Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies (Policy)

6 Months Ended

Oct. 18, 2015

Basis of Presentation. LivaNova PLC was formed, along with its wholly owned subsidiary, Merger Sub for the purpose of facilitating the business combination of Cyberonics and Sorin. This business combination became effective on October 19, 2015. In this Form 10-Q, LivaNova, as the successor company to Cyberonics, is reporting the results for Cyberonics and its consolidated subsidiaries for the twelve weeks ended October 18, 2015.

The accompanying unaudited condensed consolidated financial statements of Cyberonics and its consolidated subsidiaries at and for the transitional period ended October 18, 2015 have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.” and such principles, “U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying consolidated balance sheet of Cyberonics at April 24, 2015 has been prepared from audited financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the operating results of Cyberonics and its subsidiaries, for the transitional period presented and are not indicative of the results that may be expected for the transitional year that will end December 31, 2015, which will include the combined operations of Cyberonics and Sorin. Refer to “Note 18. Subsequent Events - The Mergers” for further details regarding the Mergers. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 24, 2015 (“2015 Form 10-K”).

Nature of Operations

Nature of Operations. We are a medical device company engaged in the design, development, sales and marketing of implantable medical devices for epilepsy, depression and heart failure. Our seminal product, the VNS Therapy® System, is an implantable device that provides neuromodulation therapy for the treatment of drug-resistant epilepsy and treatment-resistant depression (“TRD”). The VITARIA™ System, approved in Europe but not in the U.S., is an implantable device that provides a form of neuromodulation therapy for the treatment of chronic heart failure (“CHF”). We are also developing non-implantable device solutions for the management of epilepsy.

Use of Estimates

Use of Estimates. The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in such financial statements and accompanying notes. These estimates are based on management’s best knowledge of current events and actions we may undertake in the future. Estimates are used in, among other items, the determination of useful lives of property, plant and equipment (“PP&E”) and intangible assets, valuation of cost-method equity and intangible asset investments, deferred tax assets and liabilities and uncertain income tax positions and the valuation of stock-based compensation grants. Actual results could differ materially from these estimates.

Consolidation

Consolidation. The accompanying consolidated financial statements include Cyberonics and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Segments

Segments. We have one operating and reportable segment that develops, manufactures and markets our proprietary implantable medical devices that deliver vagus nerve stimulation (“VNS”) therapy. Our chief operating decision-maker reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

Income Tax Accounting

Income Tax Accounting. The accompanying unaudited condensed consolidated financial statements of Cyberonics and its consolidated subsidiaries have been prepared in accordance with U.S. GAAP on an interim basis. However, final U.S. and state tax returns for Cyberonics will be filed with the Internal Revenue Service that will report the results of the twenty-five weeks ended October 18, 2015, and as a result, we are using the discrete period tax accounting approach, which considers the twenty-five week period ended October 18, 2015 the equivalent of a full annual period rather than an interim period.

Fiscal Year-End

Fiscal Periods. Cyberonics utilized a 52/53-week fiscal year that ended on the last Friday in April. The prior year period reported in this Form 10-Q ended October 24, 2014 and consisted of a thirteen week quarter and a twenty-six week year-to-date period. The transitional period reported in this Form 10-Q, ended October 18, 2015, consisted of a twelve week quarter and a twenty-five week year-to-date period.

LivaNova, as the successor company to Cyberonics, reported the results for Cyberonics and its consolidated subsidiaries in this Form 10-Q, for the transitional and final period, July 25, 2015 to October 18, 2015, which ended prior to the consummation of the Mergers on October 19, 2015. This period is equivalent to twelve weeks as compared to our normal thirteen week period and is considered transitional because on October 19, 2015, LivaNova adopted a calendar year ending December 31st for financial reporting purposes. Our financial statements for the period April 25, 2015 to July 24, 2015, the first quarter of fiscal year 2016, were previously filed on Form 10-Q, by Cyberonics

New Accounting Pronouncements

In May 2014, the FASB issued accounting guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. This new standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early application is not permitted, and the standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this standard will have on our financial statements and related disclosures. We have not yet selected a transition method, nor have we determined the effect of the standard on our ongoing financial reporting. In August 2015, the FASB extended the effective date for the revenue recognition guidance to annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period, with early adoption permitted using the original effective date.

Fair Value Measurements

Fair value is defined as the exit price or the amount that we would receive upon selling our assets in an orderly transaction to a market participant as of the period ending on the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value. The hierarchy is broken down into three levels defined as follows:

•Level 1 – Inputs are quoted prices in active markets for identical assets.


•	Level 2 – Inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset, either directly or indirectly.

•Level 3 – Inputs are unobservable inputs for the asset.

Observable inputs are inputs market participants would use in valuing the asset based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing our assets and are developed based on the best information available in the circumstances. The categorization of assets within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. Level 3 financial assets include investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation.