 

See accompanying notes to the condensed consolidated financial statements
7
  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)
         
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)
Shares used in computing basic income (loss) per share 48,181
 49,075
 48,130
 49,016
Shares used in computing diluted income (loss) per share 48,534
 49,075
 48,339
 49,016



LIVANOVA PLC AND SUBSIDIARIES’SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income$1,155 $16,444 $8,525 $19,437 
Other comprehensive income (loss):
Net change in unrealized loss on derivatives— (1,232)(966)(1,927)
Tax effect— — — — 
Net of tax— (1,232)(966)(1,927)
Foreign currency translation adjustment5,453 (37,506)13,506 (45,766)
Total other comprehensive income (loss)5,453 (38,738)12,540 (47,693)
Total comprehensive income (loss)$6,608 $(22,294)$21,065 $(28,256)

See accompanying notes to the condensed consolidated financial statements
8
  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)
 June 30, 2023December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents$222,935 $214,172 
Restricted cash311,425 301,446 
Accounts receivable, net of allowance of $11,610 at June 30, 2023 and $11,862 at December 31, 2022185,881 183,110 
Inventories156,446 129,379 
Prepaid and refundable taxes26,302 31,708 
Prepaid expenses and other current assets38,846 26,321 
Total Current Assets941,835 886,136 
Property, plant and equipment, net149,568 147,187 
Goodwill779,212 768,787 
Intangible assets, net357,420 368,559 
Operating lease assets34,169 35,830 
Investments21,726 16,266 
Deferred tax assets2,113 1,384 
Long-term derivative assets42,034 54,393 
Other assets13,478 16,231 
Total Assets$2,341,555 $2,294,773 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations$19,074 $23,434 
Accounts payable78,212 74,310 
Accrued liabilities and other82,038 81,481 
Current litigation provision liability22,352 29,481 
Taxes payable19,842 16,505 
Accrued employee compensation and related benefits66,646 72,187 
Total Current Liabilities288,164 297,398 
Long-term debt obligations567,951 518,067 
Contingent consideration92,626 85,292 
Deferred tax liabilities8,924 8,516 
Long-term operating lease liabilities27,229 29,548 
Long-term employee compensation and related benefits16,720 16,804 
Long-term derivative liabilities53,705 85,675 
Other long-term liabilities45,628 45,849 
Total Liabilities1,100,947 1,087,149 
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,903,564 shares issued and 53,830,387 shares outstanding at June 30, 2023; 53,851,979 shares issued and 53,564,664 shares outstanding at December 31, 202282,441 82,424 
Additional paid-in capital2,169,346 2,157,724 
Accumulated other comprehensive loss(35,579)(48,119)
Accumulated deficit(975,505)(984,030)
Treasury stock at cost, 73,177 ordinary shares at June 30, 2023; 287,315 ordinary shares at December 31, 2022(95)(375)
Total Stockholders’ Equity1,240,608 1,207,624 
Total Liabilities and Stockholders’ Equity$2,341,555 $2,294,773 
See accompanying notes to the condensed consolidated financial statements
9
  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)
Six Months Ended June 30,
20232022
Operating Activities:
Net income$8,525 $19,437 
Adjustments to reconcile net income to net cash provided by operating activities:
Remeasurement of derivative instruments(25,332)(5,098)
Stock-based compensation16,290 21,765 
Amortization12,747 12,917 
Depreciation12,040 11,096 
Amortization of debt issuance costs9,535 11,721 
Remeasurement of contingent consideration to fair value7,334 (27,359)
Amortization of operating lease assets5,107 4,939 
Other198 1,987 
Changes in operating assets and liabilities:
Accounts receivable, net(707)(875)
Inventories(25,439)(16,461)
Other current and non-current assets(8,321)2,846 
Accounts payable and accrued current and non-current liabilities(4,638)(19,387)
Taxes payable2,738 116 
Litigation provision liability(7,257)(2,064)
Net cash provided by operating activities2,820 15,580 
Investing Activities:
Purchases of property, plant and equipment(13,344)(11,342)
Purchase of investments(5,409)(781)
Acquisition, net of cash acquired— (8,857)
Other614 (650)
Net cash used in investing activities(18,139)(21,630)
Financing Activities:
Proceeds from long-term debt obligations50,000 218,342 
Repayment of long-term debt obligations(11,808)(784)
Shares repurchased from employees for minimum tax withholding(5,841)(8,223)
Repayments of short-term borrowings (maturities greater than 90 days)(1,974)— 
Proceeds from share issuances under ESPP589 1,788 
Payment of debt issuance costs— (2,861)
Other(187)295 
Net cash provided by financing activities30,779 208,557 
Effect of exchange rate changes on cash, cash equivalents and restricted cash3,282 (3,730)
Net increase in cash, cash equivalents and restricted cash18,742 198,777 
Cash, cash equivalents and restricted cash at beginning of period515,618 207,992 
Cash, cash equivalents and restricted cash at end of period$534,360 $406,769 
See accompanying notes to the condensed consolidated financial statements
10
  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 ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016,2022, 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, 20162022 has been derived from audited financial statements contained in our 2016LivaNova’s 2022 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 presentationstatement of the operating results of LivaNova and its subsidiaries for the three and ninesix months ended SeptemberJune 30, 2017,2023 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our 2016LivaNova’s 2022 Form 10-K.
DescriptionMacroeconomic Environment
The current macroeconomic environment, including foreign exchange volatility, supply chain challenges, inflationary pressures, and geopolitical instability, has impacted and may continue to impact LivaNova’s business. LivaNova’s net revenue and profitability have been negatively affected by the unfavorable foreign currency exchange impact of the Mergers
On October 19, 2015strengthened USD against a number of currencies. Furthermore, LivaNova becamecontinues to experience supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues. Though, to date, the holding companyCompany’s 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 LivaNova’s manufacturing facilities have increased substantially in the wake of inflation globally. The Company continues to respond to such challenges, and while LivaNova has business continuity plans in place, the impact of the combined businessesongoing challenges the Company is navigating, along with their potential escalation, may adversely affect its business.
In February 2022, Russia launched an invasion in Ukraine, which caused the Company to assess its ability to sell in the market due to international sanctions, consider the potential impact of Cyberonics, Inc. (“Cyberonics”)raw material sourced from the region, and Sorin S.p.A. (“Sorin”) (the “Mergers”). Baseddetermine whether LivaNova is able to transact in a compliant fashion. Although business across Russia, Ukraine and Belarus represented 1% of LivaNova’s total net revenue for 2022, the invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the conflict could have a material, global impact on the structure of the Mergers, management determined that Cyberonics was considered to be the accounting acquirer and predecessor for accounting purposes.Company’s operating results.
Reclassification of Prior-Year Comparative Period PresentationReclassifications
To conform the condensed consolidated statement of income (loss) for the three and nine months ended September 30, 2016, to the currentThe Company has reclassified certain prior 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 conformamounts on the condensed consolidated balance sheet as of December 31, 2016 to the current period presentation, we reclassified $4.5 million of Assets Heldsheets for Sale, relating to our plan to exit the Costa Rica manufacturing operation, tocomparative purposes. These reclassifications did not have a separate line item in the condensed consolidated balance sheet from Prepaid Expenses and Other Current Assets. We received $4.9 million in proceeds from the sale of our Costa Rica manufacturing operation during the nine months ended September 30, 2017.
To conform the condensed consolidated statement of cash flows for the nine months ended September 30, 2016 to the current period presentation, certain amounts were reclassified within Operating Activities. Commencing with nine months ended September 30, 2017, Loans to Equity and Cost Method Investees of 6.9 million were presented as Investing Activities. To conform the condensed consolidated statement of cash flows for the nine months ended September 30, 2016 to the current period presentation, Loans to Equity and Cost Method Investees of $6.6 million were reclassified from Financing Activities to Investing Activities.material effect on LivaNova’s financial condition.
Significant Accounting Policies
OurLivaNova’s 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 2016LivaNova’s 2022 Form 10-K. A further explanation of our Foreign Currency accounting policy is discussed below:
Foreign Currency
Our functional currency is the U.S. dollar, however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. We determine the functional currency of our subsidiaries that exist and operate in different economic and currency environments based on the primary economic environment in which the subsidiary operates, that is, the currency of the environment in which an entity primarily generates and expends cash. Our significant foreign subsidiaries are located in Europe and the U.S. The functional currency of our significant European subsidiaries is the Euro and the functional currency of our significant U.S. subsidiaries is the U.S. dollar.



Assets and liabilities for subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars based on a combination of both current and historical exchange rates, while their revenues earned and expenses incurred are translated into U.S. dollars at average period exchange rates. Translation adjustments are included as ‘Accumulated other comprehensive income (loss)’ (“AOCI”) in the condensed consolidated balance sheets. Gains and losses arising from transactions denominated in a currency different from an entity’s functional currency are included in ‘Foreign exchange and other (losses) gains’ in our condensed consolidated statements of income (loss).
Note 2. AcquisitionsBusiness Combinations
In supportAs of our strategic growth initiatives,December 31, 2021, LivaNova owned a 3% investment in ALung, a privately held medical device company focused on creating advanced medical devices for treating respiratory failure. On May 2, 2017, we2022, LivaNova acquired the remaining 51%97% of equity interests in Caisson Interventional, LLC (“Caisson”)ALung for a purchase price of up to $72.0$110.0 million, net of $6.3 million of debt forgiveness, consisting of $18.0$10.0 million paid at closing, $14.4 millionsubject to be paid after 12 months,customary adjustments, and contingent consideration of up to $39.6$100.0 million to be paid on a schedule driven primarily by regulatory approvalspayable upon achievement of certain sales-based milestones beginning in 2023 and a sales-based earnout.ending in 2027. Total consideration included approximately $5.5 million of non-cash consideration.
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.
11

The following table presents the acquisition date fair-valuefair value of the consideration transferred and the fair value of ourLivaNova’s interest in CaissonALung prior to the acquisition, including certain measurement period adjustments (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
Initial Fair Value of Consideration
Measurement Period Adjustments (1)
Adjusted Fair Value of Consideration
Cash and other considerations$15,586 $— $15,586 
Contingent consideration26,369 (9,578)16,791 
Fair value of consideration transferred$41,955 $(9,578)$32,377 
(1)
(1)During the third quarter of 2022, measurement period adjustments were recorded based on information obtained about facts and circumstances that existed as of the acquisition date.
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 CaissonALung acquisition was finalized during the second quarter of 2023 and is presented in the following table, which includes certain measurement period adjustments (in thousands):
Initial Purchase Price Allocation
Measurement Period Adjustments (1)
Adjusted Purchase Price Allocation
Developed technology - 15-year life$13,950 $(11,050)$2,900 
Goodwill25,893 977 26,870 
Other assets and liabilities, net2,112 495 2,607 
Net assets acquired$41,955 $(9,578)$32,377 
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
(1)During the third quarter of 2022, measurement period adjustments were recorded based on information obtained about facts and circumstances that existed as of the acquisition date.
Acquired goodwill of $9.6 millionGoodwill arising from the ALung acquisition, which is expected to benot deductible for tax purposes. Additionally, $3.0 million ofpurposes, primarily represents 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’synergies anticipated between ALung and the remaining $1.0 million is includedCompany’s ACS business. The assets acquired, including goodwill, are recognized in ‘Other long-term assets’ onLivaNova’s ACS segment. The goodwill for the ACS reporting unit was fully impaired during the third quarter of 2022.
The Company’s condensed consolidated balance sheet as of September 30, 2017.
We recognized acquisition-related expenses of approximately $1.0 million for legal and valuation expenses duringfinancial statements include the nine months ended September 30, 2017. These expenses are included within ‘Selling, general and administrative’ expenses in the condensed consolidated statements of income (loss). Additionally, theoperating results of CaissonALung from the acquisition date. Separate post-acquisition operating results and pro forma financial information for this acquisition have not been presented as 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).effect was not material for disclosure purposes.


The contingent consideration arrangementspayments are composed of potential cash paymentstriggered upon the achievement of certain regulatory milestones and a sales-based earnoutthresholds associated with sales of products covered by the purchase agreement.agreement and are estimated to occur during the years reflected in the table below. The sales-based earnout was valued using projected sales from ourthe Company’s internal strategic plans. Both arrangements areplan and is a Level 3 fair value measurements and includemeasurement, which includes the following significant unobservable inputs (in thousands):
ALung AcquisitionFair value at May 2, 2022Valuation TechniqueUnobservable InputRanges
Sales-based earnout$16,791 Monte Carlo simulationRisk-adjusted discount rate7.0%-8.4%
Credit risk discount rate6.4%-8.0%
Revenue volatility25.7%
Projected years of earnout2023-2027
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 providesFor 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):liabilities, refer to “Note 4. Fair Value Measurements.”
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. RestructuringDivestiture of Heart Valve Business
Our 2015On December 2, 2020, LivaNova entered into a Purchase Agreement with Mitral, a company incorporated under the laws of Luxembourg and 2016 Reorganization Plans (the “Plans”) were initiated October 2015wholly owned and March 2016, respectively, in conjunctioncontrolled by funds advised by Gyrus Capital S.A., a Swiss private equity firm. The Purchase Agreement provided 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 LSM at the Company’s Saluggia campus for $64.1 million.
On April 9, 2021, LivaNova and Mitral entered into an Amended & Restated 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. On April 9, 2023, Mitral provided notice to LivaNova, consistent with the completionterms of the Mergers. We initiated these plansAmended & Restated Purchase Agreement, that they would not exercise their right 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, on the condensed consolidated balance sheet.


The following table presents restructuring expense accrual detail (in thousands):purchase LSM.
12
  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 that the carrying value of our aggregate investment might not be recoverable and that the decrease in value of our aggregate investment was other than temporary. We, therefore, estimated the fair value of our investment and notes receivable using the


market approach. The estimated fair value of our aggregate investment was below our carrying value by $13.0 million. This aggregate impairment was included in ‘Losses from equity method investments’ in the condensed consolidated statements of income (loss). The updated carrying value of our notes receivable from Highlife at September 30, 2017 was $0.8 million and is included in ‘Other assets’ on the condensed consolidated balance sheet.
Note 6.4. Fair Value Measurements
The Company reviews 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 six months ended June 30, 2023 and 2022.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table providestables provide information by level for assets and liabilities that are measured at fair value on a recurring basis (in thousands):
Fair Value as of June 30, 2023Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - freestanding instruments (FX)$219 $— $219 $— 
Derivative assets - capped call derivatives42,034 — — 42,034 
Convertible notes receivable275 — — 275 
$42,528 $— $219 $42,309 
Liabilities:
Derivative liabilities - freestanding instruments (FX)$113 $— $113 $— 
Derivative liabilities - embedded exchange feature53,705 — — 53,705 
Contingent consideration arrangements92,626 — — 92,626 
$146,444 $— $113 $146,331 
  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 December 31, 2022
Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - designated as cash flow hedges (interest rate swap)$1,333 $— $1,333 $— 
Derivative assets - capped call derivatives54,393 — — 54,393 
Convertible notes receivable285 — — 285 
$56,011 $— $1,333 $54,678 
Liabilities:
Derivative liabilities - freestanding instruments (FX)$5,886 $— $5,886 $— 
Derivative liabilities - embedded exchange feature85,675 — — 85,675 
Contingent consideration arrangements85,292 — — 85,292 
$176,853 $— $5,886 $170,967 
  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
OurThe following table provides a reconciliation of the beginning and ending balances of recurring fair value measurements using significant unobservable inputs (level(Level 3), relate solely to our contingent consideration liability. Refer (in thousands):
Capped Call Derivative AssetConvertible Notes ReceivableEmbedded Exchange Feature Derivative LiabilityContingent Consideration Liability Arrangements
As of December 31, 2022 - long-term$54,393 $285 $85,675 $85,292 
Changes in fair value(12,359)(10)(31,970)7,334 
Total at June 30, 2023 - long-term$42,034 $275 $53,705 $92,626 
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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 discussionbinomial 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, an unobservable input that is significant to the valuation. In general, an increase in LivaNova’s stock price or stock price volatility would increase the fair value of the changesembedded 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 ourthe embedded exchange feature derivative and capped call derivatives are recognized in foreign exchange and other income/(expense) in the condensed consolidated statements of income.
The fair value of the embedded exchange feature derivative liability and the capped call derivative assets was $53.7 million and $42.0 million, respectively, as of June 30, 2023, and the stock price volatility was 36%. As of June 30, 2023, a 10% lower volatility, holding other inputs constant, would reduce the fair value for the embedded exchange feature derivative liability by $13.8 million, and a 10% higher volatility, holding other inputs constant, would increase the fair value by $14.4 million. As of June 30, 2023, a 10% lower volatility, holding other inputs constant, would reduce the fair value for the capped call derivatives by $9.2 million, and a 10% higher volatility, holding other inputs constant, would increase the fair value by $4.0 million.
Contingent Consideration Arrangements
The following table provides the fair value of Level 3 contingent consideration liability.

arrangements by acquisition (in thousands):

June 30, 2023December 31, 2022
ImThera$74,941 $69,389 
ALung17,685 15,903 
$92,626 $85,292 
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 earnouts are valued using projected sales from LivaNova’s internal strategic plan. These arrangements are Level 3 fair value measurements and include the following significant unobservable inputs as of June 30, 2023:
ImThera AcquisitionValuation TechniqueUnobservable InputInputs
Regulatory milestone-based paymentDiscounted cash flowDiscount rate9.7%
Probability of payment85%
Projected payment year2025
Sales-based earnoutMonte Carlo simulationRisk-adjusted discount rate14.4% - 15.0%
Credit risk discount rate10.0% - 10.5%
Revenue volatility32.5%
Probability of payment85%
Projected years of earnout2026 - 2029
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The ALung business combination involved a contingent consideration arrangement composed of potential cash payments upon the achievement of certain sales-based thresholds associated with sales of products. The arrangement is a Level 3 fair value measurement and includes the following significant unobservable inputs as of June 30, 2023:
ALung AcquisitionValuation TechniqueUnobservable InputInputs
Sales-based earnoutMonte Carlo simulationRisk-adjusted discount rate10.0% - 11.0%
Credit risk discount rate9.5% - 10.2%
Revenue volatility32.8%
Projected years of earnout2023 - 2027
Note 7.5. Financing Arrangements
The outstanding principal amount of long-term debt as of June 30, 2023 and December 31, 2022 was as follows (in thousands, except interest rates):
June 30, 2023December 31, 2022MaturityInterest Rate
Term Facilities$336,316 $289,294 July 20278.54%
2020 Cash Exchangeable Senior Notes247,236 239,568 December 20253.00%
Bank of America Merrill Lynch Banco Múltiplo S.A.— 6,462 N/AN/A
Mediocredito Italiano819 1,601 December 20230.50% - 6.00%
Bank of America, U.S.1,500 1,500 January 20258.31%
Other524 534 
Total long-term facilities586,395 538,959 
Less current portion of long-term debt18,444 20,892 
Total long-term debt obligations$567,951 $518,067 
  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 ourLivaNova’s short-term unsecured revolving credit agreements and other agreements with various banks was $28.0$0.6 million and $26.4$2.5 million at Septemberas of June 30, 20172023 and December 31, 2016,2022, respectively, with an interest rates ranging from 0.2% to 10.5%rate of 4.24% and loan terms ranging from one dayovernight to 365 days.364 days as of June 30, 2023.
European InvestmentOn August 13, 2021, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA as borrower, entered into a First Lien Credit Agreement with the lenders and issuing banks party thereto and Goldman Sachs Bank FinancingUSA, 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, referred to as the 2021 First Lien Credit Agreement. The 2021 First Lien Credit Agreement, as amended from time to time, expires on August 13, 2026, and bears interest at a rate equal to, for USD-denominated loans, an adjusted SOFR with a floor of 0.00%, or a Base Rate, plus, in each case, a variable margin based on the Company’s Total Net Leverage Ratio, as defined in the agreement. Interest is paid monthly or quarterly, as selected by the borrower, with any outstanding principal due at maturity. The 2021 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 Total Net Leverage Ratio. As of June 30, 2023 and December 31, 2022, the applicable commitment fee percentage was 0.5% per annum. The 2021 First Lien Credit Agreement is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. As of June 30, 2023, the Company was in compliance with the financial covenants contained in its 2021 First Lien Credit Agreement.
There were no outstanding borrowings under the 2021 First Lien Credit Agreement’s $125 million revolving credit facility as of June 30, 2023 and December 31, 2022.
Bridge Loan Facility
On February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA entered into the €200 million Bridge Loan Facility. On March 16, 2022, LivaNova entered into Amendment No. 2 to the 2021 First Lien Credit Agreement, which converted the available borrowings under the Bridge Loan Facility from €200 million to $220 million and converted the EURIBOR rate in the 2021 First Lien Credit Agreement to SOFR. LivaNova delivered a borrowing notice for $220 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022.
15

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 USD 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. Cash collateral classified as restricted cash on the condensed consolidated balance sheet was $311.4 million and $301.4 million as of June 30, 2023 and December 31, 2022, respectively. 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 $3.6 million and $4.5 million for the three and six months ended June 30, 2022, respectively, and is included in interest expense on the condensed consolidated statement of income.
The Bridge Loan Facility was repaid in full on July 6, 2022.
Term Facilities
On July 6, 2022, LivaNova and its wholly-owned subsidiary, LivaNova USA, entered into Incremental Facility Amendment No. 2. Incremental Facility Amendment No. 2 provides for LivaNova USA to, among other things, obtain commitments for term loan facilities from a syndicate of lenders in an aggregate principal amount of $350 million consisting of (i) the Initial Term Facility with an aggregate principal amount of $300 million and (ii) the Delayed Draw Term Facility with an additional aggregate principal amount of $50 million. On April 6, 2023, LivaNova drew $50 million under the Delayed Draw Term Facility for general corporate purposes.
Proceeds from the Initial Term Facility were used to repay in full the Bridge Loan Facility on July 6, 2022, with the remainder used for general corporate purposes of the Company. The Term Facilities have a maturity of the earlier of (i) five years or (ii) 91 days prior to December 15, 2025, the maturity date of the 2020 Cash Exchangeable Senior Notes, unless by that date LivaNova USA will have either redeemed or refinanced the Notes, or set aside an amount of cash equal to the then-outstanding principal amount of the Notes. The Term Facilities bear interest at a rate equal to an adjusted term SOFR plus a variable margin based on the Company’s consolidated total net leverage ratio. As of June 30, 2023, the applicable margin over Adjusted SOFR was equal to 3.50% per annum. The Term Facilities are subject to an original issue discount of 1.5% of their principal amount. The Term Facilities are subject to quarterly principal repayment, based on the following amortization schedule: (i) during the first year from the initial funding date: 1.9%; (ii) year two: 5.0%; (ii) year three: 5.0%; (iv) year four: 7.5%; and (v) year five: 10.0%, with the remainder to be paid at maturity. The effective interest rate of the Term Facilities at June 30, 2023 was 6.53%.
The 2021 First Lien Credit Agreement, as amended, contains customary representations, warranties and covenants, including the requirement to maintain a Senior Secured First Lien Net Leverage Ratio, calculated as the ratio of Consolidated Senior Secured First Lien Net Indebtedness to Consolidated EBITDA, as defined in the credit agreement, for the period of four consecutive fiscal quarters ended on the calculation date, of not more than 3.50 to 1.00 and an Interest Coverage Ratio, calculated as the ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined in the credit agreement, for the period of four consecutive fiscal quarters ended on the calculation date, of not less than 3.00 to 1.00. As of June 30, 2023, the Company was in compliance with the financial covenants contained in the 2021 First Lien Credit Agreement.
Debt discounts and issuance costs related to the Initial Term Facility were approximately $9.6 million. Amortization of debt discount and issuance costs for the Initial Term Facility was $0.5 million and $1.0 million for the three and six months ended June 30, 2023, respectively, and is included in interest expense on the condensed consolidated statement of income. The unamortized discount and issuance costs related to the Initial Term Facility as of June 30, 2023 and December 31, 2022 were $7.7 million and $8.7 million, respectively. Issuance costs related to the Delayed Draw Term Facility were approximately $1.6 million. Amortization of issuance costs for the Delayed Draw Term Facility was nil and $0.5 million for the three and six months ended June 30, 2023, respectively, and is included in interest expense on the condensed consolidated statement of income. The issuance costs related to the Delayed Draw Term Facility were fully amortized as of June 30, 2023.
2020 Cash Exchangeable Senior Notes
On June 29, 2017, we17, 2020, LivaNova’s wholly-owned subsidiary, LivaNova USA, issued $287.5 million aggregate principal amount of 3.00% Notes by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. 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. The effective interest rate of the Notes at June 30, 2023 was 9.95%. The Notes mature on December 15, 2025 unless earlier exchanged, repurchased, or redeemed.
16

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 $3.9 million and $7.7 million for the three and six months ended June 30, 2023, respectively, and $3.5 million and $6.9 million for the three and six months ended June 30, 2022, respectively, and is included in interest expense on the condensed consolidated statement of income. The unamortized discount related to the Notes as of June 30, 2023 and December 31, 2022 was $40.3 million and $47.9 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 June 30, 2023. As a result, the Company has included its obligations from the Notes and the associated embedded exchange feature derivative as a long-term liability on the condensed consolidated balance sheet as of June 30, 2023. 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 income/(expense)” in the condensed consolidated statements of income. The fair value of the embedded exchange feature derivative liability was $53.7 million and $85.7 million as of June 30, 2023 and December 31, 2022, respectively.
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. Loansinitial 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 arecapped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to certain covenantsan 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 termsincome/(expense) in the condensed consolidated statements of income. The fair value of the capped call derivative assets was $42.0 million and conditions. No loan drawdowns have occurred$54.4 million as of SeptemberJune 30, 2017.2023 and December 31, 2022, respectively. As of June 30, 2023, the capped call derivative assets were classified as long-term.
17

Note 8.6. Derivatives and Risk Management
Due to the global nature of ourLivaNova’s operations, we areLivaNova is exposed to foreign currency exchange rateFX fluctuations. In addition, due to certain loans with floating interest rates, we are also subject toHistorically, the impact of changes in interest rates on our interest payments. We enterCompany has entered into foreign currency exchange rate (“FX”)FX derivative contracts and interest rate swap contracts to reduce the impact of foreign currency rateFX and interest rate fluctuations, respectively, on earnings and cash flow. We measure
LivaNova is also exposed to equity price risk in connection with its Notes, including exchange and settlement provisions based on the price of the Company’s ordinary shares at exchange or maturity of the Notes. The capped call transactions associated with the Notes also include settlement provisions that are based on the price of LivaNova’s ordinary shares, subject to a capped price per share.
LivaNova does not enter into derivative contracts for speculative purposes.
LivaNova measures all outstanding derivatives each period end at fair value and reportreports 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 other AOCI until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to the condensed consolidated statementstatements of income (loss) as shown in the tables below, and interest rate swap gains and losses in AOCI are reclassified to interest expense inon the condensed consolidated statementstatements of income (loss). We evaluateincome. The Company evaluates 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 theon LivaNova’s condensed consolidated statements of cash flows.
Freestanding FX Derivative FX Contracts
The gross notional amount of freestanding derivativesFX derivative contracts not designated as hedging instruments outstanding at SeptemberJune 30, 20172023 and December 31, 20162022 was $239.0$160.4 million and $489.1$154.5 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 forFor these freestanding derivatives, LivaNova recorded net gains of $0.7$0.4 million and $7.9$4.0 million for the three and nine months ended SeptemberJune 30, 2017,2023 and 2022, respectively, and net (losses) gains (losses) of $(1.8)$(0.9) million and $0.4$5.0 million for the three and ninesix months ended SeptemberJune 30, 2016,2023 and 2022, respectively. These gains and losses are included in ‘Foreignforeign exchange and other gains (losses)’ inincome/(expense) on the condensed consolidated statements of income (loss).income.
Counterparty Credit Risk
LivaNova is exposed to credit risk in the event of non-performance by the counterparties to the Company’s derivatives.
The two counterparties to the capped call transactions are financial institutions. To limit its credit risk, LivaNova selected financial institutions with a minimum long-term investment grade credit rating. LivaNova’s exposure to the credit risk of the counterparties is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, the Company will become an unsecured creditor in those proceedings, with a claim equal to LivaNova’s exposure at that time under the capped call transactions with that counterparty.
To manage credit risk with respect to its 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
NotionalForeign Currency Risk
Historically, LivaNova utilized FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with LivaNova’s 12-month USD forecasts of revenues and costs denominated in British Pound, Japanese Yen and the Euro. The Company transferred to earnings from AOCI the gain or loss realized on the FX derivative contracts at the time of invoicing. Upon the settlement of LivaNova’s foreign currency cash flow hedges in the fourth quarter of 2022 and following an in-depth analysis of the utility of the Company’s cash flow hedging program, LivaNova discontinued its foreign currency cash flow hedging program.
18

Interest Rate Risk
Historically, LivaNova entered into interest rate swaps associated with the Initial Term Facility, which qualified for and were designated as cash flow hedges. The Company’s interest rate swaps expired on April 6, 2023. LivaNova elected not to renew the interest rate swaps as interest expense associated with the Initial Term Facility is principally offset by holding a significant portion of the Initial Term Facility in a depository account, which earns a floating rate of interest.
The gross notional amounts of open derivative contracts designated as cash flow hedges at June 30, 2023 and December 31, 2022 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
After-tax net loss associated with derivatives designated as cash flow hedges recorded in the ending balance of AOCI and the amount expected to be reclassified to earnings in the next 12 months (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) $(356)
Description of Derivative ContractJune 30, 2023December 31, 2022
Interest rate swap contracts$— $210,000 
Pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in Other Comprehensive Income (Loss) (“OCI”)OCI and the amount reclassified to earnings from AOCI were as follows (in thousands):
Three Months Ended June 30,
2022
Description of Derivative ContractLocation in Earnings of Reclassified Gain or LossLosses Recognized in OCIGains (Losses) Reclassified from AOCI to Earnings
FX derivative contractsForeign exchange and other income/(expense)$(1,116)$1,238 
FX derivative contractsSG&A— (1,122)
$(1,116)$116 
Six Months Ended June 30,
 Three Months Ended September 30,20232022
 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
Description of Derivative ContractDescription of Derivative ContractLocation in Earnings of Reclassified Gain or LossLosses Recognized in OCIGains Reclassified from AOCI to EarningsLosses Recognized in OCIGains (Losses) Reclassified from AOCI to Earnings
FX derivative contracts Foreign exchange and other (losses) gains $(2,537) $(1,623) $2,535
 $2,795
FX derivative contractsForeign exchange and other income/(expense)$— $— $(1,758)$1,679 
FX derivative contracts SG&A —
 269
 —
 (1,876)FX derivative contractsSG&A— — —��(1,510)
Interest rate swap contracts Interest expense —
 797
 263
 (163)Interest rate swap contractsInterest expense(433)533 — — 
 $(2,537) $(557) $2,798
 $756
$(433)$533 $(1,758)$169 


    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 Company offsets fair value amounts associated with its derivative instruments on the condensed consolidated balance sheets that are executed with the same counterparty under master netting arrangements. Netting arrangements include a right to set off or net together purchases and sales of similar products in the settlement process.
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):
Asset DerivativesLiability Derivatives
June 30, 2023Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Not Designated as Hedging Instruments:
Capped call derivativesLong-term derivative assets$42,034 
FX derivative contractsPrepaid expenses and other current assets219 Accrued liabilities and other$113 
Embedded exchange featureLong-term derivative liabilities53,705 
Total derivatives not designated as hedging instruments42,253 53,818 
Total derivatives$42,253 $53,818 
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Asset DerivativesLiability Derivatives
September 30, 2017 Liability Derivatives
Derivatives Designated as Hedging Instruments Balance Sheet Location 
Fair Value (1)
December 31, 2022December 31, 2022Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Designated as Hedging Instruments:Derivatives Designated as Hedging Instruments:
Interest rate swap contracts Accrued liabilities $875
Interest rate swap contractsPrepaid expenses and other current assets$1,333 
Interest rate swap contracts Other long-term liabilities 932
Total derivatives designated as hedging instrumentsTotal derivatives designated as hedging instruments1,333 
Derivatives Not Designated as Hedging Instruments:Derivatives Not Designated as Hedging Instruments:
Capped call derivativesCapped call derivativesLong-term derivative assets54,393 
FX derivative contracts Accrued liabilities 724
FX derivative contractsAccrued liabilities and other$5,886 
Total derivatives designated as hedging instruments 
 2,531
Derivatives Not Designated as Hedging Instruments 
 
FX derivative contracts Accrued liabilities 1,456
Embedded exchange featureEmbedded exchange featureLong-term derivative liabilities85,675 
Total derivatives not designated as hedging instruments 
 1,456
Total derivatives not designated as hedging instruments54,393 91,561 
 
 $3,987
Total derivativesTotal derivatives$55,726 $91,561 
(1)For the classification of inputs used to evaluate the fair value of derivatives, refer to “Note 4. Fair Value Measurements.”
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
Saluggia Site Hazardous Substances
LSM, formerly a subsidiary of Sorin, one of the companies that merged into LivaNova PLC in 2015, manages site services for the campus in Saluggia, Italy. In addition to being a former 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 performed, and continues to perform, ordinary maintenance, secure the facilities, monitor air and water quality and file applicable reports with the competent environmental authorities.
In 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 June 30, 2023 was €34.0 million ($37.1 million), which represented the low end of the estimated range of loss of €34.0 million ($37.1 million) to €43.3 million ($47.3 million) as of June 30, 2023. The estimated liability as of December 31, 2022 was €34.2 million ($36.6 million).
Product Liability Litigation
The Company is currently involved in litigation involving LivaNova’s 3T Heater-Cooler Devices
FDA Warning Letter.
On December 29, 2015,device. The litigation includes the FDA issued LivaNova a Warning Letter (the “Warning Letter”) alleging certain violations of FDA regulations applicable to medical device manufacturers at our Munich, GermanyMDL, various U.S. state court cases 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 483cases 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 intojurisdictions outside the U.S. untilOn March 29, 2019, LivaNova announced a settlement framework that provided for a comprehensive resolution of the issues set forth by the FDApersonal injury cases pending in the Warning Letter. The FDA has informed us thatMDL, the import alert is limited to the 3T devices, but that the agency reserves the right to expand the scope of the import alert if future circumstances warrant such action. The Warning Letter did not request that existing users cease using the 3T device, and manufacturing and shipment of all of our products other than the 3T device remain unaffected by the import limitation. To help clarify these issues for current customers, we issued an informational Customer Letterrelated class action 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,federal court, as well as certain cases in state courts across the additional issues identified in the Warning Letter. We take these matters seriously and intendUnited States. The agreement, which made no admission of liability, was subject 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 strainscertain conditions, including acceptance of the non-tuberculous mycobacterium (“NTM”) bacteria M. chimaera isolated in hospitals in Iowasettlement by individual claimants and Pennsylvania. Citingprovided for a total payment of up to $225 million to resolve 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 takenclaims covered by the surgeon based onsettlement. Per the agreed-upon terms, the second and final payment of $90 million was paid into 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. qualified settlement fund in January 2020.
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 aidCases 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 beganstate courts in the U.S. and is being made available progressively on a global basis, prioritizingin jurisdictions outside the U.S. continue to progress. As of July 26, 2023, the Company was aware of approximately 80 filed and allocating devicesunfiled claims worldwide, with the majority of the claims in various federal or state courts throughout the United States, including some cases removed to 3T device usersthe MDL after the settlement described above. This number includes 13 cases in the process of settling. The complaints generally seek damages and other relief based on pre-established criteria. We anticipatetheories
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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.
During the three and six months ended June 30, 2023, we recorded an additional liability of $10.8 million and $12.2 million, respectively, due to new information received about the nature of certain claims. At June 30, 2023 and December 31, 2022, the provision for these matters was $25.4 million and $32.5 million, respectively. While the amount accrued represents the Company’s best estimate for those filed and unfiled claims that the Company believes are both probable and estimable at this program will continue until wetime, and which are able to address customer needs through a broader solution that includes implementation of one or moresubset of the risk mitigation strategiesfiled and unfiled claims worldwide of which LivaNova is currently under review with regulatory agencies.
On December 31, 2016, we recognized aaware, the actual 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 stageresolution of these matters we cannot give any assurances that additional legal proceedings makingmay vary from the sameCompany’s estimate. The remaining claims for which a provision has not been recorded are remote 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 rangeestimable 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, 2022$32,487 
Payments(19,407)
Adjustments (1)
12,150 
FX and other187 
Total litigation provision liability at June 30, 202325,417 
Less current portion of litigation provision liability at June 30, 202322,352 
Long-term portion of litigation provision liability at June 30, 2023 (2)
$3,065 
(1)Adjustments to the litigation provision are included within other operating expense on the condensed consolidated statements of income.
(2)Included within other long-term liabilities on the condensed consolidated balance sheet.
SNIA LitigationEnvironmental Liability
Sorin was created as a result of a spin-off (the “Sorin spin-off”) from SNIA S.p.A. (“SNIA”). Thein 2004, and in 2015, Sorin spin-off, which involved SNIA’s medical technology division,was merged into LivaNova. SNIA subsequently became effective on January 2, 2004. Pursuant to the Italian Civil Code, in a spin-off transaction, the parentinsolvent, 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 by Sorin was approximately €573 million (approximately $676 million).
We believe 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”),Public Administrations sought compensation from SNIA in an aggregate amount of €3.4approximately $3.8 billion (approximately $4.0 billion) for remediation costs relating to the environmental damage at chemical sites previously operated by SNIA’s other subsidiaries.
There are proceedings relating to the Caffaro Chemical Sites.
SNIA bankruptcy to which LivaNova is not a party in the Bankruptcy Court of Udine and the Bankruptcy Court of Milan. In September 2011, the Bankruptcy Court of Udine and in July 2014, the Bankruptcy Court of Milan each held (in proceedings to which we are not parties) that the Italian Ministry of the Environment and other Italian government agencies (the “Public Administrations”)Public Administrations were not creditors of either SNIA Subsidiaries or SNIAits subsidiaries in connection with their claims in the context of their Italian insolvency proceedings. The Public Administrations appealed. In January 2016, the Court of Udine rejected the appeal, brought byand the Italian Public Administrations.Administrations appealed to the Supreme Court. Similarly, in 2014, the Bankruptcy Court of Milan held that the Public Administrations were not creditors of either SNIA or its subsidiaries. The Public Administrations have appealed that second loss in pending proceedings before the Italian Supreme Court. The appeal byappealed. In April 2022, Bankruptcy Court of Milan declared the Public Administrations beforeto be a non-privileged creditor of SNIA for up to €454 million, and the Court of Milan remains pending.Public Administrations appealed to the Supreme Court.
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 namedcompany; the Public Administrations entered voluntarily into the Italian Ministry of the Environment and other Italian government agencies,proceeding, asking Sorin, as defendants, in orderjointly liable with SNIA, to have them bound to the final ruling.
On April 1,pay compensation for SNIA’s environmental damages. In 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 $318,732 as of June 30, 2023) for legal fees (of which SNIA is jointly liable for €50,000) (the “2016 Decision”).
On June 21, 2016, thefees. The Public Administrations appealed the 2016 Decision to the Court of Appeal. On March 5, 2019, the Court of Appeal of Milan. The first hearingissued 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 heldnet worth received by Sorin because of the Sorin spin-off, an estimated €572.1 million (approximately $624.5 million as of June 30, 2023). LivaNova appealed the partial decision on liability to the Italian Supreme Court in August 2019.
In 2021, the Court of Appeal delivered the remainder of its decision, ordering LivaNova to pay damages of approximately €453.6 million (approximately $495.1 million as of June 30, 2023). LivaNova appealed the decision on damages in December 2016,2021. 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 until a decision has been reached on the appeal to the Italian Supreme Court. This suspension was subject to LivaNova providing a first demand bank guarantee of €270.0 million (approximately $294.7 million as of June 30, 2023) within 30 calendar days, and on March 21, 2022, LivaNova delivered the final hearing is now scheduledguarantee, thereby satisfying the condition. Refer to “Note 5. Financing Arrangements” for information on the financing of the guarantee.
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In November 22, 2017. After2022, in response to one of a number of appeals asserted by LivaNova, the hearing,Supreme Court issued an ordinance, a procedural document, whereby the parties will file their final briefs,Supreme Court referred a question on interpretation of a European directive on demergers to the ECJ. Specifically, the ordinance asks the ECJ to provide a binding decision as to whether a company resulting from a demerger can be held jointly and severally liable not only for the established liabilities of the demerged company that were articulated at the time of demerger, but also for the environmental liabilities of the demerged company that materialized after the demerger which are derived from actions performed prior to the demerger. Following receipt of the binding decision from the ECJ, the Supreme Court is expected to render itsincorporate and issue a decision in mid-2018. SNIA did not file an appeal.


We (as successorresponse to Sorin inall of the litigation) continue to believeappeals of LivaNova and counter-appeals submitted by the Public Administrations. While the timing of the decisions by the ECJ and, subsequently, the Supreme Court are uncertain, the Company believes that the riskeffect of material loss relatingthe ordinance will result in a delay of any final decision until at least 2024.
In 2011, Caffaro, a SNIA subsidiary, sold its Brescia chemical business to Caffaro Brescia, a third party belonging to the SNIA litigation is not probableTodisco group, and as a resultpart of the reasoning contained in, and legal conclusions reached in, the recent court decisions described above. We also believe that the amount of potential losses relatingacquisition, Caffaro Brescia agreed 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 to contest them vigorously, there can be no assurance as to the outcome. A finding during any appeal or novel proceedings that we are liable for environmental damagesecure hydraulic barriers at the site and maintain existing environmental security measures. In 2020, Caffaro Chemical Sites orBrescia 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, Sorinagreement to maintain the environmental measures. In 2021, LivaNova (in addition to Caffaro Brescia, and other direct and indirect shareholders of SNIAnon-LivaNova entities) received an administrative order (the “Remediation Order”)Order from the Italian Ministry of the Environment (the “Ministry”), directing themrequiring the Company to promptly commenceensure the maintenance of the environmental remediation effortsmeasures 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 successorOrder appears to Sorin) believe that we should not be liablebased on the aforementioned Court of Appeal decision regarding LivaNova’s alleged joint liability with SNIA for damages relating toSNIA’s environmental liabilities. LivaNova’s response, dated February 16, 2021, disputes the Caffaro Chemical Operations pursuant to the Italian statute ongrounds upon which the Remediation Order relies because, inter alia,is based. LivaNova 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 SNIAOrder 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 haveLivaNova has not recognized an expensea liability in connection with these related matters because any potential loss is not currently probable.
Caisson Contract Litigation
On November 25, 2019, LivaNova received notice of a lawsuit initiated by former members of 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., was filed in the United States District Court for the District of Minnesota. The complaint alleged (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 program and the Company’s November 20, 2019 announcement that it was ending the program at the end of 2019. The lawsuit sought damages arising out of the 2017 acquisition agreement, including various regulatory milestone payments. In May 2022, the District Court granted LivaNova’s motion for summary judgment, and in June 2023, the Eighth Circuit Court of Appeal affirmed the decision. The Company now considers Caisson’s claim against LivaNova to be closed.
Mitral Litigation
On July 29, 2022, LivaNova received a demand letter from Mitral for approximately €20.8 million ($22.7 million as of June 30, 2023) for breach of warranty claims under the A&R Purchase Agreement. Specifically, the claims allege failure to disclose certain information relating to a supplier, thereby allegedly impacting the profitability of Mitral’s business in China and Japan. The Company does not believe that Mitral’s claims will be sustained or that LivaNova is responsible for any alleged breach of warranty. Subject to certain exceptions, warranty claims of this type are contractually capped at €8.0 million ($8.7 million as of June 30, 2023). On March 22, 2023, Mitral served a formal claim on LivaNova in the High Court of Justice Commercial Court (King’s Bench Division) alleging damages flowing from the aforementioned asserted breaches of warranties in the A&R Purchase Agreement. Although the claim is in excess of €20.8 million, Mitral acknowledges the €8.0 million cap. The Company filed its Defense on May 17, 2023. 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.probable.
Opposition to Merger ProceedingsItalian MedTech Payback Measure
On July 28,As previously disclosed, in 2015, the Public AdministrationsItalian Parliament introduced rules regarding public contracts with the National Healthcare System for the supply of goods and services. In particular, the law introduced a “payback” measure requiring companies selling medical devices in Italy to repay a percentage of the healthcare expenditures exceeding the regional maximum caps for medical devices. In the intervening years since the rules were first issued, there has been considerable uncertainty about how the law will operate and what the exact timeline is for finalization. In August 2022, a decree was published which provided guidance and timetables for the rule. The current deadline to execute payback payments is July 31, 2023. LivaNova filed an opposition proceeding toappeal at the proposed merger between Sorin and Cyberonics (the “Merger”), beforeAdministrative Court against the Commercial Courts of Milan, asking the Court to prohibit the executionDecree of the Merger. In its initial decisionMinistry of Health assessing the amount payable and against the MedTech Payback Guidelines. LivaNova also filed appeals against the regions requesting payments.
22

The Company has accrued for the law since 2015 based on August 20, 2015,market and product information. As of June 30, 2023 and December 31, 2022, 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 damagestotal amount reserved 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,was $7.4 million and $6.4 million, respectively; however, 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).actual liability could vary.
Other Matters
Additionally, we areLivaNova is the subject of various pending or threatened legal actions and proceedings that arise in the ordinary course of ourLivaNova’s 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 ourLivaNova’s consolidated net income, financial position or liquidity.


Note 10. Stockholders’8. Stockholders' Equity
Comprehensive incomeThe tables below present the condensed consolidated statements of stockholders’ equity as of and for the three and six months ended June 30, 2023 and 2022 (in thousands):
Ordinary SharesOrdinary Shares - AmountAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated Deficit
Total Stockholders' Equity (1)
March 31, 202353,854 $82,424 $2,162,928 $(319)$(41,032)$(976,660)$1,227,341 
Stock-based compensation plans50 17 6,418 224 — — 6,659 
Net income— — — — — 1,155 1,155 
Other comprehensive loss— — — — 5,453 — 5,453 
June 30, 202353,904 $82,441 $2,169,346 $(95)$(35,579)$(975,505)$1,240,608 
March 31, 202253,764 $82,298 $2,121,098 $(619)$(16,132)$(894,791)$1,291,854 
Stock-based compensation plans46 61 12,160 222 — — 12,443 
Net income— — — — — 16,444 16,444 
Other comprehensive loss— — — — (38,738)— (38,738)
June 30, 202253,810 $82,359 $2,133,258 $(397)$(54,870)$(878,347)$1,282,003 
Ordinary SharesOrdinary Shares - AmountAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated Deficit
Total Stockholders' Equity (1)
December 31, 202253,852 $82,424 $2,157,724 $(375)$(48,119)$(984,030)$1,207,624 
Stock-based compensation plans52 17 11,622 280 — — 11,919 
Net income— — — — — 8,525 8,525 
Other comprehensive loss— — — — 12,540 — 12,540 
June 30, 202353,904 $82,441 $2,169,346 $(95)$(35,579)$(975,505)$1,240,608 
December 31, 202153,762 $82,295 $2,117,961 $(650)$(7,177)$(897,784)$1,294,645 
Stock-based compensation plans48 64 15,297 253 — — 15,614 
Net income— — — — — 19,437 19,437 
Other comprehensive loss— — — — (47,693)— (47,693)
June 30, 202253,810 $82,359 $2,133,258 $(397)$(54,870)$(878,347)$1,282,003 
23

The table below presents the change in each component of AOCI, net of tax, and the reclassifications out of AOCI into net earningsincome (loss) for the ninesix months ended SeptemberJune 30, 20172023 and September 30, 20162022 (in thousands):
Change in Unrealized Gain (Loss) on Derivatives
Foreign Currency Translation Adjustments Gain (Loss) (1)
Total
December 31, 2022$966 $(49,085)$(48,119)
Other comprehensive loss before reclassifications, before tax(433)13,506 13,073 
Tax benefit— — — 
Other comprehensive loss before reclassifications, net of tax(433)13,506 13,073 
Reclassification of gain from accumulated other comprehensive loss, before tax(533)— (533)
Reclassification of tax benefit— — — 
Reclassification of gain from accumulated other comprehensive loss, after tax(533)— (533)
Net current-period other comprehensive loss, net of tax(966)13,506 12,540 
June 30, 2023$— $(35,579)$(35,579)
December 31, 2021$(945)$(6,232)$(7,177)
Other comprehensive loss before reclassifications, before tax(1,758)(45,766)(47,524)
Tax benefit— — — 
Other comprehensive loss before reclassifications, net of tax(1,758)(45,766)(47,524)
Reclassification of gain from accumulated other comprehensive loss, before tax(169)— (169)
Reclassification of tax benefit— — — 
Reclassification of gain from accumulated other comprehensive loss, after tax(169)— (169)
Net current-period other comprehensive loss, net of tax(1,927)(45,766)(47,693)
June 30, 2022$(2,872)$(51,998)$(54,870)
(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.
24
  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 (in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Service-based stock appreciation rights ("SARs") $2,535
 $1,983
 $6,001
 $6,567
Service-based restricted stock units ("RSUs") 2,225
 2,517
 6,718
 8,419
Market performance-based restricted stock units 301
 14
 482
 17
Operating performance-based restricted stock units 636
 254
 1,060
 572
Total stock-based compensation expense $5,697
 $4,768
 $14,261
 $15,575
During the ninesix months ended SeptemberJune 30, 2017, we executed2023, LivaNova issued stock-based compensatory award agreementsawards with contract terms agreed upon by us and the respective individuals, as approved by the Compensation Committee of ourLivaNova’s Board of


Directors. AwardsThe awards with service conditions generally vest ratably over four years and are subject to forfeiture unless service conditions are met. MarketThe market performance-based awards that were issued cliff vest ratably over fourafter three years subject to forfeiture unless certain future pricesthe rank of our sharesLivaNova’s total shareholder return for the three-year period ending December 31, 2025 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 fourafter three years subject to forfeiture unlessthe achievement of certain thresholds of adjusted net sales and adjusted net income are metcumulative results for fiscal year 2017.the three-year period ending December 31, 2025. Compensation expense related to award agreements executedawards granted during 20172023 for the three and ninesix months ended SeptemberJune 30, 2017 were $2.02023 was $2.4 million and $3.2$2.5 million, respectively.
Stock-based awards may be granted under the 2015 Plan and the 2022 Plan in the form of stock options, SARs, RSUs and other stock-based and cash-based awards. As of June 30, 2023, there were 8,977 shares available for future grants to LivaNova’s Non-Executive Directors under the 2015 Plan and 1,376,623 shares pursuant to Options or Stock Appreciation Rights and 914,340 shares pursuant to other types of awards available for future grants to LivaNova’s employees under the 2022 Plan. In June 2023, the Company’s shareholders approved the A&R 2022 Plan. The A&R 2022 Plan increases the aggregate number of ordinary shares that can be issued under the 2022 Plan pursuant to options or SARs from 1,900,000 to 2,250,000, and the number of ordinary shares that can be issued pursuant to awards other than options or SARs from 1,200,000 to 1,500,000.
Stock-based incentive plan compensation expense is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
RSUs$4,696 $5,882 $10,413 $11,226 
SARs3,706 3,720 6,827 6,658 
Market performance-based restricted stock units(1,560)1,003 (679)1,854 
Operating performance-based restricted stock units(1,429)611 (859)1,396 
Employee share purchase plan298 293 588 631 
Total stock-based compensation expense$5,711 $11,509 $16,290 $21,765 
Stock-based compensation agreements executedissued during the ninesix months ended SeptemberJune 30, 2017,2023 representing potential shares and their weighted average grant date fair values by type is as follows (shares in thousands, fair value in dollars):
Six Months Ended June 30, 2023
SharesWeighted Average Grant Date Fair Value
Service-based SARs974,204 $19.44 
Service-based RSUs499,301 $42.79 
Market performance-based RSUs94,561 $38.95 
Operating performance-based RSUs94,556 $42.30 
  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 consolidatedLivaNova’s effective income tax rate for the three and ninesix months ended SeptemberJune 30, 2017 included2023 was 77.6% and 43.0%, respectively, compared with 13.2% and 20.6% for the impact of various discretethree and six months ended June 30, 2022, respectively. LivaNova’s effective income tax items, including a net $4.0 million deferredrate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax benefit due to the release ofrates, valuation allowances, on tax losses upon the completion of a reorganization of our legal entities in the U.S.credits and a $2.1 millionincentives and unrecognized 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 benefitbenefits associated with certain temporary differences arising fromuncertain tax positions.
LivaNova continually assesses the Mergers and the recognitionrealizability of a $3.0 millionits worldwide deferred tax asset related to a reserve for an uncertain tax position recognizedand valuation allowance positions, and when the need arises, the Company establishes or releases valuation allowances accordingly.
These increases in a prior year, in addition to various other discrete items.
During the three and nine months ended September 30, 2016, we recorded consolidated income tax expense of $9.7 million and $16.9 million, respectively, with consolidated effective income tax rates of 45.7% and 514.5%, respectively. The effective tax rate for both the ninethree and six months ended SeptemberJune 30, 2016 was impacted by2023 compared to the recording ofprior year periods were primarily attributable to changes in valuation allowances, year-over-year changes in income before tax in countries with varying statutory tax rates and an audit settlement.
25

LivaNova operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subjected to review by tax authorities. As a result, there is an uncertainty in income taxes recognized in LivaNova’s financial statements. Tax benefits totaling $0.5 million and $1.6 million were unrecognized as of $23.9 million relatedJune 30, 2023 and December 31, 2022, respectively.
On October 8, 2021, members of the OECD / G20 Inclusive Framework on BEPS agreed to certaina Two-Pillar Solution to address tax challenges of a global economy. The Two-Pillar Solution aims to ensure multinational companies will be subject to a minimum 15% global tax rate (Pillar Two) and will reallocate profits to the market jurisdictions where sales arise (Pillar One). As part of the ongoing release of Pillar Two rules by various jurisdictions, the UK Act was enacted on July 11, 2023, and implements the OECD’s BEPS Pillar Two income inclusion rule including Francea multinational top-up tax and a domestic top-up tax to the minimum effective tax rate of 15% for accounting periods beginning on or after December 31, 2023. The UK Act also includes a transitional safe harbor election for accounting periods beginning on or before Dec 31, 2026. We are reviewing the draft guidance issued on June 15, 2023, and the UK Act to assess the full implications for 2024 and will continue to monitor related guidance 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 taxUK and other jurisdictions such as the U.S. and Germany, offset by tax savings from our inter-company financing as part of our 2015 tax restructuring.

that impact LivaNova’s operations.

Note 13. Net Income (Loss)11. Earnings Per Share
The following table sets forthReconciliation of the shares used in the basic and diluted earnings per share computations for the three and six months ended June 30, 2023 and 2022 are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Basic weighted average shares outstanding53,803 53,506 53,713 53,420 
Add effects of share-based compensation instruments (1)
174 574 229 724 
Diluted weighted average shares outstanding53,977 54,080 53,942 54,144 
(1)Excluded from the computation of basic and diluted net income (loss)earnings per share (in thousands, except perwere stock options, SARs and restricted share data):units totaling 3.5 million and 2.2 million for the three months ended June 30, 2023 and 2022, respectively, and 3.4 million and 2.2 million for the six months ended June 30, 2023 and 2022, 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 identifyLivaNova identifies operating segments based on the way we manage, evaluatehow it manages, evaluates and internally report ourreports its business activities for purposes of allocatingto allocate resources, develop and assessingexecute its strategy and assess performance. We haveLivaNova has three reportable segments: Cardiac Surgery,Cardiopulmonary, Neuromodulation and Cardiac Rhythm Management.ACS.
The Cardiac SurgeryLivaNova’s Cardiopulmonary segment generates its revenue fromis engaged in the development, production and sale of cardiovascular surgery products. Cardiac Surgerycardiopulmonary products, include oxygenators,including heart-lung machines, oxygenators, autotransfusion systems, mechanical heart valvesperfusion tubing systems, cannulae and tissue heart valves.other related accessories.
TheLivaNova’s Neuromodulation segment generates its revenue fromis engaged in the design, development and marketing of devices that deliver neuromodulation therapy for the treatment of drug-resistant epilepsytreating DRE and treatment resistant depression.DTD. 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 withand other accessories. It also includes the implant procedure, equipment to enable the treating physician to set the pulse generator stimulation parameters for the patient, instruction manuals and magnets to suspend or induce stimulation manually.
The Cardiac Rhythm Management segment generates its revenue from the development manufacturing and marketing of products for the diagnosis, treatment, and management of clinical testing of LivaNova’s aura6000 System for treating OSA. LivaNova’s Neuromodulation segment also includes costs associated with LivaNova’s former heart rhythm disordersfailure program, which, as previously disclosed, the Company began to wind down during the first quarter of 2023.
LivaNova’s ACS segment is engaged in the development, production and heart failure. Cardiac Rhythm Managementsale of leading-edge temporary life support products. LivaNova’s ACS products, include high-voltage defibrillators, cardiac resynchronization therapy deviceswhich comprise the LifeSPARC platform, simplify temporary extracorporeal cardiopulmonary life support solutions for critically ill patients. The LifeSPARC platform includes a common compact console and low-voltage pacemakers.
“Other”pump that provides temporary support for emergent rescue patients in a variety of settings. LivaNova’s ACS segment also includes Corporate shared services expenses for finance, legal, human resources and information technology and Corporate business development (“New Ventures”). New Ventures,the Hemolung RAS, which includes our recent Caissonwas acquired in May 2022 as part of the acquisition is focused on new growth platforms and identification of other opportunities for expansion.ALung.
Net salesrevenue of ourthe Company’s reportable segments include end-customerincludes revenues from the sale of products theythat each developreportable segment develops and manufacturemanufactures or distribute. We definedistributes. LivaNova defines segment income as operating income before merger and integration expense, restructuring andexpense, amortization of intangibles.intangibles as well as other income and expense not allocated to segments. Other income and expense not allocated to segments primarily includes rental income and SG&A expenses for finance, legal, human resources, information technology and corporate business development.

26


Net salesLivaNova operates under three geographic regions: U.S., Europe, and income from operationsRest of World. The table below presents net revenue by operating segment and geographic region (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cardiopulmonary
United States$46,711 $37,865 $82,825 $75,961 
Europe (1)
39,169 33,159 75,452 65,226 
Rest of World64,723 54,796 124,398 101,708 
150,603 125,820 282,675 242,895 
Neuromodulation
United States104,065 91,431 198,554 178,641 
Europe (1)
15,125 13,710 28,405 26,166 
Rest of World13,991 12,654 26,945 23,215 
133,181 117,795 253,904 228,022 
Advanced Circulatory Support
United States9,197 8,790 18,861 19,753 
Europe (1)
165 503 245 1,106 
Rest of World55 59 153 176 
9,417 9,352 19,259 21,035 
Other Revenue (2)
United States— — — — 
Europe (1)
— — — — 
Rest of World681 1,184 1,462 2,374 
681 1,184 1,462 2,374 
Totals
United States159,973 138,086 300,240 274,355 
Europe (1)
54,459 47,372 104,102 92,498 
Rest of World79,450 68,693 152,958 127,473 
Total (3)
$293,882 $254,151 $557,300 $494,326 
  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)Includes countries in Europe where the Company has a direct sales presence. Countries where sales are made through distributors are included in “Rest of World.”
(2)Other revenue primarily includes rental income not allocated to segments.
(3)No single customer represented over 10% of the Company’s consolidated net revenue. No country’s net revenue exceeded 10% of the Company’s consolidated revenue except for the U.S.
27
  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 ourtable below presents a reconciliation of segment income to consolidated income before tax (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cardiopulmonary$11,381 $3,644 $18,965 $10,539 
Neuromodulation38,148 51,360 65,154 88,838 
Advanced Circulatory Support(4,750)3,485 (11,199)(1,953)
Segment income44,779 58,489 72,920 97,424 
Other income/(expense) (1)
(27,403)(26,733)(57,886)(56,163)
Operating income17,376 31,756 15,034 41,261 
Interest expense(14,809)(14,388)(28,246)(22,228)
Foreign exchange and other income/(expense)2,713 1,633 28,260 5,537 
Income before tax$5,280 $19,001 $15,048 $24,570 
(1)Other income/(expense) primarily includes rental income, SG&A expenses for finance, legal, human resources, information technology and corporate business development, as well as amortization of intangible assets, merger and capitalintegration expense and restructuring expense.
Assets by segment are as follows (in thousands):
June 30, 2023December 31, 2022
Cardiopulmonary$909,837 $874,143 
Neuromodulation642,041 646,633 
Advanced Circulatory Support116,229 121,454 
Other assets (1)
673,448 652,543 
Total$2,341,555 $2,294,773 
(1)Other assets primarily includes corporate assets not allocated to segments.
Capital expenditures by segment are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cardiopulmonary$2,543 $3,213 $7,341 $5,042 
Neuromodulation133 46 492 130 
Advanced Circulatory Support708 — 845 684 
Other capital expenditures (1)
2,671 2,604 5,228 5,587 
Total$6,055 $5,863 $13,906 $11,443 
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


(1)Other capital expenditures primarily includes corporate capital expenditures not allocated to segments.
The changes in the carrying amount of goodwill by reportable segment for the ninesix months ended SeptemberJune 30, 20172023 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):
CardiopulmonaryNeuromodulationTotal
December 31, 2022$370,033 $398,754 $768,787 
Foreign currency adjustments10,425 — 10,425 
June 30, 2023$380,458 $398,754 $779,212 
28
  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):
June 30, 2023December 31, 2022
United States$66,360 $63,458 
Europe79,102 79,654 
Rest of World4,106 4,075 
Total$149,568 $147,187 
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):
June 30, 2023December 31, 2022
Raw materials$86,929 $70,027 
Work-in-process18,521 15,508 
Finished goods50,996 43,844 
 $156,446 $129,379 

 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 netAs of the provision for obsolescence which totaled $13.7 million and $9.8 million at SeptemberJune 30, 20172023 and December 31, 2016, respectively.
Prepaid expenses2022, inventories included adjustments totaling $11.2 million and other current assets consisted$8.2 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):
June 30, 2023December 31, 2022
Legal and professional costs$12,071 $8,653 
Contract liabilities11,042 10,226 
Operating lease liabilities9,851 9,379 
Interest payable7,493 — 
Research and development costs6,043 7,020 
Italian medical device payback law7,401 6,414 
Royalty accrual4,362 3,950 
Provisions for agents, returns and other4,432 1,678 
Current derivative liabilities113 5,886 
Restructuring liabilities904 2,045 
Other accrued expenses18,326 26,230 
$82,038 $81,481 
  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.”
OtherAs of June 30, 2023 and December 31, 2022, contract liabilities totaling $15.6 million and $14.1 million, respectively, were included within accrued liabilities and other long-term liabilities consistedon the condensed consolidated balance sheets.
The table below presents the items included within “Foreign exchange and other income/(expense)” on the condensed consolidated statements of the followingincome (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Exchangeable Notes fair value adjustment (1)
$(12,420)$36,570 $31,970 $47,610 
Capped call fair value adjustment (1)
11,020 (35,109)(12,359)(45,021)
Foreign exchange rate fluctuations(1,230)341 (1,008)3,132 
Interest income5,528 57 10,064 77 
Other(185)(226)(407)(261)
Foreign exchange and other income/(expense)$2,713 $1,633 $28,260 $5,537 
(1)Refer to “Note 4. Fair Value Measurements”

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 September 30, 2017 December 31, 2016
Contingent consideration (1)
 $34,217
 $3,890
Uncertain tax positions 12,349
 11,108
Product remediation liability (2)
 10,186
 10,023
Government grants 5,889
 3,803
Derivative contract liabilities (3)
 932
 1,392
Escrow indemnity liability - Caisson 1,000
 —
Unfavorable operating leases (4)
 256
 1,672
Other 9,575
 7,599
  $74,404
 $39,487
(1)The contingent consideration liability represents contingent payments related to three acquisitions: the first and second acquisitions, in September 2015, were Cellplex PTY Ltd. in Australia and the commercial activities of a local distributor in Colombia. The contingent payments for the first acquisition are based on achievement of sales targets by the acquiree through June 30, 2018 and the contingent payments for the second acquisition are based on sales of cardiopulmonary disposable products and heart lung machines of the acquiree through December 2019. Refer to “Note 6. Fair Value Measurements.” The third acquisition, Caisson, occurred in May 2017. Refer to “Note 2. Acquisitions.”
(2)Refer to “Note 4. Product Remediation Liability.”
(3)Refer to “Note 8. Derivatives and Risk Management.”
(4)Unfavorable operating leases represent the adjustment to recognize future lease obligations at their estimated fair value in conjunction with the Mergers.
Note 16. New Accounting Pronouncements
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 amountThe table below presents a reconciliation of revenue to which it expects to be entitled for the transfer of promised goods or services to customerscash, 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.


Basedrestricted cash reported on the Company’s evaluation performedcondensed 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 standardamounts 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, to present gross windfall tax benefits(in thousands):
June 30, 2023December 31, 2022
Cash and cash equivalents$222,935 $214,172 
Restricted cash (1)
311,425 301,446 
Cash, cash equivalents and restricted cash$534,360 $515,618 
(1)Restricted cash represents funds held as an inflow from financing activities and an outflow from operating activities.
Under the Amendment related to forfeitures, entities are permitted to make a company-wide accounting policy election to either estimate forfeitures each period, as required prior to this Amendment’s effective date, or to account for forfeitures as they occur. We elected to continue to account for forfeitures using the estimation method.
We adopted the Amendment related to the timing of when excess tax benefits are recognized, which requires that all windfalls and shortfalls be recognized when they arise. There were no unrecognized excess tax benefits prior to the adoption of the Amendment.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments(Topic 230 -Statement of Cash Flows). Update 2016-15 provides guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination,


proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the effect this standard will have on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). This update simplifies the accountingcollateral for the income tax consequences of transfers of assets from one unit of a corporationSNIA Litigation Guarantee. Refer to another unit or subsidiary by eliminating an accounting exception that prevents the recognition of current“Note 7. Commitments and deferred income tax consequences for such “intra-entity transfers” until the assets have been sold to an outside party. The amendment should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment directly to retained earnings as of the beginning of the period in which the guidance is adopted. The rule is effective for annual periods after December 15, 2017, including interim periods within those annual reporting periods. We currently estimate the cumulative-effect reduction to retained earnings to be approximately $65.2 million upon adoption at January 1, 2018.Contingencies.”
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.
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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 ourthe condensed consolidated financial statements and related notes, which appear elsewhere in this document, and with our Annual Report onLivaNova’s 2022 Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”). Our10-K. LivaNova’s discussion and analysis may contain forward-looking statements that involve risks and uncertainties. OurThe Company’s 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 2016LivaNova’s 2022 Form 10-K, as updated and supplemented by LivaNova’s 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 ourLivaNova’s condensed consolidated financial statements. statements and the “Definitions” section of this Quarterly Report on Form 10-Q.
Macroeconomic Environment
The current macroeconomic environment, including foreign exchange volatility, supply chain challenges, inflationary pressures, and geopolitical instability, has impacted and may continue to impact LivaNova’s business. LivaNova’s net revenue and profitability have been negatively affected by the unfavorable foreign currency exchange impact of the strengthened USD against a number of currencies. Furthermore, LivaNova continues to experience supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues. Though, to date, the Company’s 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 LivaNova’s manufacturing facilities have increased substantially in the wake of inflation globally. The Company continues to respond to such challenges, and while LivaNova has business continuity plans in place, the impact of the ongoing challenges the Company is navigating, along with their potential escalation, may adversely affect its business.
In February 2022, Russia launched an invasion in Ukraine, which caused the following text,Company to assess its ability to sell in the terms “LivaNova,” “the Company,” “we,” “us”market due to international sanctions, consider the potential impact of raw material sourced from the region, and “our” referdetermine whether LivaNova is able to LivaNova PLCtransact in a compliant fashion. Although business across Russia, Ukraine and its consolidated subsidiaries.

Belarus represented 1% of LivaNova’s total net revenue for 2022, the invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the conflict could have a material, global impact on the Company’s operating results.

Business Overview
We areLivaNova is a global medical technology company built on nearly five decades of experience and a relentless commitment to provide hope for patients and their families through medical technologies, delivering life-changing improvements for both the Head and Heart. The Company is a public limited company organized under the laws of England and Wales and headquartered in London, United Kingdom. We are a global medical device company focused on the development and deliveryEngland.
LivaNova is comprised of important therapeutic solutions for the benefit of patients, healthcare professionals and healthcare systems throughout the world. Working closely with medical professionals in the fields of Cardiac Surgery,three reportable segments: Cardiopulmonary, Neuromodulation and Cardiac Rhythm Management, we design, develop, manufacture and sell innovative therapeutic solutions that are consistent with our missionACS, corresponding to improve our patients’ quality of life, increase the skills and capabilities of healthcare professionals and minimize healthcare costs.
Business Franchises
We operate ourits primary business through three segments: Cardiac Surgery, Neuromodulation and Cardiac Rhythm Management. Our three reportable segments correspond to our Business Franchises and each Business Franchise corresponds to one of our three main therapeutic areas aligned to best serve our customers. Corporate activities include corporate business development (“New Ventures”). New Ventures is focused on new growth platforms and identification of other opportunities for expansion and investment.units.
For further information regarding ourLivaNova’s business segments, historical financial information and ourits 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 UpdateCardiopulmonary
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 studyLivaNova’s 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 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 approvaldevelopment, production and sale of our CROWN PRTvalve for the treatment of aortic valve disease. TheCROWN PRTvalve uses a stented aortic bioprosthesis technologycardiopulmonary products, including heart-lung machines, oxygenators, autotransfusion systems, perfusion tubing systems, cannulae and features a surgeon-friendly design, with optimized hemodynamics and a patented phospholipid reduction treatment (“PRT”), designed to enhance valve durability. We anticipate launching the CROWN PRT valve in the U.S. later this year.other related accessories.
In March 2017, we committed to a plan to sell our Suzhou Industrial Park facility in Shanghai, China, an emerging market greenfield project for the local manufacture of Cardiopulmonary disposable products in Suzhou Industrial Park in China. As a result of this exit plan, we recorded an impairment of the building and equipment of $4.6 million and accrued $0.5 million of additional costs, primarily related to employee severance, during the nine months ended September 30, 2017, included in ‘Restructuring expenses’ in the condensed consolidated statement of income (loss). In addition, the land, building and equipment were recorded as ‘Assets held for sale’ on the condensed consolidated balance sheet, with a carrying value of $14.1 million as of September 30, 2017.
In September 2017, we2023, LivaNova announced it received FDA 510(k) clearance for its Essenz HLM. With FDA clearance, LivaNova initiated the U.S. marketcommercial 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 alert is limited to the 3T devices, but that the agency reserves the right to expand the scope of the import alert if future circumstances warrant such action. The Warning Letter did not request that existing users cease using the 3T device, and manufacturing and shipment of all of our products other than the 3T device remain unaffected by the import limitation. To help clarify these issues for current customers, we issued an informational Customer Letter in January 2016, and that same month agreed with the FDA on a process for shipping 3T devices to existing U.S. users pursuant to a certificate of medical necessity program.
Finally, the Warning Letter stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter are reasonably related will not be approved until the violations have been corrected. However, this restriction applies only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.
We continue to work diligently to remediate the FDA’s inspectional observations for the Munich facility, as well as the additional issues identified in the Warning Letter. We take these matters seriously and intend to respond timely and fully to the FDA’s requests.
CDC and FDA Safety Communications and Company Field Safety Notice Update
On 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 beganEssenz 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 ofThe Company has also recently received approval for 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 planEssenz HLM from Health Canada and the commitments madeJapanese Pharmaceuticals and Medical Devices Agency. Additionally, in March 2023, LivaNova initiated a broad commercial release in Europe following a successful limited commercial release that supported more than 200 adult, pediatric and neonatal patients in Europe.
Information on Cardiopulmonary that could potentially impact LivaNova’s condensed consolidated financial statements and related disclosures is incorporated by managementreference to various regulatory authorities globally in NovemberPart I. Note 7. Commitments 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.Contingencies: Product Remediation Liability” for additional information.Liability Litigation.

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LitigationNeuromodulation
On February 12, 2016, LivaNova was alerted that a class action complaint had been filedLivaNova’s Neuromodulation segment is engaged in the U.S. District Courtdesign, development and marketing of devices that deliver neuromodulation therapy 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 Hospitaltreating DRE and Penn State Milton S. Hershey Medical Center in 2015, andDTD. Neuromodulation products include 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 an implantable pulse generator, a lead that connects the SenTiva implantable generator to the vagus nerve, and other accessories. It also includes the next-generation VNS Therapy Programming System. SenTiva isdevelopment and management of clinical testing of LivaNova’s aura6000 System for treating OSA. This device stimulates the smallest and lightest responsive therapy for epilepsy. The new VNS Therapy Programming System featureshypoglossal nerve, which engages certain tongue muscles to open the airway while a wireless wand and new user interface on a small tablet. Together,patient sleeps. LivaNova’s Neuromodulation segment also includes costs associated with LivaNova’s former heart failure program, which the components offer patients with drug-resistant epilepsy a physician-directed customizable therapy with smart technology and proven results that reduceCompany began to wind down during the numberfirst quarter of seizures, lessen the duration of seizures and enable a faster recovery.
Depression2023.
In March 2017,2023, LivaNova randomized the American Journal of Psychiatry published500th unipolar depression patient into the resultsRECOVER clinical study and subsequently completed all implants in May. Upon receipt of the longest12-month follow-up data for all 500 patients, the Company expects to conduct a final analysis for the unipolar cohort, culminating in a publication of the study results for that cohort.
In June 2023, LivaNova randomized the 150th bipolar depression patient into the RECOVER clinical study. The RECOVER clinical study’s protocol allows for a minimum of 150 and largest naturalistic study on effective treatmentsa maximum of 500 bipolar depression patients to be randomized into the study. Having randomized the 150th bipolar patient, a series of interim analyses will be conducted by an independent Statistical Analysis Committee to assess if predictive probability of success has been reached for patients experiencing chronic and severe depression. The findings showedthe bipolar cohort of the study. If any analysis reveals that the additionpredictive probability 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 salesuccess has been made. Accordingly,reached, recruitment into the CRM business franchise was not reported as an asset heldbipolar arm of the study will cease and we will notify CMS of the initiation of the prospective open-label longitudinal study for sale asfuture bipolar Medicare patients. After the last patient enrolled into the RECOVER clinical study has completed 12 months 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 focusedfollow-up, a final analysis will be conducted on the developmentcomplete bipolar dataset.
The RECOVER clinical study, if successful, will be used to support a peer-reviewed article and clinical testingreconsideration of the VITARIA® Systemreimbursement for treating heart failure through vagus nerve stimulation.
We received CE Mark approval 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 System is not approved in the U.S. During 2014, we also initiated a second pilot study, ANTHEM-HFpEF, to study ART in patients experiencing symptomatic heart failure with preserved ejection fraction. This pilot study is currently underway outside the United States.
Obstructive sleep apnea
ImThera Medical, Inc. (“ImThera”) is a privately held, emerging-growth company developing an implantable neurostimulation device systemCMS for the treatment of obstructive sleep apnea. We have an investment of $12.0 million in ImThera,DTD. The reconsideration process will happen independently for the unipolar 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.bipolar cohorts.
Mitral valve regurgitation
Mitral regurgitation (“MR”) occurs when the heart’s mitral valve does not close tightly, which allows blood to flow backwardsAdvanced Circulatory Support
LivaNova’s ACS segment is engaged in the heart. This reducesdevelopment, production and sale of leading-edge temporary life support products. LivaNova’s ACS products, which comprise the amountLifeSPARC platform, simplify temporary extracorporeal cardiopulmonary life support solutions for critically ill patients. The LifeSPARC platform includes a common compact console and pump that provides temporary support for emergent rescue patients in a variety of blood that flowssettings. Designed for ease of use, the system offers power and versatility for multi-disciplinary programs to support more patients in more places. The platform is accompanied by four specialized and ready-to-deploy kits, each designed to support diverse cannulation strategies. LivaNova’s ACS segment also includes the restHemolung RAS. The Hemolung RAS is the only FDA-cleared platform designed specifically for low-flow extracorporeal carbon dioxide removal for acute respiratory failure. The Hemolung RAS was acquired in May 2022 as part of the body, making the patient feel tired or out of breath. Treatment depends on the nature and the severity of MR. In certain cases, heart surgery may be needed to repair or replace the valve. Left untreated, severe mitral valve regurgitation can cause heart failure or heart rhythm problems (arrhythmias).
On May 2, 2017, we agreed to pay up to $72.0 million to acquire the remaining 51% equity interests in Caisson in support of our strategic growth initiatives. Caisson is developing a device for treating mitral regurgitation through replacement of the native mitral valve using a fully transvenous delivery system. As a result of our acquisition of Caisson, we began consolidating the results of Caisson as of May 2, 2017. In April 2016, we obtained FDA approval of an Investigational Device Exemption study using Caisson technology for treating mitral regurgitation heart failure with transcatheter mitral valve replacement and we are currently executing against a defined clinical data development plan designed to enable commercialization of the Caisson technology.ALung.
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 ourFor a discussion of LivaNova’s critical accounting policies from the information provided in “Part II, Item 7. Management’sestimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2016the 2022 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
32

Results of Operations
The following table summarizes LivaNova’s condensed consolidated results of operations (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net revenue$293,882 $254,151 $557,300 $494,326 
Cost of sales88,685 69,801 178,020 141,533 
Gross profit205,197 184,350 379,280 352,793 
Operating expenses:
Selling, general and administrative125,872 116,482 250,001 235,007 
Research and development51,124 34,229 101,110 75,147 
Other operating expense10,825 1,883 13,135 1,378 
Operating income17,376 31,756 15,034 41,261 
Interest expense(14,809)(14,388)(28,246)(22,228)
Foreign exchange and other income/(expense)2,713 1,633 28,260 5,537 
Income before tax5,280 19,001 15,048 24,570 
Income tax expense4,097 2,515 6,468 5,052 
Losses from equity method investments(28)(42)(55)(81)
Net income$1,155 $16,444 $8,525 $19,437 
33

Net Revenue
The table below presents net revenue by operating segment and geographic region (in thousands, except for percentages):
Three Months Ended June 30,Six Months Ended June 30,
20232022% Change20232022% Change
Cardiopulmonary
United States$46,711 $37,865 23.4 %$82,825 $75,961 9.0 %
Europe (1)
39,169 33,159 18.1 %75,452 65,226 15.7 %
Rest of World64,723 54,796 18.1 %124,398 101,708 22.3 %
150,603 125,820 19.7 %282,675 242,895 16.4 %
Neuromodulation
United States104,065 91,431 13.8 %198,554 178,641 11.1 %
Europe (1)
15,125 13,710 10.3 %28,405 26,166 8.6 %
Rest of World13,991 12,654 10.6 %26,945 23,215 16.1 %
133,181 117,795 13.1 %253,904 228,022 11.4 %
Advanced Circulatory Support
United States9,197 8,790 4.6 %18,861 19,753 (4.5)%
Europe (1)
165 503 (67.2)%245 1,106 (77.8)%
Rest of World55 59 (6.8)%153 176 (13.1)%
9,417 9,352 0.7 %19,259 21,035 (8.4)%
Other Revenue (2)
United States— — — %— — — %
Europe (1)
— — — %— — — %
Rest of World681 1,184 (42.5)%1,462 2,374 (38.4)%
681 1,184 (42.5)%1,462 2,374 (38.4)%
Totals
United States159,973 138,086 15.9 %300,240 274,355 9.4 %
Europe (1)
54,459 47,372 15.0 %104,102 92,498 12.5 %
Rest of World79,450 68,693 15.7 %152,958 127,473 20.0 %
Total$293,882 $254,151 15.6 %$557,300 $494,326 12.7 %
(1)Includes countries in Europe where the Company has a direct sales presence. Countries where sales are disclosedmade through distributors are included in “Rest of World.”
(2)Other revenue primarily includes rental income not allocated to segments.

34

The table below presents segment income (in thousands, except for percentages):
Three Months Ended June 30,Six Months Ended June 30,
20232022% Change20232022% Change
Cardiopulmonary$11,381 $3,644 212.3 %$18,965 $10,539 80.0 %
Neuromodulation38,148 51,360 (25.7)%65,154 88,838 (26.7)%
Advanced Circulatory Support(4,750)3,485 (236.3)%(11,199)(1,953)473.4 %
Segment income (1)
$44,779 $58,489 (23.4)%$72,920 $97,424 (25.2)%
(1)For a reconciliation of segment income to income before tax refer to “Note 16. New Accounting Pronouncements” contained12. Geographic and Segment Information” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.


Cardiopulmonary
Other
On June 23, 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit.” On March 29, 2017, the UK government gave formal notice of its intention to leave the EU, formally commencing the negotiations regarding the terms of withdrawal between the UK and the EU. The withdrawal must occur within two years, unless the deadline is extended. The negotiation process will determine the future terms of the UK’s relationship with the EU. The notification does not change the application of existing tax laws, and does not establish a clear framework for what the ultimate outcome of the negotiations and legislative process will be.
Various tax reliefs and exemptions that apply to transactions between EU Member States under existing tax laws may cease to apply to transactions between the UK and EU Member States when the UK ultimately withdraws from the EU. It is unclear at this stage if or when any new tax treaties between the UK and the EU or individual EU Member States will replace those reliefs and exemptions. It is also unclear at this stage what financial, trade and legal implications will ensue from Brexit and how Brexit may affect us, our customers, suppliers, vendors, or our industry.
Several of our wholly owned subsidiaries that are domiciled either in the UK, various EU Member States, or in the United Sates, and our parent company, LivaNova PLC, are party to intercompany transactions and agreements under which we receive various tax reliefs and exemptions in accordance with applicable international tax laws, treaties and regulations. If certain treaties applicable to our transactions and agreements are not renegotiated or replaced with new treaties containing terms, conditions and attributes similar to those of the existing treaties, Brexit may have a material adverse impact on our future financial results and results of operations. During the two-year negotiation period, we will monitor and assess the potential impact of this event and explore possible tax-planning strategies that may mitigate or eliminate any such potential adverse impact. We will not account for the impact of Brexit in our income tax provisions until changes in tax laws or treaties between the UK and the EU or individual EU Member States are enacted or the withdrawal becomes effective.
The Trump Administration has included as part of its agenda a potential reform of U.S. tax laws.  On September 27, 2017, the White House released its “Unified Framework for Fixing Our Broken Tax Code” (the “Framework”), which was developed by the Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance and which includes specific goals for lower business tax rates. The Framework calls for a 20% corporate tax rate and international reforms that include a territorial tax system and a one-time mandatory repatriation tax. The Framework proposes 100% expensing of new investments in depreciable assets for five years, effective after September 27, 2017, while partially limiting the tax deduction forCardiopulmonary 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 subsidiariesrevenue for the three and ninesix months ended SeptemberJune 30, 2017, as2023 increased 19.7% to $150.6 million and 16.4% to $282.7 million, respectively, compared to the three and ninesix months ended SeptemberJune 30, 2016.2022, respectively. These increases were primarily driven by strong oxygenator demand and increased heart-lung machine placements.
The following table summarizes our condensed consolidated results of operations (in thousands):
  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 net sales by operating segment and market geography (in thousands, except for percentages):
  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 illustratesCardiopulmonary segment income (loss) from operations (in thousands):
  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 income to consolidated operating income refer to “Note 14. Geographic and Segment Information” in 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 ninesix months ended SeptemberJune 30, 2017,2023 was $11.4 million and $19.0 million, respectively, as compared to $3.6 million and $10.5 million for the three and six months ended June 30, 2022, respectively. These increases in segment income were primarily due to the increase in net revenue, as described above, partially offset by an increase in the litigation provision related to LivaNova’s 3T Heater-Cooler device of $9.8 million and $11.4 million for the three- and six-month comparative periods, respectively, as well as an increase in sales and marketing expense associated with the launch of Essenz.
Neuromodulation
Neuromodulation net revenue for the three and six months ended June 30, 2023 increased 13.1% to $133.2 million and 11.4% to $253.9 million, respectively, compared to the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively. Net salesThese increases were primarily driven by growth in new and replacement implants across all regions.
Neuromodulation segment income for the three and six months ended June 30, 2023 was $38.1 million and $65.2 million, respectively, as compared to $51.4 million and $88.8 million for the three and six months ended June 30, 2022, respectively. The decreases in segment income were primarily due to the net unfavorable impact of the change in fair value of the sales-based and milestone-based contingent consideration arrangement associated with the acquisition of ImThera of $14.9 million and $22.1 million for the three- and six-month comparative periods, respectively, as well as an increase in R&D expense for the three- and six-month comparative periods totaling $3.8 million and $8.8 million, respectively, associated with the Company’s RECOVER clinical study and OSPREY clinical trial. These increases in expense were partially offset by the increase in net revenue, as described above.
Advanced Circulatory Support
ACS net revenue for the three months ended June 30, 2023 increased $11.30.7% to $9.4 million, compared to the three months ended June 30, 2022, reflecting growth in cardiac case volumes, partially offset by respiratory case declines and product mix. ACS net revenue for the six months ended June 30, 2023, decreased 8.4% to $19.3 million, compared to the six months ended June 30, 2022. The decrease in net revenue for the six-month period was primarily due to a reduction in patients treated with ECMO as a result of fewer severe COVID-19 cases and product mix, partially offset by growth in non-COVID-19 cases.
ACS segment loss for the three and six months ended June 30, 2023, was $4.8 million and $11.2 million, respectively, as compared to segment income of $3.5 million for the three months ended SeptemberJune 30, 2017, as compared to the prior-year period due to growth in both cardiopulmonary product revenue2022 and heart valve revenue and favorable foreign currency exchange rate fluctuations. Cardiopulmonary sales increased 7.6%, or $8.7segment loss of $2.0 million for the threesix months ended SeptemberJune 30, 2017, due to strength2022. These increases in heart-lung machines as a result 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 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 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 operating income for the three months ended September 30, 2017 increased 33.8% over the prior-year periodsegment loss were primarily due to increased operating leverage from the $11.3 million increasenet unfavorable impact of the change 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 anticipationTandemLife contingent consideration arrangement of the SenTiva system, our new generation VNS Therapy System, which launched in October 2017. The increase in net sales of $14.3 million for the nine months ended September 30, 2017 over the prior-year period was primarily due to strong new patient sales and price premiums partially offset by hurricane-related impacts in the U.S. and customer anticipation of the SenTiva system. The decrease in 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$5.7 million and $28.0$6.0 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively, as compared to the prior-year periods.2022, respectively. The increase in segment loss for the threesix months ended SeptemberJune 30, 2017 over2023, was also impacted by the prior-year period was due to cost reductions resulting from prior restructuring actions, improvementsdecrease in selling, general and administrative costs driven by reductions in the overall sales force and increased net sales. The increase for the nine months ended September 30, 2017revenue, as compared to the prior-year period was driven by inventory fair value step-up amortization of $10.0 million that was recognized during the nine months ended September 30, 2016, cost reductions resulting from prior restructuring actions and cost reductions associated with a reduction in the overall sales forcedescribed above, partially offset by decreased salesexpenses associated with the acquisition of ALung incurred during the ninesix months ended SeptemberJune 30, 2017.2022.
‘Other’ comprises the results from our corporate and new ventures activity. Operating loss from Other increased $14.4 million for the three months ended September 30, 2017, as compared to the prior-year period, primarily due to $3.9 million of Caisson related expenses and $12.9 million in increased Corporate costs. Operating loss from Other increased $30.3 million for the nine months ended September 30, 2017, as compared to the prior-year period, primarily due to $17.9 million of increased Caisson-related expenses and increased Corporate costs of $20.3 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.
35

Cost of Sales and Expenses
The following table below illustrates our comparative cost of salespresents costs and major expenses as a percentage of sales:net revenue for the three and six months ended June 30, 2023 and 2022:
  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 June 30,Six Months Ended June 30,
20232022Change20232022Change
Cost of sales30.2 %27.5 %2.7 %31.9 %28.6 %3.3 %
Selling, general and administrative42.8 %45.8 %(3.0)%44.9 %47.5 %(2.6)%
Research and development17.4 %13.5 %3.9 %18.1 %15.2 %2.9 %
Other operating expense3.7 %0.7 %3.0 %2.4 %0.3 %2.1 %
Cost of Sales
Cost of sales consistedconsists primarily of direct labor, allocated manufacturing overhead the acquisition cost ofand raw materials and components.
Cost of sales as a percentage of net sales decreased by 1.1% to 35.0%revenue was 30.2% and by 5.1% to 34.8%31.9% for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, asan increase of 2.7% and 3.3% compared to the prior-year periods. The cost improvement for the three and six months ended SeptemberJune 30, 2017 reflects management’s focus on cost efficiencies to improve gross margin. The cost improvement for the nine months ended September 30, 2017 was2022, respectively. These increases were primarily due to inventorythe net impact of the change in fair value step-up amortization inof sales-based contingent consideration arrangements totaling $14.0 million and $19.0 million for the prior year, which accounted for 3.9% of the decrease in ourthree- and six-month comparative periods, respectively, as well as increased costs driven by supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues. The aforementioned increases to cost of sales as a percentage of net sales,revenue were partially offset by favorable realized price from pricing initiatives implemented in the second half of 2022, higher volume which drove better fixed overhead absorption, as well as the previously mentioned cost efficiencies. The total amount recognized for amortization of the fair value step-up in inventory for the nine months ended September 30, 2016 was $35.2 million. The fair value step-up in inventory basis was fully amortized by September 30, 2016.lower inbound freight costs.
Sales,Selling, General and Administrative (“SG&A”) ExpensesExpense
SG&A expenses consistedexpense is comprised of sales, marketing, and general and administrative activities.
SG&A expenses for the three months ended September 30, 2017 increasedexpense as a percentage of net sales, by 2.1% to 39.1%, asrevenue was 42.8% and 44.9% for the three and six months ended June 30, 2023, respectively, a decrease of 3.0% and 2.6% compared to the prior-year period,three and was consistent at 38.6% for the ninesix months ended SeptemberJune 30, 2017, as compared2022, respectively. The decreases were primarily due to a decrease in stock-based compensation expense due to forfeitures of awards associated with the recent departure of the Company’s former CEO and prior year business development expense related to the prior-year period. The 2.1% increase was largely attributable to litigation related to our 3T devices and other legal matters.acquisition of ALung.
Research and Development (“R&D”) ExpensesExpense
R&D expenses consistedexpense consists of product design and development efforts, clinical trialstudy programs and regulatory activities. activities, which are essential to LivaNova’s strategic portfolio initiatives, including DTD, OSA and, until recently, heart failure.
R&D expenses,expense as a percentage of net sales,revenue was consistent17.4% and 18.1% for the three and six months ended SeptemberJune 30, 2017, as2023, respectively, an increase of 3.9% and 2.9% compared to the prior-year period,three and increased by 1.0% to 11.4% for the ninesix months ended SeptemberJune 30, 2017, as compared to the prior-year period. The increase is2022, respectively. These increases were primarily due to 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 retentionnet impact of the employeeschange in the fair value of Caisson.milestone-based contingent consideration arrangements totaling $12.1 million and $15.6 million for the three- and six-month comparative periods, respectively.
MergerOther Operating Expense
Other operating expense primarily consists of the provision for litigation involving LivaNova’s 3T Heater-Cooler device, restructuring expense, and Integration Expenses
Mergermerger and integration expenses consisted primarily of consulting costs associated with computer systems integration efforts, organization structure integration, synergy and tax planning, as well as the integration of internal controls for the two legacy organizations. In addition, integration expenses include retention bonuses, branding and renaming efforts and lease cancellation penalties in Milan and Brussels.expense.
Merger and integration expensesOther operating expense as a percentage of net sales decreased by 1.9% to 0.7%revenue was 3.7% and 2.4% for the three and six months ended SeptemberJune 30, 20172023, respectively, an increase of 3.0% and 2.1% compared to the three and six months ended June 30, 2022, respectively. These increases were primarily due to an increase in the litigation provision related to LivaNova’s 3T Heater-Cooler device of $9.8 million and $11.4 million for the three- and six-month comparative periods, respectively.
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.
Interest Expense
Interest expense for the three and six months ended June 30, 2023, increased to $14.8 million and $28.2 million, respectively, compared to $14.4 million and $22.2 million for the three and six months ended June 30, 2022, respectively, primarily due to an increase in average borrowings and an increase in interest rates, partially offset by a reduction in amortization of debt issuance
36

costs, as compared to the prior-year period,prior year three- and decreased by 1.5%six-month comparative periods. For further details, refer to 0.8% for“Note 5. Financing Arrangements” in the nine months ended September 30, 2017 as compared to the prior-year period. These decreases were due to a continued declinecondensed consolidated financial statements in integration activities.
Restructuring Expenses
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% for the three and nine months ended September 30, 2017, respectively, as compared to the prior-year periods due to a continued decline in restructuring activities.
Gainthis Quarterly Report 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.Form 10-Q.
Foreign Exchange and Other Gains (Losses)Income/(Expense)
Foreign exchange and other income/(expense) consist primarily of gains were $0.5and losses arising from transactions denominated in a currency different from an entity’s functional currency, FX derivative gains and losses, changes in the fair value of the embedded exchange feature and capped call derivatives and interest income.
Foreign exchange and other income/(expense) was income of $2.7 million and $1.2$28.3 million for the three and six months ended SeptemberJune 30, 20172023, respectively, compared to income of $1.6 million and September 30, 2016, respectively. The gains were primarily due to net foreign currency gains associated with foreign currency commercial transactions, freestanding foreign currency forward contracts, intercompany debt, and third-party financial assets and liabilities. The gains of $1.0$5.5 million for the ninethree and six months ended SeptemberJune 30, 2017 included a $3.2 million gain2022, respectively. 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. OurUK for tax purposes. LivaNova’s 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 ourthe Company’s 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 consolidatedLivaNova’s effective income tax rate may vary from one reporting period to another.
During the three and nine months ended September 30, 2017, we recorded consolidatedfluctuates 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 incomevarying 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 consolidatedLivaNova’s effective income tax rate for the three and ninesix months ended SeptemberJune 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.2023 was 77.6% and a $2.1 million tax benefit from the resolution of prior period tax matters. Discrete tax items43.0%, respectively, compared with 13.2% and 20.6% for the nine months ended September 30, 2017 also included the acquisition of Caisson and the $38.1 million non-taxable gain recognized to re-measure our existing equity investment in Caisson at fair value on the acquisition date, a $3.9 million deferred tax benefit associated with certain temporary differences arising from the Mergers and the recognition of a $3.0 million deferred tax asset related to a reserve for an uncertain tax position recognized in a prior year, in addition to various other discrete items.
During the three and ninesix months ended SeptemberJune 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%,2022, respectively. TheThese increases in the effective tax rate for both the ninethree and six months ended SeptemberJune 30, 2016 was impacted by2023 compared to the recording ofprior year periods were primarily attributable to changes in valuation allowances, year-over-year changes in income before tax in countries with varying statutory tax rates and an audit settlement.
On October 8, 2021, members of $23.9 million relatedthe OECD / G20 Inclusive Framework on BEPS agreed to certaina Two-Pillar Solution to address tax challenges of a global economy. The Two-Pillar Solution aims to ensure multinational companies will be subject to a minimum 15% global tax rate (Pillar Two) and will reallocate profits to the market jurisdictions where sales arise (Pillar One). As part of the ongoing release of Pillar Two rules by various jurisdictions, the UK Act was enacted on July 11, 2023, and implements the OECD’s BEPS Pillar Two income inclusion rule including Francea multinational top-up tax and a domestic top-up tax to the minimum effective tax rate of 15% for accounting periods beginning on or after December 31, 2023. The UK Act also includes a transitional safe harbor election for accounting periods beginning on or before Dec 31, 2026. We are reviewing the draft guidance issued on June 15, 2023, and the UK Act to assess the full implications for 2024 and will continue to monitor related guidance 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 taxUK and other jurisdictions such as the U.S. and Germany, offset by tax savings from our inter-company financing as part of our 2015 tax restructuring.that impact LivaNova’s operations.
Losses from Equity Method Investments
Losses from equity method investments were $1.6 million and $20.1 million 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.
Liquidity and Capital Resources
Based on ourLivaNova’s current business plan, we believethe Company believes that our existingits sources of liquidity, which primarily consist of cash and cash equivalents, future cash generated from operations and available borrowing capacityborrowings under ourits revolving credit facilitiesfacility, will be sufficient to fund our expectedits uses of liquidity, primarily consisting of day-to-day operating needs,expenses, working capital, requirements, R&D opportunities, capital expenditures, acquisition earn-outs and debt service requirements over the next 12 months. We regularly review ourtwelve-month period beginning from the issuance date of these condensed consolidated financial statements. From time to time, LivaNova may access debt and/or equity markets to optimize its capital needsstructure, raise additional capital or increase liquidity as necessary. LivaNova’s 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 2022 Form 10-K as well as “Note 7. Commitments and consider various investingContingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
37

LivaNova’s operating and financing alternativesworking capital 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 support our requirements. LivaNova’s liquidity as of June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023December 31, 2022
Available Short-term Liquidity
Cash and cash equivalents$222,935 $214,172 
Availability under the 2021 First Lien Credit Agreement125,000 125,000 
Availability under the Delayed Draw Term Facility (1)
— 50,000 
$347,935 $389,172 
Working Capital
Current assets$941,835 $886,136 
Current liabilities288,164 297,398 
$653,671 $588,738 
Debt Obligations
Current portion of long-term debt$18,444 $20,892 
Short-term unsecured borrowing arrangements630 2,542 
Current debt obligations19,074 23,434 
Long-term debt obligations567,951 518,067 
Total debt obligations$587,025 $541,501 
(1)On April 6, 2023, LivaNova drew the full $50 million under the Delayed Draw Term Facility to be used for general corporate purposes.
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) 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.


information.
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,Six Months Ended June 30,
 2017 2016 20232022
Operating activities $73,665
 $49,348
Operating activities$2,820 $15,580 
Investing activities (41,797) (36,363)Investing activities(18,139)(21,630)
Financing activities (10,000) (62,996)Financing activities30,779 208,557 
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 cashEffect of exchange rate changes on cash, cash equivalents and restricted cash3,282 (3,730)
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash$18,742 $198,777 
Operating Activities
Cash provided by operating activities during the ninesix months ended SeptemberJune 30, 2017 increased $24.32023 decreased by $12.8 million as compared to the same prior-yearprior year period. The increasedecrease was primarily the result ofdue to an increase in net income3T Heater-Cooler litigation settlement payments of $119.6 million, offset by a $43.2 million change in operating assets and liabilities, a $39.4 million gain recognized in conjunction with the acquisition of Caisson and a $17.0 million increase in deferred income tax benefit.$16.6 million.
Investing Activities
Cash used in investing activities during the ninesix months ended SeptemberJune 30, 2017 increased $5.42023 decreased $3.5 million as compared to the same prior-year period. The increase wasprior year period primarily due to $8.9 million paid during the result of net cash paid forsix months ended June 30, 2022 associated with the acquisition of Caisson of $14.2 million as well as $14.1 million received from maturities of short-term investments in the prior-year period,ALung, partially offset by $7.1 millionan increase in purchases of short-termequity investments in the prior-year period.of $4.6 million.
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Financing Activities
Cash used inprovided by financing activities during the ninesix months ended SeptemberJune 30, 20172023 decreased $53.0$177.8 million as compared to the same prior-year period. The decrease wasprior year period primarily the result of a decrease in 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 bydue to a reduction in proceeds from stock option exercisesnet borrowings of $4.7$178.6 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We areLivaNova is exposed to certain market risks as part of ourits 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 ourLivaNova’s consolidated financial position, results of operations or cash flows. We manageThe Company manages 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 2016LivaNova’s 2022 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 maintainLivaNova maintains a system of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that areis designed to ensure that information required to be disclosed in ourthe Company’s 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”)LivaNova’s CEO and Chief Financial Officer (“CFO”),CFO, as appropriate, to allow timely decisions regarding required disclosure. OurLivaNova’s management, under the supervision and with the participation of ourits CEO and CFO, evaluated the effectiveness of the design and operation of ourthe Company’s disclosure controls and procedures as of the end of the most recent fiscal quarter reported herein. Based on that evaluation, ourLivaNova’s CEO and CFO concluded that ourthe Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.


2023.
(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 changes in ourLivaNova’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Qquarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, ourLivaNova’s internal control over financial reporting.

39


PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of ourLivaNova’s material pending legal and regulatory proceedings and settlements, refer to “Note 9.7. Commitments and Contingencies” in ourthe Company’s condensed consolidated financial statements included in this Report on Form 10-Q. 
Item 1A. RISKFACTORS
Our business faces many risks. Any of the risks referenced below or elsewhere in this Report on Form 10-Q, other Reports on Form 10-Qs or our other SEC filings could have a material impact on our business and consolidated financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
For additional detailed discussion of risk factors that should be understood by any investor contemplating investment in our stock, please refer to “Part I. Item 1A. Risk Factors” in our 2016 Form 10-K and elsewhere as described in thisQuarterly Report on Form 10-Q.
The results
Item 1A. RiskFactors
There have been no material changes in LivaNova’s risk factors from those disclosed in Part I, Item 1A of the UK’s referendumCompany’s 2022 Annual Report on withdrawal from the EU may have a negative effect on global economic conditions, financial marketsForm 10-K and our business, which could reduce 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 to as “Brexit.” On March 29, 2017, the UK Government gave formal notice of its intention to leave the EU, formally commencing the negotiations regarding the terms of withdrawal between the UK and the EU. The withdrawal must occur within two years, unless the deadline is extended or a withdrawal agreement is negotiated sooner. The negotiation process will determine the future termsPart II, Item 1A of the UK’s relationship with the EU. The notification does not change the application of existing tax laws, and does not establish a clear framework for what the ultimate outcome of the negotiations and legislative process will be.
Various tax reliefs and exemptions that apply to transactions between EU Member States under existing tax laws may cease to apply to transactions between the UK and EU Member States when the UK ultimately withdraws from the EU. It is unclear at this stage if or when any new tax treaties between the UK and the EU or individual EU Member States will replace those reliefs and exemptions. It is also unclear at this stage what financial, trade and legal implications the withdrawal of the UK from the EU will have and how Brexit may affect us, our customers, suppliers, vendors, or our industry.
Several of our wholly-owned subsidiaries that are domiciled either in the UK, various EU Member States, or in the United States, and our parent company, LivaNova PLC, are party to intercompany transactions and agreements under which we receive various tax reliefs and exemptions. If certain treaties 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, the departure of the UK from the EU 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 accountCompany’s 10-Q 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.quarter ending March 31, 2023.
Our acquisition of Caisson may fail to further our strategic objectives or strengthen our existing businesses.
Acquisitions of medical technology companies are inherently risky, and we cannot guarantee that such acquisitions will be successful or will not materially adversely affect our consolidated earnings, financial condition, and/or cash flows. Caisson is in the early stages of clinical development, and therefore, there are risks inherent in the outcome of the clinical studies or regulatory approvals that may impact Caisson’s success. Further, our integration of Caisson’s operations requires significant efforts, including the coordination of information technologies, research and development, operations and finance. These efforts result in additional expenses and significant supervision by management. Our failure to manage and coordinate the growth of Caisson successfully could have an adverse impact on our business. In addition, we cannot be certain that the acquisition will become profitable or remain so. These effects, individually or in the aggregate, could cause a deterioration of our credit rating and result in increased borrowing costs and interest expense.



Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
NoneNone.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

During the three months ended June 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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 LivaNova’s non-U.S. subsidiaries currently sells medical devices, including cardiopulmonary, cardiac surgery and neuromodulation products, to privately held distributors in Iran.
LivaNova has 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 the Company’s knowledge at this time, LivaNova does not have any contracts or commercial arrangements with the Iranian government.
LivaNova’s net revenue and net profits attributable to the above-mentioned Iranian activities were $0.6 million and $0.3 million, respectively, for the three months ended June 30, 2023 and $2.8 million and $1.1 million, respectively, for the six months ended June 30, 2023.
The Company believes its 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. LivaNova intends to continue its business in Iran.
40

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 exhibitsExhibits 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
Damien McDonald Settlement Agreement, dated April 14, 2023
William Kozy Offer Letter, dated April 19, 2023
Amended and Restated LivaNova PLC 2022 Incentive Award Plan, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on June 16, 2023
Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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 for the three and six months ended June 30, 2023 and 2022, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022, (iii) the Condensed Consolidated Balance Sheet as of June 30, 2023 and December 31, 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022, 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)
41
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, 2017001-375993.1
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: July 26, 2023By:/s/ WILLIAM A. KOZY
By:/s/ DAMIEN MCDONALDWilliam A. Kozy
Damien McDonald
Interim Chief Executive Officer and Chair of the Board
(Principal Executive Officer)
LIVANOVA PLC
LIVANOVA PLC
Date: July 26, 2023By:/s/ ALEX SHVARTSBURG
By:/s/ THAD HUSTONAlex Shvartsburg
Thad Huston
Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: November 2, 2017


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