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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2002

For the transition period from                              to                             

Commission file number 1-15525

EDWARDS LIFESCIENCES CORPORATION
(Exact name of registrant as specified in its charter)

(949) 250-2500
(Registrant's telephone number, including area code)

        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     X                  No         

        The number of shares of the registrant's common stock, par value $1.00 per share, outstanding as of October 31, 2002, the latest practicable date, was 60,056,857 shares.

EDWARDS LIFESCIENCES CORPORATION
FORM 10-Q

For the quarterly period ended September 30, 2002

TABLE OF CONTENTS

Part I. Financial Information

Item 1. Financial Statements

EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited) (in millions, except share data)

The accompanying notes are an integral part of these consolidated
condensed financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited) (in millions, except per share information)

The accompanying notes are an integral part of these consolidated
condensed financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

The accompanying notes are an integral part of these consolidated
condensed financial statements.

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Edwards Lifesciences Corporation

Notes to Consolidated Condensed Financial Statements

September 30, 2002

(unaudited)

1. DESCRIPTION OF BUSINESS

        Edwards Lifesciences Corporation ("Edwards Lifesciences" or the "Company") is a global provider of products and technologies that are designed to treat advanced cardiovascular disease. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion. Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart valve therapy and other products used during open-heart surgery. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function, and also provides central venous access products for fluid and drug delivery. Edwards Lifesciences' vascular portfolio includes a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment, and artificial implantable grafts, as well as an endovascular system used to treat life-threatening abdominal aortic aneurysms less invasively. In the perfusion category, Edwards Lifesciences designs, develops, manufactures and markets in regions outside of the United States and Western Europe a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices. Effective June 30, 2001, the Company sold its perfusion services business in the United States to an affiliate of Fresenius Medical Care AG. The Company continues to maintain its perfusion services business in Europe.

2. FINANCIAL INFORMATION

        These interim consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with the consolidated financial statements and notes included in the Company's Form 10-K for the year ended December 31, 2001. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Certain reclassifications of previously reported amounts have been made to conform to classifications used in the current period.

        In the opinion of management, the interim consolidated condensed financial statements reflect all adjustments considered necessary for a fair presentation of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

3. DISPOSITION OF ASSETS AND OTHER NON-RECURRING CHARGES

        As previously announced, during the quarter ended September 30, 2002, the Company recorded a $67.4 million pretax charge related to the impairment of its investment in preferred stock of World Heart Corporation ("WorldHeart"). The investment was written down to $6.2 million, which represents the value of the Company's preferred stock investment had it been converted into common stock at October 15, 2002. The decision to record the charge was based primarily on delays in WorldHeart's product development timelines, arising from its revised strategy.

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4. ACQUISITION OF JOINT VENTURE IN JAPAN

        On October 1, 2002 the Company completed its spin-off from Baxter International Inc. by acquiring for approximately $22 million, net the cardiovascular business in Japan, which it had been operating as a joint venture with Baxter International Inc. The purchase price, which is expected to be reduced pending a final audit of the business' net assets, excludes approximately $30 million of securitized accounts receivable. In the three months ended September 30, 2002, the Company recorded a $3.3 million charge for legal, administrative and regulatory expenses related to the acquisition. Commencing October 1, 2002 the Company will report the results of the Japan business on a fully consolidated basis. Previously, the Company recognized its shipments into the joint venture as sales, at distributor price, at the time the joint venture sold to the end customer, and utilized the equity method of accounting to record its 90% profit interest in the operations of the joint venture in Other Operating Income. The acquisition will not materially impact the Company's net income as the terms of the joint venture agreement enabled Edwards to record substantially all of the net profit generated by the Japan business.

        The following unaudited pro forma balance sheet and statements of operations present the results of Edwards Lifesciences assuming that the acquisition of the Japanese business had been completed as of January 1, 2001.

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PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2002
(unaudited) (in millions)

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PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(unaudited) (in millions, except per share information)

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4. ACQUISITION OF JOINT VENTURE IN JAPAN (Continued)

PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2001
(unaudited) (in millions, except per share information)

Pro Forma Adjustments

(a)

To reflect Edwards Lifesciences' Japanese operations on a consolidated basis.



(b)

Balance includes a $49.0 million deferred tax asset related to a tax basis step up in connection with the acquisition of the joint venture in Japan.

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(c)

To reflect the elimination of receivables and payables between Edwards Lifesciences and the joint venture in Japan which are considered intercompany balances after the acquisition.



(d)

To reflect the incurrence of $20.4 million of long-term debt to effect the transaction.



(e)

To reflect estimated interest expense that would have been incurred by the Company based on incurrence of $20.4 million of debt at an effective interest rate of approximately 5%.

5. INVENTORIES

        Inventories consisted of the following (in millions):

6. COMPREHENSIVE INCOME

        Reconciliation of net income to comprehensive income is as follows (in millions):

7. GOODWILL AND OTHER INTANGIBLE ASSETS

        On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," whereby goodwill is no longer amortized, but instead is subject to a periodic impairment review. As the Company's operations are comprised of one reporting unit, the Company reviews the recoverability of its goodwill by comparing the Company's fair value to the net book value of its assets. If the book value of the Company's assets exceeds the Company's fair value, the goodwill is written down to its implied fair value.

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        Pursuant to SFAS No. 142, the results for periods prior to adoption are not to be restated. If SFAS No. 142 had been effective January 1, 2001, net loss and earnings per basic and diluted share would have been as follows (in millions, except per share information):

        Other intangible assets subject to amortization consisted of the following (in millions):

        Amortization expense related to other intangible assets for the nine months ended September 30, 2002 was $7.1 million. Estimated amortization expense for each of the years ending December 31 is as follows (in millions):

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8. EARNINGS PER SHARE

        A reconciliation of the shares used in the basic and diluted per share computations is as follows (in millions):

9. COMMITMENTS AND CONTINGENCIES

        On June 29, 2000, Edwards Lifesciences filed a lawsuit against St. Jude Medical, Inc. alleging infringement of three Edwards Lifesciences United States patents. This lawsuit was filed in the United States District Court for the Central District of California, seeking monetary damages and injunctive relief. St. Jude has answered and asserted various affirmative defenses and counterclaims with respect to the lawsuits. On April 9, 2002, the court granted Edwards Lifesciences' motion to amend the complaint to add a fourth United States patent. The court rendered a claim construction decision with respect to the first three patents on June 27, 2002. The court has not yet set a trial date.

        Edwards Lifesciences is, or may be, a party to, or may be otherwise responsible for, pending or threatened lawsuits related primarily to products and services currently or formerly manufactured or performed, as applicable, by Edwards Lifesciences. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Upon resolution of any pending legal matters, Edwards Lifesciences may incur charges in excess of presently established reserves. While such a charge could have a material adverse impact on Edwards Lifesciences' net income or net cash flows in the period in which it is recorded or paid, management believes that no such charge would have a material adverse effect on Edwards Lifesciences' consolidated financial position.

        Edwards Lifesciences also is subject to various environmental laws and regulations both within and outside of the United States. The operations of Edwards Lifesciences, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, management believes that such compliance will not have a material impact on Edwards Lifesciences' financial position, results of operations or liquidity.

10. SEGMENT INFORMATION

        Edwards Lifesciences manages its business on the basis of one reportable segment. The Company's products and technologies share similar distribution channels and customers and are sold principally to hospitals and physicians. Management evaluates its various global product portfolios on a revenue basis,

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which is presented below, and profitability is generally evaluated on an enterprise-wide basis due to shared infrastructures. Edwards Lifesciences' principal markets are the United States, Europe and Japan.

        Geographic area data includes net sales, based on product shipment destination, and long-lived assets, based on physical location.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, statements concerning the Company's future operations, financial condition and prospects, and business strategies. The words "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan," "continue," and other similar expressions generally identify forward-looking statements. Investors are cautioned not to unduly rely on such forward-looking statements. These forward-looking statements are subject to substantial risks and uncertainties that could cause the Company's future business, financial condition, results of operations, or performance to differ materially from the Company's historical results or those expressed in any forward-looking statements contained in this report. Investors should carefully review the information contained in the Company's Form 10-K for the year ended December 31, 2001, including under the caption "Certain Business Risks" beginning on page 10 of the Form 10-K, and elsewhere in, or incorporated by reference into, the Form 10-K or this report.

        The following discussion and analysis presents the factors that had a material effect on the results of operations of Edwards Lifesciences for the three and nine months ended September 30, 2002 and 2001. Also discussed is Edwards Lifesciences' financial position as of September 30, 2002. You should read this discussion in conjunction with the Company's Form 10-K for the year ended December 31, 2001 and the historical consolidated condensed financial statements and related notes thereto included elsewhere in this Form 10-Q.

Overview

        Edwards Lifesciences is a global provider of products and technologies that are designed to treat advanced cardiovascular disease. Edwards Lifesciences focuses on providing products and technologies to address four main cardiovascular disease states:

•

heart valve disease;



•

coronary artery disease;



•

peripheral vascular disease; and



•

congestive heart failure.

        The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into four main areas:

•

Cardiac Surgery;



•

Critical Care;



•

Vascular; and



•

Perfusion.

        Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart-valve therapy and other products used during open-heart surgery. Edwards Lifesciences is the world's leader in, and has been a pioneer in the development and commercialization of, tissue valves and repair products used to replace or repair a patient's diseased or defective heart valve. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems used to measure a patient's heart function, and also provides central venous access products for fluid and drug delivery. Edwards Lifesciences' vascular portfolio includes a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment, artificial implantable grafts, and an endovascular system used to treat life-threatening abdominal aortic aneurysms less invasively. In the perfusion category, Edwards Lifesciences develops, manufactures and markets, in regions outside the United States and Western

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Europe, a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices. Effective June 30, 2001, the Company sold its perfusion services business in the United States to an affiliate of Fresenius Medical Care AG. The Company continues to maintain its perfusion services business in Europe.

Joint Venture in Japan

        On October 1, 2002 the Company completed its spin-off from Baxter International Inc. by acquiring for approximately $22 million, net the cardiovascular business in Japan, which it had been operating as a joint venture with Baxter International Inc. The purchase price, which is expected to be reduced pending a final audit of the business' net assets, excludes approximately $30 million of securitized accounts receivable. In the three months ended September 30, 2002, the Company recorded a $3.3 million charge for legal, administrative and regulatory expenses related to the acquisition. Commencing October 1, 2002 the Company will report the results of the Japan business on a fully consolidated basis. Previously, the Company recognized its shipments into the joint venture as sales, at distributor price, at the time the joint venture sold to the end customer, and utilized the equity method of accounting to record its 90% profit interest in the operations of the joint venture in Other Operating Income. The acquisition will not materially impact the Company's net income as the terms of the joint venture agreement enabled Edwards to record substantially all of the net profit generated by the Japan business.

Results of Operations

Net Sales Trends

        The following is a summary of United States and international net sales (dollars in millions):

        The net sales increase in the United States for the three months ended September 30, 2002 was due primarily to increased sales of cardiac surgery and critical care products. The net sales decrease for the nine months ended September 30, 2002 was due primarily to the sale of the Company's perfusion services business in the United States effective June 30, 2001, partially offset by an increase in sales of cardiac surgery products. Excluding the net sales from the perfusion services business in 2001, net sales in the United States would have increased 4.7% for the nine months ended September 30, 2002.

        The changes in international net sales for the three and nine months ended September 30, 2002 were due primarily to increased sales of cardiac surgery and critical care products and the impact of changes in foreign currency exchange rates (primarily the movement of the United States dollar against the Euro and the Japanese Yen). Excluding the impact of foreign currency exchange rate fluctuations, international net sales would have increased 11.9% and 8.2% for the three and nine months ended September 30, 2002, respectively. The impact of foreign currency exchange rate fluctuations on net sales would not necessarily be indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs, the location of the Company's manufacturing plants and Edwards Lifesciences' hedging activities. For more information, see "Quantitative and Qualitative Disclosures About Market Risk."

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Net Sales by Product Line

        The following table is a summary of net sales by product line (dollars in millions):