Back to GetFilings.com

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

FORM 10-Q

Commission file number 1-15525

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

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        The number of shares outstanding of the registrant's common stock, $1.00 par value, as of April 30, 2005, was 59,535,039.

EDWARDS LIFESCIENCES CORPORATION

FORM 10-Q
For the quarterly period ended March 31, 2005

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.

1

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.

2

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.

3

Edwards Lifesciences Corporation

Notes to Consolidated Condensed Financial Statements

March 31, 2005

(unaudited)

1.    BASIS OF PRESENTATION

        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 Annual Report on Form 10-K for the year ended December 31, 2004. 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 of Edwards Lifesciences Corporation (the "Company" or "Edwards Lifesciences"), the interim consolidated condensed financial statements reflect all adjustments considered necessary for a fair statement 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.

        The Company applies the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its fixed stock option and employee stock purchase plans. In accordance with this intrinsic value method, no compensation expense is recognized for these plans. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," (in millions, except per share amounts):

4

        Pro forma compensation expense for stock options and employee stock purchase subscriptions was calculated using the Black-Scholes model. The pro forma expense for stock option grants was calculated with the following weighted-average assumptions for grants during the following periods:

        The pro forma expense for employee stock purchase subscriptions was calculated with the following weighted-average assumptions for grants during the following periods:

2.    PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSE

        There were no in-process research and development expenses for the three months ended March 31, 2005. On January 27, 2004, the Company acquired Percutaneous Valve Technologies, Inc. ("PVT"), a development stage company, for $125.0 million in cash, net of cash acquired, plus up to an additional $30.0 million upon the achievement of key milestones through 2007. Included in PVT's technology is a catheter-based (percutaneous) approach for replacing aortic heart valves, comprised of a proprietary percutaneously-delivered balloon-expandable stent technology integrated with a tissue heart valve. Unlike conventional open-heart valve replacement surgery, this less-invasive procedure can be performed under local anesthesia and could potentially be a breakthrough for patients seeking an alternative to open-heart surgery.

        At the time of acquisition, the PVT aortic heart valve was being used in compassionate cases in Europe, and these clinical results had generated valuable feasibility data. It had been demonstrated that a heart valve could be successfully deployed and anchored using a catheter-based system. Also at that time, the Company was expecting to obtain a CE mark in Europe by the end of 2005 and to file for a Humanitarian Device Exemption ("HDE") in the United States. Upon approval of the HDE, the Company would be able to offer this device to as many as 4,000 patients per year. Broader commercialization in the United States was expected to begin with the submission of an Investigational Device Exemption ("IDE") by the end of the second quarter of 2004 followed by the commencement

5

of a pivotal trial in 2005 and possible pre-market approval by the end of 2007. The risks and uncertainties associated with completing development within a reasonable period of time included those related to the design, development and manufacturability of the product, the success of pre-clinical and clinical studies and the timing of European and United States regulatory approvals.

        Approximately $81.0 million of the purchase price was charged to in-process research and development. The value of the in-process research and development was calculated using cash flow projections discounted for the risk inherent in such projects. The discount rate used was 25%. The valuation assumed approximately $20.9 million of additional research and development expenditures would be incurred prior to the date of product introduction. In the valuation, net cash inflows were forecasted to commence in 2007. The remaining fair market value of the net assets acquired consisted primarily of patents of $72.4 million that are being amortized over their estimated economic life of 11 years, and a deferred tax liability related to the patents of $28.1 million.

3.    SPECIAL (CREDIT) CHARGES, NET

        In January 2005, the Company announced that it was realigning its business in Japan as part of the Company's continued efforts to focus on its core cardiovascular businesses. The Company sold its perfusion products business in Japan to Terumo Corporation for cash consideration of between $10 million and $20 million based upon the achievement of certain milestones, of which $9.2 million was received in January 2005. The Company exited its pacemaker distribution business in Japan and is restructuring its Japanese operations. These transactions resulted in a net $2.0 million pre-tax special credit, consisting of a gain on the sale of the Company's Japan perfusion products business of $7.7 million offset by a $5.7 million charge relating to the realignment of its operations, primarily related to severance costs due to headcount reductions. As of March 31, 2005, the Company had paid $2.4 million related to severance with the remaining amount to be paid by September 2006.

        Due to a re-prioritization of the Company's investment initiatives, the Company decided during the quarter ended March 31, 2004 to discontinue its sales effort of its Lifepath AAA endovascular graft program. Edwards Lifesciences recorded a special charge of $8.4 million primarily related to inventory and contractual clinical obligations.

        The Company also decided, during the quarter ended March 31, 2004, to discontinue certain lower margin cardiology products in Japan later in the year. A charge of $2.2 million was recorded primarily related to other non-productive assets.

6

4.    INVENTORIES

        Inventories consisted of the following (in millions):

5.    OTHER INTANGIBLE ASSETS

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

        Amortization expense related to other intangible assets was $4.2 million and $3.6 million for the quarters ended March 31, 2005 and 2004, respectively. Estimated amortization expense for each of the years ending December 31 is as follows (in millions):

7

6.    DEFINED BENEFITS PLANS

        The components of net periodic benefit costs for the three months ended March 31, 2005 and 2004 are as follows (in millions):

7.    INCOME TAXES

        In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law, which allows companies to repatriate cash into the United States at a special, temporary effective tax rate of 5.25 percent. The Company's evaluation of the amount of foreign earnings to repatriate under the Act, and the financial statement impact, is in process. As such, the Company is not in a position to decide on whether, and to what extent, foreign earnings that have not been remitted to the United States may be repatriated. Based on analysis to date, however, it is reasonably possible that between $150 million and $250 million may be repatriated. The related potential range of the income tax effect of the repatriation is currently estimated to be between $11 million and $19 million. The Company expects to be in a position to finalize its assessment later this year.

8.    COMMITMENTS AND CONTINGENCIES

        On June 29, 2000, Edwards Lifesciences filed a lawsuit against St. Jude Medical, Inc. alleging infringement of several 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. Pursuant to the terms of a January 7, 2005 settlement agreement, Edwards Lifesciences was paid $5.5 million by St. Jude, Edwards Lifesciences granted St. Jude a paid-up license for certain of its heart valve therapy products and the lawsuit was dismissed. The settlement did not have a material financial impact on the Company.

        On August 18, 2003, Edwards Lifesciences filed a lawsuit against Medtronic, Inc., Medtronic AVE, Cook, Inc. and W.L. Gore & Associates alleging infringement of a patent exclusively licensed to the Company. The lawsuit was filed in the United States District Court for the Northern District of California, seeking monetary damages and injunctive relief. On September 2, 2003, a second patent exclusively licensed to the Company was added to the lawsuit. Each of the defendants has answered and asserted various affirmative defenses and counterclaims. Discovery is proceeding.

8

        In addition, 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 any such charge could have a material adverse impact on Edwards Lifesciences' net income or cash flows in the period in which it is recorded or paid, management does not believe that any such charge would have a material adverse effect on Edwards Lifesciences' financial position, results of operations or liquidity.

        Edwards Lifesciences is also 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.

9.    COMPREHENSIVE INCOME (LOSS)

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

10.    EARNINGS PER SHARE

        Basic earnings per share is computed by dividing net income (loss) by the weighted average common shares outstanding during a period. Diluted earning per share is based on the treasury stock method and is computed by dividing net income by the weighted average common shares and potential common share equivalents outstanding during the periods presented assuming the exercise of all the in-the money stock options and conversion of contingently convertible senior debentures. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive. The table

9

below presents the computation of basic and diluted earnings (loss) per share (in millions, except per share information):

        Diluted earnings per share for the three months ended March 31, 2005 excludes 0.1 million shares related to options as the exercise price per share was greater than the average market price, resulting in an anti-dilutive effect. As the Company incurred a net loss for the three months ended March 31, 2004, diluted earnings per share excludes 2.3 million weighted average shares of potential common share equivalents as the effect is anti-dilutive. The effect of approximately 2.7 million potential common share equivalents relating to the Company's $150.0 million convertible debentures due 2033 has been excluded from the computation of diluted earnings per share for the three months ended March 31, 2004 because the result is anti-dilutive.

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

10

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

11

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. The Company intends the forward-looking statements contained in this report to be covered by the safe harbor provisions of such Acts. All statements other than statements of historical fact in this report or referred to or incorporated by reference into this report are "forward-looking statements" for purposes of these sections. These statements include, among other things, any predictions of earnings, revenues, expenses or other financial items, any statements of plans, strategies and objectives of management for future operations, any statements concerning the Company's future operations, financial conditions and prospects, and any statement of assumptions underlying any of the foregoing. These statements can sometimes be identified by the use of the forward-looking words such as "may," "believe," "will," "expect," "project," "estimate," "should," "anticipate," "plan," "continue," "seek," "pro forma," "forecast," or "intend" or other similar words or expressions of the negative thereof. 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, or incorporated by reference into, the Company's annual report on Form 10-K for the year ended December 31, 2004 for a description of certain of these risks and uncertainties.

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 specific cardiovascular opportunities: heart valve disease; peripheral vascular disease; and critical care technologies.

        The products and services provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five main areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular; and Other Distributed Products.

        Edwards Lifesciences' heart valve therapy portfolio is comprised of tissue heart valves and heart valve repair products. A pioneer in the development and commercialization of heart valve products, Edwards Lifesciences is the world's leading manufacturer of tissue heart 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, in disposable pressure transducers, and in central venous access products for fluid and drug delivery. The Company's cardiac surgery systems portfolio comprises a diverse line of products for use during cardiac surgery including oxygenators, blood containers, filters and other disposable products used during cardiopulmonary bypass procedures, as well as cannulae and transmyocardial revascularization ("TMR") technology. Edwards Lifesciences' vascular portfolio includes a line of balloon catheter-based products, surgical clips and inserts, artificial implantable grafts, and stents used in the treatment of peripheral vascular disease. Lastly, other distributed products include sales of intra-aortic balloon pumps and other products sold primarily though the Company's distribution network in Japan.

        The health care marketplace continues to be competitive with strong local and global competitors. Global demand for healthcare is increasing as the population ages. There is mounting pressure to contain healthcare costs in the face of this increasing demand, which has resulted in pricing and market share pressures. Management expects these trends to continue.

12

Results of Operations

Net Sales Trends

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

        The increase in net sales in the United States for the three months ended March 31, 2005 was due primarily to increased sales in heart valve therapy products, which was driven by sales of the Company's Carpentier-Edwards PERIMOUNT Magna valve.

        The increase in international net sales can be explained primarily by:

•

foreign currency exchange rate fluctuations which increased net sales by $5.4 million (primarily the strengthening of the Euro and the Japanese yen against the United States dollar);



•

heart valve therapy products, which increased net sales by $2.5 million driven primarily by strong PERIMOUNT valve sales in Europe; and



•

critical care, vascular and cardiac surgery products, which increased net sales by $4.1 million;

        partially offset by a decrease in net sales of $6.1 million due to the impact of discontinued businesses.

        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, and Edwards Lifesciences' hedging activities.

Net Sales by Product Line

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

13

Heart Valve Therapy

        The net sales growth of heart valve therapy products for the three months ended March 31, 2005 can be explained primarily by:

•

pericardial tissue valves, which increased net sales by $6.3 million primarily as a result of strong market adoption of the Company's Carpentier-Edwards PERIMOUNT Magna valve in the United States and Europe; and



•

currency exchange rate fluctuations, which increased net sales by $2.2 million (primarily the strengthening of the Euro and Japanese yen against the United States dollar).

        As the Company's Carpentier-Edwards PERIMOUNT Magna valve and the other recently introduced products have been well received globally, the Company expects that sales growth of the heart valve therapy product line in 2005 will reach at least 10%. During the year the Company will expand the availability of its Carpentier-Edwards PERIMOUNT Magna valve and its Carpentier-Edwards PERIMOUNT Magna valve with ThermaFix, an anti-calcification process. In April 2005, the Company unveiled in the United States its PERIMOUNT Theon mitral pericardial valve system, which is based on its existing mitral pericardial technology, and includes enhancements and additional accessories along with its new ThermaFix tissue treatment.

        In Japan, the Company launched its Edwards PrimaPlus stentless valve in January 2005. This introduction strengthens the Company's leadership in tissue valves in the region and has reinforced the Company's expectation of heart valve growth in Japan during 2005.

        The Company expects to strengthen its market leadership position in heart valve repair products with the introduction in 2005 of new products with indication-specific designs.

Critical Care

        The net sales growth of critical care products for the three months ended March 31, 2005 can be explained primarily by:

•

pressure monitoring products, which increased net sales by $2.1 million driven primarily by market share gains;



•

currency exchange rate fluctuations, which increased net sales by $1.9 million (primarily the strengthening of the Euro and the Japanese yen against the United States dollar); and



•

sales of advanced technology catheters, which increased net sales by $1.7 million;

        partially offset by decreased sales of base catheter products.

        Critical care products have been, and are expected to be, significant contributors to the Company's total sales. Minimally invasive monitoring systems, featuring the Company's FloTrac system, represent a new and market-expanding opportunity for the Company. The Company launched its FloTrac system in Europe in the first quarter of 2005 and in the United States in April 2005. The Company believes that the FloTrac system will help drive critical care growth in future years.

Cardiac Surgery Systems

        The net sales decrease of cardiac surgery systems for the three months ended March 31, 2005 can be explained primarily by the sale of the Company's perfusion products business in Japan in January 2005 and the sale of the Company's Italian perfusion services businesses in June 2004, which together decreased net sales by $3.1 million. The decrease was partially offset by:

•

currency exchange rate fluctuations, which increased net sales by $0.6 million (primarily the strengthening of the Euro and Japanese yen against the United States dollar); and

14

•

cannulae products, which increased net sales by $0.6 million driven primarily by market share gains.

        In January 2005, the Company sold its Japan perfusion products business and expects to complete transitioning the business to the buyer in 2006. Throughout the transition period, the Company will continue to act as supplier and expects sales to the buyer of approximately $12.0 million in 2005.

Vascular

        The net sales growth of vascular products for the three months ended March 31, 2005 can be explained primarily by:

•

interventional products, which increased net sales by $1.5 million; and



•

currency exchange rate fluctuations, which increased net sales by $0.4 million (primarily the strengthening of the Euro against the United States dollar);

        partially offset by the discontinuation of the Lifepath AAA program in June 2004.

        In March 2005, the Company reached sufficient inventory levels of its self-expanding stents enabling the Company to begin consignment of the entire LifeStent product line. The Company is continuing to broaden the availability of LifeStent in the United States and Europe.

Other Distributed Products

        The decrease in net sales of other distributed products for the three months ended March 31, 2005 can be explained primarily by the discontinuation of sales in Japan of certain lower margin distributed cardiology products in September 2004 and the exit of the Japan pacemaker business during the first quarter of 2005.

Gross Profit

        Gross profit as a percentage of net sales for the three months ended March 31, 2005 increased compared to the same period in the prior year due primarily to a 2.8 percentage point increase from the favorable impact of foreign currency, including the expiration of currency hedging contracts in 2004, and sales of higher margin heart valve products (0.7 percentage points).

Selling, General and Administrative (SG&A) Expenses

(dollars in millions)

        The increase in selling, general and administrative expenses for the three months ended March 31, 2005 is due primarily to higher sales and marketing expenses related to the Company's United States

15

peripheral stent and heart valve therapy products, and higher international expenses due to foreign exchange rates ($1.8 million).

        The increase in selling, general and administrative expenses as a percentage of net sales for the three months ended March 31, 2005 is due primarily to the increased investment in United States sales and marketing expenses in the peripheral stent and heart valve therapy product lines.

Research and Development Expenses

(dollars in millions)

        The increase in research and development expenses and research and development expenses as a percentage of net sales for the three months ended March 31, 2005 resulted primarily from additional investment in the Company's percutaneous heart valve programs.

        Significant progress has been made in the Company's three percutaneous heart valve programs. In its percutaneous aortic valve program, the Company expects to obtain a CE mark in Europe in 2006. A conditional Investigational Device Exemption ("IDE") was granted in the United States with several patients already treated in the first quarter of 2005 and the Company is on track to complete the feasibility trials by the end of 2005. It is anticipated that broad commercialization in the United States will occur in three to four years. The Humanitarian Device Exemption ("HDE") filing in the United States has been postponed.

        In the Company's coronary sinus program, several patients have been treated as part of its feasibility study being conducted in Europe and Canada. It is the Company's goal to complete this clinical feasibility study by the end of 2005.

        In the Company's edge-to-edge mitral repair program, the first patient was treated in Europe in the first quarter of 2005. This feasibility study, being conducted in Europe and Canada, is expected to be complete by the end of 2005.

Purchased in-process Research and Development Expenses

        There were no in-process research and development charges for the three months ended March 31, 2005. On January 27, 2004, the Company acquired Percutaneous Valve Technologies, Inc. ("PVT"), a development stage company, for $125.0 million in cash, net of cash acquired, plus up to an additional $30.0 million upon the achievement of key milestones through 2007. Included in PVT's technology is a catheter-based (percutaneous) approach for replacing aortic heart valves, comprised of a proprietary percutaneously-delivered balloon-expandable stent technology integrated with a tissue heart valve. Unlike conventional open-heart valve replacement surgery, this less-invasive procedure can be performed under local anesthesia and could potentially be a breakthrough for patients seeking an alternative to open-heart surgery.

16

        At the time of the acquisition, the PVT aortic heart valve was being used in compassionate cases in Europe, and these clinical results had generated valuable feasibility data. It had been demonstrated that a heart valve could be successfully deployed and anchored using a catheter-based system. Also at that time, the Company was expecting to obtain a CE mark in Europe by the end of 2005 and to file for an HDE in the United States. Upon approval of the HDE, the Company would be able to offer this device to as many as 4,000 patients per year. Broader commercialization in the United States was expected to begin with the submission of an IDE by the end of the second quarter of 2004 followed by the commencement of a pivotal trial in 2005 and possible pre-market approval by the end of 2007. The risks and uncertainties associated with completing development within a reasonable period of time included those related to the design, development and manufacturability of the product, the success of pre-clinical and clinical studies and the timing of European and United States regulatory approvals.

        Approximately $81.0 million of the purchase price was charged to in-process research and development. The value of the in-process research and development was calculated using cash flow projections discounted for the risk inherent in such projects. The discount rate used was 25%. The valuation assumed approximately $20.9 million of additional research and development expenditures would be incurred prior to the date of product introduction. In the valuation, net cash inflows were forecasted to commence in 2007. The remaining fair market value of the net assets acquired consisted primarily of patents of $72.4 million that are being amortized over their estimated economic life of 11 years, and a deferred tax liability related to the patents of $28.1 million.

Special (Credit) Charges, net

        In January 2005, the Company announced that it was realigning its business in Japan as part of the Company's continued efforts to focus on its core cardiovascular businesses. The Company sold its perfusion products business in Japan to Terumo Corporation for cash consideration of between $10 million and $20 million, based upon the achievement of certain milestones, of which $9.2 million was received in January 2005. The Company exited its pacemaker distribution business in Japan and is restructuring its Japanese operations. These transactions resulted in a net $2.0 million pre-tax special credit, consisting of a gain on the sale of the Company's Japan perfusion products business of $7.7 million offset by a $5.7 million charge relating to the realignment of its operations, primarily related to severance costs due to headcount reductions. As of March 31, 2005, the Company had paid $2.4 million related to severance with the remaining amount to be paid by September 2006.

        Due to a re-prioritization of the Company's investment initiatives, the Company decided during the quarter ended March 31, 2004 to discontinue its sales effort of its Lifepath AAA endovascular graft program. Edwards Lifesciences recorded a special charge of $8.4 million primarily related to inventory and contractual clinical obligations.

        The Company also decided, during the quarter ended March 31, 2004, to discontinue certain lower margin cardiology products in Japan later in the year. A charge of $2.2 million was recorded primarily related to other non-productive assets.

Interest Expense, net

        Interest expense, net was $2.8 million and $3.7 million for the three months ended March 31, 2005 and 2004, respectively. The decrease for the three months ended March 31, 2005 resulted primarily from a lower average debt balance.

17

Other (Income) Expense, net

        The following is a summary of other (income) expense, net (in millions):

        The net foreign exchange gain for the three months ended March 31, 2005 relates primarily to global trade and intercompany receivable and payable balances, which benefited from the impact of strengthening Euro and Japanese yen exchange rates relative to the United States dollar.

Provision for Income Taxes

        The effective income tax rates were 27% and (8)% for the three months ended March 31, 2005 and 2004, respectively. The (8)% effective income tax rate for the three months ended March 31, 2004 was impacted by the PVT acquisition. Of the $81.0 million purchased in-process research and development expenses, $1.7 million related to tax deductible payments, and the remaining $79.3 million is permanently disallowed for income tax purposes.

        In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law, which allows companies to repatriate cash into the United States at a special, temporary effective tax rate of 5.25 percent. The Company's evaluation of the amount of foreign earnings to repatriate under the Act, and the financial statement impact, is in process. As such, the Company is not in a position to decide on whether, and to what extent, foreign earnings that have not been remitted to the United States may be repatriated. Based on analysis to date, however, it is reasonably possible that between $150 million and $250 million may be repatriated. The related potential range of the income tax effect of the repatriation is currently estimated to be between $11 million and $19 million. The Company expects to be in a position to finalize its assessment later this year.

Liquidity and Capital Resources

        The Company's sources of cash liquidity include cash on hand and cash equivalents, amounts available under credit facilities, accounts receivable securitization facilities and cash from operations. The Company believes that these sources are sufficient to fund the current requirements of working capital, capital expenditures and other financial commitments. The Company further believes that it has the financial flexibility to attract long-term capital to fund short-term and long-term growth objectives. However, no assurances can be given that such long-term capital will be available to the Company on favorable terms, or at all.

        As of March 31, 2005, the Company had an unsecured revolving credit agreement ("the Credit Agreement"), expiring on June 26, 2009, which provides up to an aggregate of $500.0 million in one-to six-month borrowings in multiple currencies. Borrowings currently bear interest at the London interbank offering rate ("LIBOR") plus 0.5%, which includes a facility fee and is subject to adjustment in the event of a change in the Company's leverage ratio, as defined by the Credit Agreement. The Company pays this facility fee regardless of available or outstanding borrowings, currently at an annual rate of 0.1%. As of March 31, 2005, borrowings of $125.8 million were outstanding under the Credit

18

Agreement. The Credit Agreement contains various financial and other covenants, all of which the Company was in compliance with at March 31, 2005.

        The Company has two securitization programs whereby certain subsidiaries in the United States and Japan sell, without recourse, on a continuous basis, an undivided interest in certain eligible pools of trade accounts receivable. As of March 31, 2005, the Company had sold a total of $85.4 million of trade accounts receivable and received funding of $71.1 million. The United States securitization program expires on December 19, 2005 and the Japan securitization program expires on December 3, 2005.

        At March 31, 2005, there have been no material changes in the Company's significant contractual obligations and commercial commitments as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2004.

        Cash flows provided by operating activities for the three months ended March 31, 2005 decreased $16.3 million from the same period a year ago which can be explained primarily by:

•

decreased net cash flows from accounts receivables due to increased sales levels; and



•

decreased net cash flows from accounts receivable securitization programs from a reduction of the amount securitized associated with the sale of the perfusion products business in Japan.

        Net cash provided by investing activities in the three months ended March 31, 2005 consisted primarily of proceeds from the sale of the Japan perfusion products business.

        Net cash used in investing activities in the three months ended March 31, 2004 consisted primarily of the acquisition of PVT.

        Net cash provided by financing activities in the three months ended March 31, 2005 consisted primarily of the net proceeds from issuance of long term debt of $10.8 million and proceeds from stock plans of $6.6 million partially offset by purchases of treasury stock of $12.5 million.

        Net cash provided by financing activities in the three months ended March 31, 2004 consisted primarily of net proceeds from issuance of long-term debt of $78.0 million, primarily to finance the acquisition of PVT.

Critical Accounting Policies

        The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to the Company's critical accounting policies which the Company believes could have the most significant effect on the Company's reported results and require subjective or complex judgments by management is contained on pages 37-40 in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Company's Annual Report on Form 10-K for the year ended December 31, 2004. Management believes that at March 31, 2005, there has been no material change to this information.

Effects of Recent Accounting Pronouncements

        In December 2004, the FASB issued a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123R"). This Statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. FAS 123R eliminates the alternative to use Opinion 25's intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in

19

recognition of no compensation cost. FAS 123R requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). This revision is effective for the first interim or annual reporting period that begins after June 15, 2005. On April 15, 2005, the Securities and Exchange Commission released a rule that amends the date for compliance so that the Company is not required to prepare financial statements in accordance with FAS 123R until the first quarter of 2006. The Company is still assessing the impact that adoption of FAS 123R will have on its consolidated financial statements; however, the Company believes that adoption of this standard will result in a charge to reported earnings.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

        For a complete discussion of the Company's exposure to interest rate risk, refer to Item 7A "Quantitative and Qualitative Disclosures About Market Risk" on pages 41-43 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004. There have been no significant changes from the information discussed therein.

Currency Risk

        For a complete discussion of the Company's exposure to foreign currency risk, refer to Item 7A "Quantitative and Qualitative Disclosures About Market Risk" on pages 41-43 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004. There have been no significant changes from the information discussed therein.

Credit Risk

        For a complete discussion of the Company's exposure to credit risk, refer to Item 7A "Quantitative and Qualitative Disclosures About Market Risk" on pages 41-43 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004. There have been no significant changes from the information discussed therein.

Concentrations of Credit Risk

        In the normal course of business, Edwards Lifesciences provides credit to customers in the health care industry, performs credit evaluations of these customers and maintains allowances for probable credit losses, which have been adequate based upon historical experience.

Investment Risk

        The Company invests in equity securities of public and private companies. These investments are classified in "Investments in unconsolidated affiliates" on the consolidated condensed balance sheets. The Company is exposed to risks related to changes in the fair values of these investments. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Management employs a systematic methodology that considers all available evidence in evaluating potential impairment of its investments. In the event that the cost of an investment exceeds its fair value, management evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, as well as its intent and ability to hold the investment. Management also considers specific adverse conditions related to the financial health of, and business outlook for, the investee, including industry and sector performance, changes in technology, operational and financing cash flow factors, performance against product development milestones, and rating agency actions. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

20

        At March 31, 2005, the Company had $17.3 million of investments in equity securities and had recorded unrealized losses of $6.4 million on these investments in "Accumulated Other Comprehensive Income," net of tax. Management considers these temporary in nature based upon its evaluation of the above-mentioned criteria. Should these companies experience a decline in financial condition or fail to meet certain development milestones, the decline in the investments' values may be considered other than temporary and impairment charges may be necessary.

Item 4.  Controls and Procedures

        The Company's management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the Company's disclosure controls and procedures as of March 31, 2005. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have determined that such controls and procedures are effective to provide reasonable assurance that information relating to the Company, including its consolidated subsidiaries, required to be disclosed in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no changes in the Company's internal controls over financial reporting that were identified during the evaluation that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        On June 29, 2000, Edwards Lifesciences filed a lawsuit against St. Jude Medical, Inc. alleging infringement of several 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. Pursuant to the terms of a January 7, 2005 settlement agreement, Edwards Lifesciences was paid $5.5 million by St. Jude, Edwards Lifesciences granted St. Jude a paid-up license for certain of its heart valve therapy products and the lawsuit was dismissed. The settlement did not have a material financial impact on the Company.

        On August 18, 2003, Edwards Lifesciences filed a lawsuit against Medtronic, Inc., Medtronic AVE, Cook, Inc. and W.L. Gore & Associates alleging infringement of a patent exclusively licensed to the Company. The lawsuit was filed in the United States District Court for the Northern District of California, seeking monetary damages and injunctive relief. On September 2, 2003, a second patent exclusively licensed to the Company was added to the lawsuit. Each of the defendants has answered and asserted various affirmative defenses and counterclaims. Discovery is proceeding.

        In addition, 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 any such charge could have a material adverse impact on Edwards Lifesciences' net income or cash flows in the period in which it is recorded or paid, management does not believe that any such charge would have a material adverse effect on Edwards Lifesciences' financial position, results of operations or liquidity.

        Edwards Lifesciences is also 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.

22

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

(a)

On May 12, 2004, the Company announced that the Board of Directors approved a stock repurchase program authorizing the Company to purchase on the open market and in privately negotiated transactions up to 2.0 million shares of the Company's common stock through December 31, 2006.

Item 6. Exhibits

        Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto and include the following:

23

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.

24

EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION

25

QuickLinks

Item 1. Financial Statements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures

Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits