EDWARDS LIFESCIENCES CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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Insight

The following discussion and analysis contains forward-looking statements within
the meaning of the federal securities laws, and should be read in conjunction
with the disclosures we make concerning risks and other factors that may affect
our business and operating results. See "Note Regarding Forward-Looking
Statements" preceding Part I, Item 1 in this Quarterly Report on Form 10-Q.

We are the global leader in patient-focused medical innovations for structural
heart disease and critical care monitoring. Driven by a passion to help
patients, we partner with the world's leading clinicians and researchers and
invest in research and development to transform care for those impacted by
structural heart disease or who require hemodynamic monitoring during surgery or
in intensive care. We conduct operations worldwide and are managed in the
following geographical regions: United States, Europe, Japan, and Rest of World.
Our products are categorized into the following areas: Transcatheter Aortic
Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies
("TMTT"), Surgical Structural Heart ("Surgical"), and Critical Care.

Financial Highlights and Market Update
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The COVID-19 pandemic has adversely impacted, and may further adversely impact,
nearly all aspects of our business and markets, including our workforce and the
operations of our customers, suppliers, and business partners. Our priority has
been to maintain access for patients to our life-saving technologies while
providing continuous front-line support to our clinician partners, and
protecting the well-being of our employees. Our manufacturing operations have
continued to respond to impacts related to COVID-19, and we have been able to
supply our technologies around the world. Across the organization, we are
proactively managing inventory, assessing alternative logistics options, and
closely monitoring the supply of components.

During the first quarter of 2021, COVID-19 strained the global healthcare system during the winter months. However, we saw a strong recovery from the second quarter of 2021 as COVID vaccines became more widely available and patients who had postponed care were treated.

During the first quarter of 2022, the Omicron variant had a pronounced impact on
hospital capacity, resources, and procedure volumes in January 2022, especially
in the United States. Outside the United States, we experienced a less
pronounced year-over-year impact from the pandemic.

During the second quarter of 2022, our sales were impacted by a slower than expected improvement in United States hospital staff shortages and foreign currency headwinds.

Despite the challenging macroeconomic factors, our net sales for the first six
months of 2022 were $2.7 billion, representing an increase of $122.5 million
over the first six months of 2021, driven primarily by sales of our TAVR
products.
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Our gross profit increase in the six months ended June 30, 2022 was driven by
our sales growth and the positive impact of our foreign currency hedging
program. The decrease in our diluted earnings per share in the six months ended
June 30, 2022 was driven by changes in the fair value of our contingent
consideration liabilities, which resulted in a $98.1 million after tax gain in
the first six months of 2021 compared to a $21.9 million after tax gain in the
first six months of 2022, and increased sales and marketing and research and
development expenses in 2022, partially offset by the aforementioned gross
profit increase.
We continue to closely monitor the impact of COVID-19 on all aspects of our
business and geographies, including its impact on our customers, employees,
suppliers, vendors, business partners, and distribution channels. The extent to
which the COVID-19 global pandemic and measures taken in response thereto impact
our business, results of operations, and financial condition will depend on
future developments, which are highly uncertain and are difficult to predict.
These developments include, but are not limited to, the duration and spread of
the outbreak (including new and more contagious variants of COVID-19), its
severity, the actions to contain the virus or address its impact, the timing,
distribution, public acceptance and efficacy of vaccines and other treatments,
and the associated impact on economic and operating conditions. Even after the
COVID-19 outbreak has subsided, we may continue to experience materially adverse
impacts on our financial condition and results of operations.

Healthcare environment, opportunities and challenges

The medical technology industry is highly competitive and continues to evolve.
Our success is measured both by the development of innovative products and the
value we bring to our stakeholders. We are committed to developing new
technologies and providing innovative patient care, and we are committed to
defending our intellectual property in support of those developments. Despite
the challenges of the COVID-19 pandemic, our dedicated field teams have found
creative ways to support physicians, our engineers continued to advance
innovation, and our colleagues worked diligently to keep our clinical trials on
track. In the first six months of 2022, we invested 17.7% of our net sales in
research and development.

Results of Operations

Net Sales by Region
(dollars in millions)
                                     Three Months Ended                                                        Six Months Ended
                                          June 30,                                     Percent                     June 30,                                       Percent
                                   2022               2021            Change            Change              2022               2021             Change            Change
United States                  $   800.8          $   795.7          $  5.1                0.6  %       $ 1,550.3          $ 1,470.4          $  79.9                 5.4  %
Europe                             302.8              309.8            (7.0)              (2.2) %           613.9              589.8             24.1                 4.1  %
Japan                              122.9              131.8            (8.9)              (6.8) %           258.4              264.1             (5.7)               (2.2) %
Rest of World                      147.4              138.7             8.7                6.1  %           292.5              268.3             24.2                 9.0  %
Outside of the United States       573.1              580.3            (7.2)              (1.2) %         1,164.8            1,122.2             42.6                 3.8  %
Total net sales                $ 1,373.9          $ 1,376.0          $ (2.1)              (0.1) %       $ 2,715.1          $ 2,592.6          $ 122.5                 4.7  %



Net sales outside of the United States include the impact of foreign currency
exchange rate fluctuations. The impact of foreign currency exchange rate
fluctuations on net sales is not necessarily 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 our hedging
activities.
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Net Sales by Product Group
(dollars in millions)

                                           Three Months Ended                                                        Six Months Ended
                                                June 30,                                     Percent                     June 30,                                       Percent
                                         2022               2021            Change            Change              2022               2021             Change            Change
Transcatheter Aortic Valve
Replacement                          $   906.9          $   901.5          $  5.4                0.6  %       $ 1,788.2          $ 1,693.2          $  95.0                 5.6  %
Transcatheter Mitral and Tricuspid
Therapies                                 27.9               22.1             5.8               25.6  %            54.9               38.4             16.5                42.6  %
Surgical Structural Heart                228.5              237.4            (8.9)              (3.7) %           449.3              450.4             (1.1)               (0.2) %
Critical Care                            210.6              215.0            (4.4)              (2.0) %           422.7              410.6             12.1                 3.0  %
Total net sales                      $ 1,373.9          $ 1,376.0          $ (2.1)              (0.1) %       $ 2,715.1          $ 2,592.6          $ 122.5                 4.7  %


Transcatheter Aortic Valve Replacement Sales

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Net sales of TAVR products increased for the three and six months ended June 30, 2022 trained by:

•higher sales of the Edwards SAPIEN platform in 2022, primarily the Edwards
SAPIEN 3 Ultra valve in the United States and Europe, and the Edwards SAPIEN 3
in Japan;

partially offset by:

•foreign currency exchange rate fluctuations, which decreased net sales outside
of the United States by $36.4 million and $52.7 million for the three and six
months ended June 30, 2022, respectively, primarily due to the weakening of the
Euro and the Japanese yen against the United States dollar.

During the first half of 2022, we continued to advance our EARLY TAVR pivotal
trial, studying the treatment of severe aortic stenosis patients before their
symptoms develop, and our PROGRESS pivotal trial, studying moderate aortic
stenosis patients. During the second quarter of 2022, we began treating patients
in our ALLIANCE pivotal trial, studying our next-generation TAVR technology,
SAPIEN X4.


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Mitral and Tricuspid Transcatheter Therapy Sales

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TMTT product net sales increased for the three and six months ended June 30, 2022 primarily due to the continued adoption of our PASCAL system in Europe.

We remain on track for United States Food and Drug Administration approval and
CE Mark Medical Device Regulation approval of PASCAL Precision for patients with
degenerative mitral regurgitation by year end. In mitral replacement, we
continued to broaden our experience with both of our transcatheter mitral
replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 and the
MISCEND study for EVOQUE Eos. We also continued to make progress in enrolling
the TRISCEND II pivotal trial of the EVOQUE system and the CLASP IITR pivotal
trial with PASCAL in patients with symptomatic, severe tricuspid regurgitation..

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Surgical Structural Heart Sales

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Net sales of Surgical products decreased for the three and six months ended June
30, 2022 primarily due to foreign currency exchange rate fluctuations, which
decreased net sales outside of the United States by $12.0 million and $17.4
million for the three and six months ended June 30, 2022, respectively,
primarily due to the weakening of the Euro and the Japanese yen against the
United States dollar. The impact of foreign currency was partially offset by
increased sales of the INSPIRIS RESILIA aortic valve, primarily in the United
States and Europe, the KONECT aortic valved conduit, primarily in the United
States, and the MITRIS RESILIA valve, primarily in the United States and Japan.

In March 2022, we received United States Food and Drug Administration approval
for the MITRIS RESILIA valve and initiated the product launch in the United
States in April 2022. MITRIS RESILIA is a tissue valve replacement specifically
designed for the heart's mitral position and incorporates our advanced RESILIA
technology.


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Intensive care sales

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Net sales of Critical Care products decreased in the quarter ended June 30, 2022 and increased for the six months ended June 30, 2022 mainly because of:

• increased demand for our HemoSphere monitoring platform, pressure monitoring products and enhanced surgical recovery products, primarily in United States;

partially offset by:

•foreign currency exchange rate fluctuations, which decreased net sales outside
of the United States by $9.6 million and $14.1 million for the three and six
months ended June 30, 2022, respectively, primarily due to the weakening of the
Euro and the Japanese yen against the United States dollar.






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Gross Profit
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The increase in gross profit as a percentage of net sales for the three and six
months ended June 30, 2022 was driven by a 3.8 percentage point and 3.1
percentage point increase for the three and six months ended June 30, 2022,
respectively, from the impact of our foreign currency hedging program, which
includes natural hedges and hedge contract gains (primarily the strengthening of
the United States dollar against the Japanese yen and the Euro).

Selling, General, and Administrative ("SG&A") Expenses
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SG&A expenses increased for the three and six months ended June 30, 2022
primarily due to higher field-based personnel-related costs and a resu'mption of
in-person commercial activities, primarily TAVR and TMTT in the United States
and Europe. Foreign currency exchange rate fluctuations decreased expenses by
$15.5 million and $22.4 million for the three and six months ended June 30,
2022, respectively, due to the weakening of the Euro and the Japanese yen
against the United States dollar.
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Research and Development ("R&D") Expenses
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R&D expenses increased for the three and six months ended June 30, 2022
primarily due to continued investments in our transcatheter innovations,
including increased clinical trial activity.

Change in fair value of contingent consideration liabilities, net

The change in fair value of contingent consideration liabilities resulted in
gains of $20.9 million and $102.6 million for the three and six months ended
June 30, 2022 and 2021, respectively. The gains were driven by changes in the
projected probability and timing of milestone achievements and the projected
timing of cash inflows. For further information, see Note 5 to the "Consolidated
Condensed Financial Statements."

Other Income, net

(in millions)

                                             Three Months Ended               Six Months Ended
                                                  June 30,                        June 30,
                                              2022             2021           2022            2021
Foreign exchange losses (gains), net   $      1.8            $ (2.7)     $     4.3          $ (4.4)
Gain on insurance settlement                 (3.8)                -           (3.8)              -
(Gain) loss on investments                   (0.8)             (1.4)           0.1            (4.1)
Other                                        (1.5)             (0.3)          (1.6)           (1.4)
Other income, net                      $     (4.3)           $ (4.4)     $    (1.0)         $ (9.9)

Net foreign exchange losses (gains) relate to currency fluctuations primarily in our global and intercompany trade receivable and payable balances, partially offset by gains and losses on foreign currency derivative instruments.

Gain on insurance settlement during the three and six months ended June 30, 2022
relates to insurance recovery for damaged freight shipments of heart valves.

The (gain) loss on investments primarily represents our net share of gains and
losses in investments accounted for under the equity method, and realized gains
and losses on investments in equity securities.

Provision for income taxes

The provision for income taxes consists of provisions for federal, state, and
foreign income taxes. We operate in an international environment with
significant operations in various locations outside the United States which have
statutory tax rates typically lower than the United States tax rate.
Accordingly, the consolidated income tax rate is a composite rate reflecting the
earnings in the various locations and the applicable rates.
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Our effective income tax rate was 12.5% and 10.3% for the three months ended
June 30, 2022 and 2021, respectively, and 13.4% and 11.5% for the six months
ended June 30, 2022 and 2021, respectively. The increase in the effective rate
between the six months ended June 30, 2022 and 2021 was primarily due to a
reduced tax benefit from employee share-based compensation and the estimated
impact of U.S. foreign tax credit regulations published by the U.S. Treasury on
January 4, 2022 . These regulations limit the amount of foreign taxes that are
creditable against U.S. income taxes. In addition, the effective rates for the
six months ended June 30, 2022 and 2021 were lower than the federal statutory
rate of 21% primarily due to (1) foreign earnings taxed at lower rates, (2)
Federal and California research and development credits, and (3) the tax benefit
from employee share-based compensation.

In the normal course of business, the Internal Revenue Service ("IRS") and other
taxing authorities are in different stages of examining various years of our tax
filings. During these audits we may receive proposed audit adjustments that
could be material. Therefore, there is a possibility that an adverse outcome in
these audits could have a material effect on our results of operations and
financial condition. We strive to resolve open matters with each tax authority
at the examination level and could reach agreement with a tax authority at any
time. While we have accrued for matters we believe are more likely than not to
require settlement, the eventual outcome with a tax authority may result in a
tax liability that is more or less than that reflected in the consolidated
condensed financial statements. Furthermore, we may later decide to challenge
any assessments, if made, and may exercise our right to appeal. The uncertain
tax positions are reviewed quarterly and adjusted as events occur that affect
potential liabilities for additional taxes, such as lapsing of applicable
statutes of limitations, proposed assessments by tax authorities, negotiations
between tax authorities, identification of new issues, and issuance of new
legislation, regulations, or case law.

We executed an Advance Pricing Agreement ("APA") in 2018 between the United
States and Switzerland governments for tax years 2009 through 2020 covering
various, but not all, transfer pricing matters. The unagreed transfer pricing
matters, namely Surgical Structural Heart and Transcatheter Aortic Valve
Replacement (collectively "Surgical/TAVR") intercompany royalty transactions,
then reverted to IRS Examination for further consideration as part of the
respective years' regular tax audits. In addition, we executed other bilateral
APAs as follows: during 2017, an APA between the United States and Japan
covering tax years 2015 through 2019; and during 2018, APAs between Japan and
Singapore and between Switzerland and Japan covering tax years 2015 through
2019. We have filed to renew all the APAs which cover transactions with Japan
for the years 2020 and forward. The execution of some or all these APA renewals
depends on many variables outside of our control.

To June 30, 2022all material state, local and foreign income tax matters have been concluded for years through 2015. Although not material, we continue to address matters in India for years from 2010.

The audits of our United States federal income tax returns through 2014 have
been closed. The IRS audit field work for the 2015 through 2017 tax years was
substantially completed during the fourth quarter of 2020, except for transfer
pricing and related matters. The IRS began its examination of the 2018 through
2020 tax years during the first quarter of 2022.

During 2021, we received a Notice of Proposed Adjustment ("NOPA") from the IRS
for the 2015-2017 tax years relating to transfer pricing involving certain
Surgical/TAVR intercompany royalty transactions between our United States and
Switzerland subsidiaries. The NOPA proposes an increase to our United States
taxable income, which could result in additional tax expense for this period of
approximately $180 million and represents a significant change to previously
agreed upon transfer pricing methodologies for these types of transactions. We
have formally disagreed with the NOPA and submitted a formal protest on the
matter during the fourth quarter of 2021. During the second quarter of 2022, we
received the IRS's rebuttal to our protest and were notified that the case had
been transferred to the IRS Independent Office of Appeals. We continue to
evaluate all possible remedies available to us, which could take several years
to resolve. No payment of any amount related to the NOPA is required to be made,
if at all, until all applicable proceedings have been completed. We believe the
amounts previously accrued related to this uncertain tax position are sufficient
and, accordingly, have not accrued any additional amount based on the NOPA
received.

Certain Surgical/TAVR intercompany royalty transactions covering tax years
2015-2022 that were not resolved under the APA program remain subject to IRS
examination, and those transactions and related tax positions remain uncertain
as of June 30, 2022. We have considered this information, as well as information
regarding the NOPA and rebuttal described above, in our evaluation of our
uncertain tax positions. The impact of these unresolved transfer pricing
matters, net of any correlative repatriation tax adjustment, may be significant
to our consolidated condensed financial statements. Based on the information
currently available and numerous possible outcomes, we cannot reasonably
estimate what, if any, changes in our existing uncertain tax positions may occur
in the next 12 months and, therefore, have continued to record the uncertain tax
positions as a long-term liability.
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Cash and capital resources

Our sources of cash liquidity include cash and cash equivalents, short-term
investments, cash from operations, and amounts available under credit
facilities. We believe that these sources are sufficient to fund the current and
long-term requirements of working capital, capital expenditures, and other
financial commitments. However, we periodically consider various financing
alternatives and may, from time to time, seek to take advantage of favorable
interest rate environments or other market conditions.

As of June 30, 2022, cash and cash equivalents and short-term investments held
in the United States and outside of the United States were $1,065.6 million and
$450.2 million, respectively.

We had a Five-Year Credit Agreement ("the Prior Credit Agreement") which was
scheduled to mature on April 28, 2023 and provided up to an aggregate of $750.0
million in borrowings in multiple currencies. As of June 30, 2022, there were no
borrowings outstanding under the Prior Credit Agreement and we were in
compliance with all covenants. In July 2022, we entered into a new Five-Year
Credit Agreement (the "New Credit Agreement") which provides for a $750.0
million multi-currency unsecured revolving credit facility (the "Revolving
Facility") and replaced the Prior Credit Agreement. The New Credit Agreement
matures on July 15, 2027. We may increase the amount available under the
Revolving Facility by up to an additional $250.0 million in the aggregate and
extend the maturity date for an additional year, subject to agreement of the
lenders. As of July 29, 2022, no amounts were outstanding under the Revolving
Facility. For further information, see Note 14 to the "Consolidated Condensed
Financial Statements."

In June 2018, we issued $600.0 million of 4.3% fixed-rate unsecured senior notes
(the "2018 Notes") due June 15, 2028. As of June 30, 2022, the carrying value of
the 2018 Notes was $596.0 million.

From time to time, we repurchase shares of our common stock under share
repurchase programs authorized by the Board of Directors. We consider several
factors in determining when to execute share repurchases, including, among other
things, expected dilution from stock plans, cash capacity, and the market price
of our common stock. During the six months ended June 30, 2022, under the Board
authorized repurchase program, we repurchased a total of 7.2 million shares at
an aggregate cost of $746.4 million. As of June 30, 2022, we had remaining
authority to purchase $380.1 million of our common stock. In July 2022, the
Board of Directors approved an additional $1.5 billion of repurchases of our
common stock under our share repurchase program, effective July 28, 2022. This
share repurchase program has no expiration date.

At June 30, 2022, there had been no material changes in our cash requirements
from known contractual and other obligations, including commitments for capital
expenditures, as disclosed in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," of our Annual Report on
Form 10-K for the year ended December 31, 2021.

Consolidated cash flows – For the six months ended June 30, 2022 and 2021:

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Net cash flows provided by operating activities of $625.5 million for the six
months ended June 30, 2022 decreased $201.1 million over the same period last
year primarily due to a higher bonus payout in 2022 associated with 2021
performance, an increase in inventory builds compared to the prior year, and an
increase in estimated tax payments.

Net cash provided by investing activities of $359.1 million for the six months ended June 30, 2022 consisted primarily of the net investment proceeds of
$558.4 millionpartially offset by capital expenditures of $115.8 million.

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Net cash used in investing activities of $379.2 million for the six months ended
June 30, 2021 consisted mainly of net purchases of investments of $204.8 million and the capital expenditure of $175.3 million.

Net cash used in financing activities of $676.2 million for the six months ended
June 30, 2022 mainly consisted of purchases of treasury shares of $760.7 millionpartially offset by proceeds from share ownership plans $86.5 million.

Net cash used in financing activities of $333.3 million for the six months ended
June 30, 2021 mainly consisted of purchases of treasury shares of $414.5 millionpartially offset by proceeds from share ownership plans $85.8 million.

Significant Accounting Policies and Estimates

The consolidated condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States which require
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the consolidated condensed financial statements
and revenues and expenses during the periods reported. Actual results could
differ from those estimates. Information with respect to our critical accounting
policies and estimates which we believe could have the most significant effect
on our reported results and require subjective or complex judgments by
management is contained on pages 34-36 in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," of our Annual Report
on Form 10-K for the year ended December 31, 2021. There have been no
significant changes from the information discussed therein.

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