Edgar Filing: Edwards Lifesciences Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-15525

EDWARDS LIFESCIENCES CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		36-4316614
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Edwards Way, Irvine, California		92614
(Address of principal executive offices)		(Zip Code)
(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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares outstanding of the registrant's common stock, $1.00 par value, as of April 23, 2019 was 208,501,603.

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EDWARDS LIFESCIENCES CORPORATION

FORM 10-Q

For the quarterly period ended March 31, 2019

TABLE OF CONTENTS



		Page Number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Condensed Balance Sheets	1
	Consolidated Condensed Statements of Operations	2
	Consolidated Condensed Statements of Comprehensive Income	3
	Consolidated Condensed Statements of Cash Flows	4
	Consolidated Condensed Statements of Stockholders' Equity	5
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	33
Signature		34
Exhibits		35

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

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. We intend 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, plans or expectations with respect to development activities, clinical trials or regulatory approvals, any statements of plans, strategies and objectives of management for future operations, any statements concerning our future operations, financial conditions and prospects, and any statements 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," "goal," "continue," "seek," "pro forma," "forecast," "intend," "guidance," "optimistic," "aspire," "confident," other forms of these words or similar words or expressions or 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 our results or future business, financial condition, results of operations or performance to differ materially from our historical results or experiences or those expressed or implied in any forward-looking statements contained in this report. Investors should carefully review the information contained in, or incorporated by reference into, our annual report on Form 10-K for the year ended December 31, 2018 and subsequent reports on Forms 10-Q and 8-K for a description of certain of these risks and uncertainties. These forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement. If we do update or correct one or more of these statements, investors and others should not conclude that we will make additional updates or corrections.

Unless otherwise indicated or otherwise required by the context, the terms "we," "our," "it," "its," "Company," "Edwards," and "Edwards Lifesciences" refer to Edwards Lifesciences Corporation and its subsidiaries.

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Part I. Financial Information

Item 1. Financial Statements

EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(in millions, except par value; unaudited)



	March 31, 2019			December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	709.2		$	714.1
Short-term investments (Note 6)	253.8			242.4
Accounts and other receivables, net of allowances of $8.6 and $8.9, respectively	578.0			537.3
Inventories (Note 2)	630.9			607.0
Prepaid expenses	55.4			54.3
Other current assets	141.5			131.8
Total current assets	2,368.8			2,286.9
Long-term investments (Note 6)	453.7			506.3
Property, plant, and equipment, net	892.2			867.5
Operating lease right-of-use assets (Note 4)	69.9			—
Goodwill	1,103.4			1,112.2
Other intangible assets, net	341.3			343.2
Deferred income taxes	164.5			174.0
Other assets	75.5			33.6
Total assets	$	5,469.3		$	5,323.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 2)	$	623.9		$	876.6
Operating lease liabilities (Note 4)	22.6			—
Total current liabilities	646.5			876.6
Long-term debt	593.9			593.8
Contingent consideration liabilities (Note 8)	185.3			178.6
Taxes payable	259.4			259.4
Operating lease liabilities (Note 4)	49.7			—
Uncertain tax positions	130.3			124.9
Other long-term liabilities	156.7			150.0
Commitments and contingencies (Note 11)
Stockholders' equity
Preferred stock, $.01 par value, authorized 50.0 shares, no shares outstanding	—			—
Common stock, $1.00 par value, 350.0 shares authorized, 216.0 and 215.2 shares issued, and 208.4 and 207.7 shares outstanding, respectively	216.0			215.2
Additional paid-in capital	1,449.4			1,384.4
Retained earnings	2,944.4			2,694.7
Accumulated other comprehensive loss (Note 12)	(141.2		)	(138.5		)
Treasury stock, at cost, 7.6 and 7.5 shares, respectively	(1,021.1		)	(1,015.4		)
Total stockholders' equity	3,447.5			3,140.4
Total liabilities and stockholders' equity	$	5,469.3		$	5,323.7

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

(in millions, except per share information; unaudited)



	Three Months Ended March 31,
	2019			2018
Net sales	$	993.0		$	894.8
Cost of sales	231.8			233.6
Gross profit	761.2			661.2
Selling, general, and administrative expenses	280.3			256.0
Research and development expenses	171.4			143.2
Intellectual property litigation expenses	4.6			5.7
Change in fair value of contingent consideration liabilities, net (Note 8)	6.7			3.8
Special charge (Note 5)	24.0			—
Operating income	274.2			252.5
Interest income, net	(2.0		)	(0.8		)
Special gain (Note 5)	—			(7.1		)
Other income, net	(1.8		)	(3.1		)
Income before provision for income taxes	278.0			263.5
Provision for income taxes	28.3			56.9
Net income	$	249.7		$	206.6
Share information (Note 13)
Earnings per share:
Basic	$	1.20		$	0.98
Diluted	$	1.18		$	0.96
Weighted-average number of common shares outstanding:
Basic	207.9			210.2
Diluted	212.2			215.1

The accompanying notes are an integral part of these

consolidated condensed financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(in millions; unaudited)



	Three Months Ended March 31,
	2019			2018
Net income	$	249.7		$	206.6
Other comprehensive income (loss), net of tax (Note 12):
Foreign currency translation adjustments	(13.1		)	33.3
Unrealized gain (loss) on cash flow hedges	7.2			(9.7		)
Defined benefit pension plans	(0.1		)	0.3
Unrealized gain (loss) on available-for-sale investments	3.3			(6.1		)
Reclassification of net realized investment loss to earnings	—			1.4
Other comprehensive (loss) income	(2.7		)	19.2
Comprehensive income	$	247.0		$	225.8

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

(in millions; unaudited)



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	249.7		$	206.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20.6			19.1
Amortization of right-of-use-assets	5.7			—
Stock-based compensation (Note 10)	20.8			18.4
Change in fair value of contingent consideration liabilities, net (Note 8)	6.7			3.8
Deferred income taxes	5.8			(15.5		)
Purchase of intellectual property (Note 5)	24.0			—
Other	(7.0		)	1.0
Changes in operating assets and liabilities:
Accounts and other receivables, net	(45.8		)	27.4
Inventories	(29.4		)	(3.3		)
Accounts payable and accrued liabilities	(242.2		)	(115.5		)
Income taxes	(16.3		)	39.9
Prepaid expenses and other current assets	2.8			(26.4		)
Other	6.1			(4.2		)
Net cash provided by operating activities	1.5			151.3
Cash flows from investing activities
Capital expenditures	(42.2		)	(43.2		)
Purchases of held-to-maturity investments (Note 6)	(30.0		)	—
Proceeds from held-to-maturity investments (Note 6)	20.0			238.5
Proceeds from available-for-sale investments (Note 6)	56.1			42.3
Investments in intangible assets	(16.8		)	(3.0		)
Investments in trading securities, net	(1.9		)	(3.1		)
Investments in unconsolidated affiliates, net (Note 6)	(1.3		)	(1.8		)
Payment of contingent consideration	—			(10.0		)
Payment for acquisition option	(35.0		)	—
Other	1.6			0.6
Net cash (used in) provided by investing activities	(49.5		)	220.3
Cash flows from financing activities
Proceeds from issuance of debt, net	3.7			5.1
Payments on debt and capital lease obligations	(4.0		)	(5.1		)
Purchases of treasury stock	(5.7		)	(2.1		)
Proceeds from stock plans	45.0			44.8
Other	5.4			(1.8		)
Net cash provided by financing activities	44.4			40.9
Effect of currency exchange rate changes on cash and cash equivalents	(1.3		)	(3.8		)
Net (decrease) increase in cash and cash equivalents	(4.9		)	408.7
Cash and cash equivalents at beginning of period	714.1			818.3
Cash and cash equivalents at end of period	$	709.2		$	1,227.0

The accompanying notes are an integral part of these

consolidated condensed financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions; unaudited)



	Three Months Ended March 31, 2019
	Common Stock			Treasury Stock
	Shares	Par Value		Shares	Amount			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at December 31, 2018	215.2	215.2		7.5	(1,015.4		)	1,384.4		2,694.7		(138.5		)	3,140.4
Net income										249.7					249.7
Other comprehensive loss, net of tax												(2.7		)	(2.7		)
Common stock issued under equity plans	0.8	0.8						44.2							45.0
Stock-based compensation expense								20.8							20.8
Purchases of treasury stock				0.1	(5.7		)								(5.7		)
Balance at March 31, 2019	216.0	$	216.0	7.6	$	(1,021.1	)	$	1,449.4	$	2,944.4	$	(141.2	)	$	3,447.5

	Three Months Ended March 31, 2018
	Common Stock			Treasury Stock
	Shares	Par Value		Shares	Amount			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at December 31, 2017	212.0	212.0		2.3	(252.1		)	1,166.9		1,962.1		(132.7		)	2,956.2
Impact to retained earnings from adoption of ASU 2016-16 and ASU 2018-02										10.4		(7.8		)	2.6
Balance at January 1, 2018	212.0	212.0		2.3	(252.1		)	1,166.9		1,972.5		(140.5		)	2,958.8
Net income										206.6					206.6
Other comprehensive loss, net of tax												19.2			19.2
Common stock issued under equity plans	1.0	1.0						43.8							44.8
Stock-based compensation expense								18.4							18.4
Purchases of treasury stock					(2.1		)								(2.1		)
Balance at March 31, 2018	213.0	$	213.0	2.3	$	(254.2	)	$	1,229.1	$	2,179.1	$	(121.3	)	$	3,245.7

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1. BASIS OF PRESENTATION

The accompanying interim consolidated condensed financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the consolidated financial statements and notes included in Edwards Lifesciences Corporation's Annual Report on Form 10-K for the year ended December 31, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

In the opinion of management, 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.

Certain reclassifications have been made to the prior year's consolidated condensed financial statements to conform to the current year presentation.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued an amendment to the guidance on leases. The amendment improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. The guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach was required upon adoption. Reporting entities could elect to adjust comparative periods and record the cumulative effect adjustment at the beginning of the earliest comparative period, or to not adjust comparative periods and record the cumulative effect adjustment at the effective date.

The Company adopted the new guidance as of the effective date of January 1, 2019 with no adjustments to the comparative period presented in the financial statements. In addition, the Company elected the package of practical expedients permitted under the transition guidance to not reassess (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases. The Company implemented internal controls and system solutions to enable the preparation and disclosure of financial information about its leasing arrangements upon adoption.

The adoption of the guidance resulted in the recognition of right-of-use ("ROU") assets and additional lease liabilities for operating leases of $58.7 million as of January 1, 2019. The guidance did not have an impact on the Company's consolidated condensed statements of operations. See Note 4 for disclosures related to the Company's leases.

2. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAILS

Composition of Certain Financial Statement Captions

Components of selected captions in the consolidated condensed balance sheets consisted of the following (in millions):



	March 31, 2019		December 31, 2018
Inventories
Raw materials	$	112.3	$	111.5
Work in process	161.2		144.8
Finished products	357.4		350.7
	$	630.9	$	607.0

At March 31, 2019 and December 31, 2018, $112.2 million and $106.5 million, respectively, of the Company's finished products inventories were held on consignment.

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	March 31, 2019		December 31, 2018
Accounts payable and accrued liabilities
Accounts payable	$	147.2	$	134.0
Employee compensation and withholdings	152.7		226.1
Taxes payable (Note 14)	6.9		31.3
Property, payroll, and other taxes	42.2		39.5
Research and development accruals	55.7		48.9
Accrued rebates	72.4		80.0
Fair value of derivatives	4.0		4.4
Accrued marketing expenses	18.3		22.3
Litigation and insurance reserves	18.6		196.7
Accrued relocation costs	12.1		11.3
Accrued professional services	7.5		11.0
Accrued technology purchases	7.2		—
Other accrued liabilities	79.1		71.1
	$	623.9	$	876.6

Supplemental Cash Flow Information

(in millions)



	Three Months Ended March 31,
	2019		2018
Cash paid during the year for:
Amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6.1	$	—
Non-cash investing and financing transactions:
Right-of-use assets obtained in exchange for new lease liabilities	$	16.3	$	—
Capital expenditures accruals	$	15.7	$	15.8

3. REVENUE

The Company sells separately priced service contracts, which range from 12 months to 36 months, to owners of its hemodynamic monitors. The Company invoices the customer the total amount of consideration at the inception of the contract and recognizes revenue ratably over the term of the contract. As of March 31, 2019 and December 31, 2018, $7.9 million and $7.6 million, respectively, of deferred revenue associated with outstanding service contracts was recorded in “Accounts Payable and Accrued Liabilities” and "Other Long-term Liabilities." During the three months ended March 31, 2019, the Company recognized as revenue $1.1 million that was included in the balance of deferred revenue as of December 31, 2018.

4. LEASES

The Company determines whether a contract is, or contains, a lease at inception. ROU assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. ROU assets also include any lease payments made at or before lease commencement and any initial direct costs incurred, and exclude any lease incentives received.

The Company determines the lease term as the noncancellable period of the lease, and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the balance sheet. Certain of the Company’s leases include variable lease payments that are based on costs incurred or actual usage, or adjusted periodically based on an index or a rate. The Company’s leases do not contain any residual value guarantees.

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The Company accounts for the lease and non-lease components as a single lease component for all of its leases except vehicle leases, for which the lease and non-lease components are accounted for separately.

Operating leases are included in “Operating Lease Right-of-Use Assets” and “Operating Lease Liabilities” on the Company’s consolidated condensed balance sheets.

The Company leases certain office space, manufacturing facilities, land, apartments, warehouses, vehicles, and equipment with remaining lease terms ranging from less than 1 year to 22 years, some of which include options to extend or terminate the leases.

Operating lease costs for the three months ended March 31, 2019 were $6.3 million. Short-term and variable lease costs were not material for the three months ended March 31, 2019.

Supplemental balance sheet information related to operating leases was as follows (in millions, except lease term and discount rate):



	March 31, 2019
Operating lease ROU assets	$	69.9

Operating lease liabilities, current portion	22.6
Operating lease liabilities, long-term portion	49.7
Total operating lease liabilities	$	72.3

Maturities of operating lease liabilities at March 31, 2019 were as follows (in millions):



2019	$	18.8
2020	21.1
2021	13.9
2022	9.5
2023	6.9
Thereafter	8.2
Total lease payments	$	78.4
Less: imputed interest	(6.1		)
Total lease liabilities	$	72.3

Weighted-average remaining lease term (in years)	4.5
Weighted-average discount rate	3.0		%

As of March 31, 2019, the Company had additional operating lease commitments of $12.5 million for office space that have not yet commenced. These leases will commence during 2019 with lease terms of 1 year to 10 years.

Disclosures related to periods prior to adopting the new lease guidance

Certain facilities and equipment are leased under operating leases expiring at various dates. Most of the operating leases contain renewal options. Total expense for all operating leases was $27.0 million, $27.3 million, and $22.9 million for the years 2018, 2017, and 2016, respectively.

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Future minimum lease payments (including interest) under non-cancelable operating leases at December 31, 2018 were as follows (in millions):



	Operating Leases
2019	$	25.6
2020	21.5
2021	13.5
2022	9.9
2023	6.4
Thereafter	14.3
Total obligations and commitments	$	91.2

5. SPECIAL CHARGE (GAIN)

In March 2019, the Company recorded a $24.0 million charge related to the acquisition of early-stage transcatheter intellectual property and associated clinical and regulatory experience.

In March 2018, the Company recorded a $7.1 million gain related to the curtailment of its defined benefit plan in Switzerland resulting from the closure of its manufacturing plant.

6. INVESTMENTS

Debt Securities

Investments in debt securities at the end of each period were as follows (in millions):



	March 31, 2019									December 31, 2018
Held-to-maturity	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Bank time deposits	$	30.0	$	—	$	—		$	30.0	$	20.0	$	—	$	—			$	20.0

Available-for-sale
Commercial paper	$	36.0	$	—	$	—		$	36.0	$	56.7	$	—	$	—			$	56.7
U.S. government and agency securities	79.7		0.2		(0.4		)	79.5		79.7		0.2		(0.7		)		79.2
Foreign government bonds	1.7		—		—			1.7		1.7		—		—				1.7
Asset-backed securities	102.2		0.3		(0.3		)	102.2		110.6		0.1		(0.5		)		110.2
Corporate debt securities	432.2		1.0		(1.5		)	431.7		459.8		0.1		(4.3		)		455.6
Municipal securities	2.8		—		—			2.8		2.8		—		—				2.8
Total	$	654.6	$	1.5	$	(2.2	)	$	653.9	$	711.3	$	0.4	$	(5.5	)		$	706.2

The cost and fair value of investments in debt securities, by contractual maturity, as of March 31, 2019 were as follows:



	Held-to-Maturity				Available-for-Sale
	Cost		Fair Value		Cost		Fair Value
	(in millions)
Due in 1 year or less	$	30.0	$	30.0	$	224.5	$	223.8
Due after 1 year through 5 years	—		—		340.9		340.9
Instruments not due at a single maturity date	—		—		89.2		89.2
	$	30.0	$	30.0	$	654.6	$	653.9

Actual maturities may differ from the contractual maturities due to call or prepayment rights.

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The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):



	March 31, 2019
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government and agency securities	$	—	$	—		$	56.7	$	(0.4	)	$	56.7	$	(0.4	)
Asset-backed securities	—		—			53.7		(0.3		)	53.7		(0.3		)
Corporate debt securities	56.1		(0.2		)	189.1		(1.3		)	245.2		(1.5		)
	$	56.1	$	(0.2	)	$	299.5	$	(2.0	)	$	355.6	$	(2.2	)



	December 31, 2018
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government and agency securities	$	0.7	$	(0.1	)	$	56.5	$	(0.6	)	$	57.2	$	(0.7	)
Asset-backed securities	4.0		0.1			61.3		(0.6		)	65.3		(0.5		)
Corporate debt securities	177.4		(1.1		)	203.7		(3.2		)	381.1		(4.3		)
	$	182.1	$	(1.1	)	$	321.5	$	(4.4	)	$	503.6	$	(5.5	)

Investments in Unconsolidated Affiliates

The Company has a number of equity investments in privately and publicly held companies. Investments in these unconsolidated affiliates are recorded in "Long-term Investments" on the consolidated condensed balance sheets, and are as follows:



	March 31, 2019			December 31, 2018
	(in millions)
Equity method investments
Cost	$	10.3		$	9.1
Equity in losses	(4.8		)	(4.7		)
Carrying value of equity method investments	5.5			4.4
Equity securities
Carrying value of non-marketable equity securities	18.1			18.1
Total investments in unconsolidated affiliates	$	23.6		$	22.5

Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values, and are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The Company did not record any upward or downward adjustments during the three months ended March 31, 2019. As of March 31, 2019, the Company had recorded accumulated upward adjustments of $1.7 million based on observable price changes, and accumulated downward adjustments of $1.9 million due to impairment and observable price changes.

During the three months ended March 31, 2019, the gross realized gains or losses from sales of available-for-sale investments were not material.

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7. ACQUISITION

On February 11, 2019, the Company entered into an agreement and plan of merger to acquire CAS Medical Systems, Inc. ("CASMED") for an aggregate cash purchase price of $2.45 per share of common stock, or an equity value of approximately $100 million. The transaction closed on April 18, 2019. CASMED is a medical technology company dedicated to non-invasive monitoring of tissue oxygenation in the brain. The Company plans to integrate the acquired technology platform into its hemodynamic monitoring platform. The acquisition will be accounted for as a business combination, and is expected to consist primarily of intangible assets.

8. FAIR VALUE MEASUREMENTS

The consolidated condensed financial statements include financial instruments for which the fair market value of such instruments may differ from amounts reflected on a historical cost basis. Financial instruments of the Company consist of cash deposits, accounts and other receivables, investments, accounts payable, certain accrued liabilities, and borrowings under a revolving credit agreement. These financial instruments are held at cost, which generally approximates fair value due to their short-term nature.

Financial instruments also include notes payable. As of March 31, 2019, the fair value of the notes payable, based on Level 2 inputs, was $630.1 million.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company prioritizes the inputs used to determine fair values in one of the following three categories:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.

Level 3—Unobservable inputs that are not corroborated by market data.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company's financial instruments which are measured at fair value on a recurring basis (in millions):



March 31, 2019	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	7.0	$	—	$	—	$	7.0
Available-for-sale investments:
Corporate debt securities	—		431.7		—		431.7
Asset-backed securities	—		102.2		—		102.2
U.S. government and agency securities	19.7		59.8		—		79.5
Foreign government bonds	—		1.7		—		1.7
Commercial paper	—		36.0		—		36.0
Municipal securities	—		2.8		—		2.8
Investments held for deferred compensation plans	76.0		—		—		76.0
Derivatives	—		37.9		—		37.9
	$	102.7	$	672.1	$	—	$	774.8
Liabilities
Derivatives	$	—	$	4.0	$	—	$	4.0
Deferred compensation plans	76.1		—		—		76.1
Contingent consideration liabilities	—		—		185.3		185.3
	$	76.1	$	4.0	$	185.3	$	265.4
December 31, 2018
Assets
Cash equivalents	$	—	$	11.8	$	—	$	11.8
Available-for-sale investments:
Corporate debt securities	—		455.6		—		455.6
Asset-backed securities	—		110.2		—		110.2
U.S. government and agency securities	19.6		59.6		—		79.2
Foreign government bonds	—		1.7		—		1.7
Commercial paper	—		56.7		—		56.7
Municipal securities	—		2.8		—		2.8
Investments held for deferred compensation plans	67.6		—		—		67.6
Derivatives	—		29.9		—		29.9
	$	87.2	$	728.3	$	—	$	815.5
Liabilities
Derivatives	$	—	$	5.2	$	—	$	5.2
Deferred compensation plans	68.5		—		—		68.5
Contingent consideration liabilities			—		178.6		178.6
	$	68.5	$	5.2	$	178.6	$	252.3

The following table summarizes the changes in fair value of the contingent consideration liabilities for the three months ended March 31, 2019 (in millions):



Balance at December 31, 2018	$	178.6
Changes in fair value	6.7
Balance at March 31, 2019	$	185.3

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Cash Equivalents and Available-for-sale Investments

The Company estimates the fair values of its money market funds based on quoted prices in active markets for identical assets. The Company estimates the fair values of its time deposits, commercial paper, U.S. and foreign government and agency securities, municipal securities, asset-backed securities, and corporate debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades and broker-dealer quotes on the same or similar securities, benchmark yields, credit spreads, prepayment and default projections based on historical data, and other observable inputs. The Company independently reviews and validates the pricing received from the third-party pricing service by comparing the prices to prices reported by a secondary pricing source. The Company’s validation procedures have not resulted in an adjustment to the pricing received from the pricing service.

Deferred Compensation Plans

The Company holds investments in trading securities related to its deferred compensation plans. The investments are in a variety of stock and bond mutual funds. The fair values of these investments and the corresponding liabilities are based on quoted market prices.

Derivative Instruments

The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and cross currency swap contracts to manage foreign currency exposures. All derivatives contracts are recognized on the balance sheet at their fair value. The fair value of the derivative financial instruments was estimated based on quoted market foreign exchange rates and market discount rates. Judgment was employed in interpreting market data to develop estimates of fair value; accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.

Contingent Consideration Liabilities

Certain of the Company's acquisitions involve contingent consideration arrangements. Payment of additional consideration is contingent upon the acquired company reaching certain performance milestones, such as attaining specified revenue levels or obtaining regulatory approvals. These contingent consideration liabilities are measured at estimated fair value using either a probability weighted discounted cash flow analysis or a Monte Carlo simulation model, both of which consider significant unobservable inputs. These inputs include (1) the discount rate used to present value the projected cash flows (ranging from 2.4% to 3.4%), (2) the probability of milestone achievement (ranging from 0.0% to 98.4%), (3) the projected payment dates (ranging from 2021 to 2025), and (4) the volatility of future revenue (45.0%). The use of different assumptions could have a material effect on the estimated fair value amounts.

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivative financial instruments to manage interest rate and foreign currency risks, as summarized below. It is the Company's policy not to enter into derivative financial instruments for speculative purposes. Notional amounts are stated in United States dollar equivalents at spot exchange rates at the respective dates.



	Notional Amount
	March 31, 2019		December 31, 2018
	(in millions)
Foreign currency forward exchange contracts	$	1,326.1	$	1,378.2
Cross currency swap contracts	300.0		300.0

Derivative financial instruments involve credit risk in the event the counterparty should default. It is the Company's policy to execute such instruments with global financial institutions that the Company believes to be creditworthy. The Company diversifies its derivative financial instruments among counterparties to minimize exposure to any one of these entities. The Company also uses International Swap Dealers Association master-netting agreements. The master-netting agreements provide for the net settlement of all contracts through a single payment in a single currency in the event of default, as defined by the agreements.

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The Company uses foreign currency forward exchange contracts, cross currency swap contracts, and foreign currency denominated debt to manage its exposure to changes in currency exchange rates from (a) future cash flows associated with intercompany transactions and certain local currency expenses expected to occur within the next 13 months (designated as cash flow hedges), (b) its net investment in certain foreign subsidiaries (designated as net investment hedges) and (c) foreign currency denominated assets or liabilities (designated as fair value hedges). The Company also uses foreign currency forward exchange contracts that are not designated as hedging instruments to offset the transaction gains and losses associated with certain assets and liabilities denominated in currencies other than their functional currencies resulting principally from intercompany and local currency transactions.

All derivative financial instruments are recognized at fair value in the consolidated condensed balance sheets. For each derivative instrument that is designated as a fair value hedge, the gain or loss on the derivative included in the assessment of hedge effectiveness is recognized immediately to earnings, and offsets the loss or gain on the underlying hedged item. The Company reports in "Accumulated Other Comprehensive Loss" the gain or loss on derivative financial instruments that are designated, and that qualify, as cash flow hedges. The Company reclassifies these gains and losses into earnings in the same line item and in the same period in which the underlying hedged transactions affect earnings. Changes in the fair value of net investment hedges are reported in "Accumulated Other Comprehensive Loss" as a part of the cumulative translation adjustment and would be reclassified into earnings if the underlying net investment is sold or substantially liquidated. The portion of the change in fair value related to components excluded from the hedge effectiveness assessment are amortized into earnings over the life of the derivative. The gains and losses on derivative financial instruments for which the Company does not elect hedge accounting treatment are recognized in the consolidated statements of operations in each period based upon the change in the fair value of the derivative financial instrument. Cash flows from net investment hedges are reported as investing activities in the consolidated statements of cash flows, and cash flows from all other derivative financial instruments are reported as operating activities.

The following table presents the location and fair value amounts of derivative instruments reported in the consolidated condensed balance sheets (in millions):



		Fair Value
Derivatives designated as hedging instruments	Balance Sheet Location	March 31, 2019		December 31, 2018
Assets
Foreign currency contracts	Other current assets	$	30.2	$	29.1
Foreign currency contracts	Other assets	$	1.6	$	—
Cross currency swap contracts	Other assets	$	6.1	$	0.8
Liabilities
Foreign currency contracts	Accounts payable and accrued liabilities	$	4.0	$	4.4
Foreign currency contracts	Other long-term liabilities	$	—	$	0.8

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The following table presents the effect of master-netting agreements and rights of offset on the consolidated condensed balance sheets (in millions):



							Gross Amounts Not Offset in the Consolidated Balance Sheet
			Gross Amounts Offset in the Consolidated Balance Sheet
					Net Amounts Presented in the Consolidated Balance Sheet
March 31, 2019	Gross Amounts				Net Amounts Presented in the Consolidated Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Derivative assets
Foreign currency contracts	$	31.8	$	—	$	31.8	$	(4.0	)	$	—	$	27.8
Cross currency swap contracts	$	6.1	$	—	$	6.1	$	—		$	—	$	6.1
Derivative liabilities
Foreign currency contracts	$	4.0	$	—	$	4.0	$	(4.0	)	$	—	$	—
December 31, 2018
Derivative assets
Foreign currency contracts	$	29.1	$	—	$	29.1	$	(3.6	)	$	—	$	25.5
Cross currency swap contracts	$	0.8	$	—	$	0.8	$	—		$	—	$	0.8
Derivative liabilities
Foreign currency contracts	$	5.2	$	—	$	5.2	$	(3.6	)	$	—	$	1.6

The following tables present the effect of derivative and non-derivative hedging instruments on the consolidated condensed statements of operations and consolidated condensed statements of comprehensive income (in millions):



	Amount of Gain or (Loss) Recognized in OCI on Derivative						Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended March 31,					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Three Months Ended March 31,
	Three Months Ended March 31,						Three Months Ended March 31,
	2019		2018				2019		2018
Cash flow hedges
Foreign currency contracts	$	12.9	$	(15.4	)	Cost of sales	$	7.6	$	(1.5	)
						Selling, general, and administrative expenses	$	0.3	$	(1.1	)



	Amount of Gain or (Loss) Recognized in OCI on Derivative						Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
	Three Months Ended March 31,					Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)	Three Months Ended March 31,
	Three Months Ended March 31,						Three Months Ended March 31,
	2019		2018				2019		2018
Net investment hedges
Cross currency swap contracts	$	5.3	$	—		Interest income, net	$	1.6	$	—
Foreign currency denominated debt	$	—	$	(20.2	)

In June 2018, the Company repaid and dedesignated its €370.0 million of outstanding long-term debt which had been previously designated as a net investment hedge, and concurrently entered into cross currency swap contracts, which were designated as a net investment hedge. The cross currency swaps have an expiration date of June 15, 2028. At maturity of the cross currency swap contracts, the Company will deliver the notional amount of €257.2 million and will receive $300.0 million from the counterparties. The Company will receive semi-annual interest payments from the counterparties based on a fixed interest rate until maturity of the agreements.

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		Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended March 31,
	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months Ended March 31,
Fair value hedges		2019			2018
Foreign currency contracts	Other income, net	$	(0.9	)	$	—



		Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended March 31,
	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months Ended March 31,
Derivatives not designated as hedging instruments		2019			2018
Foreign currency contracts	Other income, net	$	(1.5	)	$	(8.9	)

The following table presents the effect of cash flow hedge accounting on the consolidated condensed statements of operations:



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2019
	Cost of sales			Selling, general, and administrative expenses			Interest expense (income), net		Other Income, net
	Cost of sales			Selling, general, and administrative expenses			Interest expense (income), net		Other Income, net
Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of fair value or cash flow hedges are recorded	$	(231.8	)	$	(280.3	)	$	2.0	$	1.8
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships:
Foreign currency contracts:
Hedged items	—			—			—		1.8
Derivatives designated as hedging instruments	—			—			—		(1.8		)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			—		0.9
Gain (loss) on cash flow hedging relationships:
Foreign currency contracts:
Amount of gain (loss) reclassified from accumulated OCI into income	$	7.6		$	0.3		$	—	$	—



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2018
	Cost of sales			Selling, general, and administrative expenses
	Cost of sales			Selling, general, and administrative expenses
Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of fair value or cash flow hedges are recorded	$	(233.6	)	$	(256.0	)
The effects of fair value and cash flow hedging:
Gain (loss) on cash flow hedging relationships:
Foreign currency contracts:
Amount of gain (loss) reclassified from accumulated OCI into income	$	(1.5	)	$	(1.1	)

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The Company expects that during the next twelve months it will reclassify to earnings a $12.3 million gain currently recorded in "Accumulated Other Comprehensive Loss."

10. STOCK-BASED COMPENSATION

Stock-based compensation expense related to awards issued under the Company's incentive compensation plans for the three months ended March 31, 2019 and 2018 was as follows (in millions):



	Three Months Ended March 31,
	2019		2018
Cost of sales	$	4.0	$	3.0
Selling, general, and administrative expenses	12.7		11.8
Research and development expenses	4.1		3.6
Total stock-based compensation expense	$	20.8	$	18.4

At March 31, 2019, the total remaining compensation cost related to nonvested stock options, restricted stock units, market-based restricted stock units, performance-based restricted stock units, and employee stock purchase plan ("ESPP") subscription awards amounted to $110.4 million, which will be amortized on a straight-line basis over the weighted-average remaining requisite service period of 29 months.

Fair Value Disclosures

The following table includes the weighted-average grant-date fair values of stock options granted during the periods indicated and the related weighted-average assumptions used in the Black-Scholes option pricing model:



Option Awards	Three Months Ended March 31,
	2019			2018
Average risk-free interest rate	2.5		%	2.6		%
Expected dividend yield	None			None
Expected volatility	29.2		%	33.2		%
Expected term (years)	5.2			4.7
Fair value, per option	$	54.03		$	43.45

The following table includes the weighted-average grant-date fair values for ESPP subscriptions granted during the periods indicated and the related weighted-average assumptions used in the Black-Scholes option pricing model:



ESPP	Three Months Ended March 31,
	2019			2018
Average risk-free interest rate	2.4		%	1.5		%
Expected dividend yield	None			None
Expected volatility	32.6		%	32.6		%
Expected term (years)	0.6			0.6
Fair value, per share	$	48.83		$	35.07

11. COMMITMENTS AND CONTINGENCIES

On January 28, 2019, Abbott Cardiovascular Systems, Inc. and Evalve, Inc., both subsidiaries of Abbott Laboratories (collectively "Abbott") filed a lawsuit against Edwards Lifesciences Corporation and Edwards Lifesciences, LLC, (“Edwards”) in the Federal District Court in the District of Delaware alleging that the Edwards PASCAL heart valve repair system infringes certain claims of Abbott’s U.S. Patent Nos. 7,288,097, 6,752,813, 7,563,267, 7,736,388, and 8,057,493, seeking unspecified monetary damages and preliminary and permanent injunctive relief. Thereafter, Abbott sought a preliminary injunction and a

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temporary restraining order. The court denied Abbott’s request for a temporary restraining order on March 5, 2019 and heard Abbott’s request for a preliminary injunction on April 15, 2019.

On January 28, 2019, Abbott and its Abbott Medical UK Limited subsidiary (inclusively and collectively also "Abbott”)

filed a lawsuit in the United Kingdom in the High Court of Justice, Chancery Division, Patents Court, against Edwards Lifesciences Limited, alleging that the Edwards PASCAL heart valve repair system infringes certain claims of Abbott’s UK national patents arising from EP 1 624 810 B1 (the " ‘810 patent") and EP 1 408 850 B1 (the “ ‘850 patent”). Abbott has requested a preliminary injunction and the High Court is scheduled to hear that request on or before May 3, 2019. The trial is scheduled to begin on or before December 11, 2019.

On January 28, 2019, Abbott Medical GmbH (inclusively and collectively also "Abbott”) filed a lawsuit in the District Court in Düsseldorf, Germany against Edwards Lifesciences Corporation and its German subsidiary, Edwards Lifesciences Services GmbH, alleging that the Edwards PASCAL heart valve repair system infringes certain claims of Abbott’s German national patents arising from the ‘810 and ‘850 European patents. The District Court has scheduled trial for July 14, 2020. On March 15, 2019, Edwards filed a lawsuit in the German Patent Court in Munich, Germany, alleging that Abbott’s ‘850 patent is invalid. The Abbott ‘810 patent is already subject to opposition proceedings at the European Patent Office.

On January 28, 2019, Abbott and Abbott Medical AG (inclusively and collectively also "Abbott”) filed a lawsuit in the Federal Patent Court in St. Gallen, Switzerland against Edwards Lifesciences AG, Edwards Lifesciences Technology Sàrl, Edwards Lifesciences IPRM AG, and Mitral Valve Technologies Sàrl, alleging that the Edwards PASCAL heart valve repair system infringes Abbott’s Swiss national patents arising from the same European patents. Abbott has requested a preliminary injunction.

On January 28, 2019, Abbott Cardiovascular System Inc., Abbott Medical Italia S.p.A and Evalve Inc. (inclusively and collectively also "Abbott”) filed a lawsuit in the Civil Court of Milan, Italy against Edwards Lifesciences Corporation, Edwards Lifesciences LLC, and Edwards Lifesciences Italia SpA, alleging that the Edwards PASCAL heart valve repair system infringes Abbott’s Italian national patent arising from its ‘850 European patent. The lawsuit seeks a preliminary injunction. The Company intends to defend itself vigorously in these matters.

On February 22, 2019, Edwards Lifesciences Corporation and Edwards Lifesciences, LLC filed a lawsuit against Abbott Cardiovascular Systems, Inc. in the Federal District Court in the Central District of California alleging that Abbott’s MITRACLIP device infringes Edwards’ U.S. Patent Nos. 6,719,767, 7,011,669, and 8,062,313 related to heart implant technology and seeking unspecified monetary damages. A trial date has not yet been scheduled.

In addition, Edwards Lifesciences is or may be a party to, or may otherwise be responsible for, pending or threatened lawsuits related primarily to products and services currently or formerly manufactured or performed, as applicable, by Edwards Lifesciences (the "Other Lawsuits"). The Other Lawsuits raise difficult and complex factual and legal issues and are subject to many uncertainties, 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. Management does not believe that any charge relating to the Other Lawsuits would have a material adverse effect on Edwards Lifesciences’ overall financial position, results of operations, or liquidity. However, the resolution of one or more of the Other Lawsuits in any reporting period, could have a material adverse impact on Edwards Lifesciences' net income or cash flows for that period. The Company is not able to estimate the amount or range of any loss for legal contingencies for which there is no reserve or additional loss for matters already reserved.

Edwards Lifesciences 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 continuing 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.

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table is a summary of activity for each component of "Accumulated Other Comprehensive Loss" for the three months ended March 31, 2019 (in millions):

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	Foreign Currency Translation Adjustments			Unrealized Gain on Cash Flow Hedges			Unrealized Loss on Available-for-sale Investments			Unrealized Pension Costs			Total Accumulated Other Comprehensive Loss
December 31, 2018	$	(143.6	)	$	23.6		$	(5.0	)	$	(13.5	)	$	(138.5	)
Other comprehensive (loss) gain before reclassifications	(10.2		)	15.6			4.4			(0.1		)	9.7
Amounts reclassified from accumulated other comprehensive loss	(1.6		)	(7.0		)	—			—			(8.6		)
Deferred income tax expense	(1.3		)	(1.4		)	(1.1		)	—			(3.8		)
March 31, 2019	$	(156.7	)	$	30.8		$	(1.7	)	$	(13.6	)	$	(141.2	)

The following table provides information about amounts reclassified from "Accumulated Other Comprehensive Loss" (in millions):



	Three Months Ended March 31,
	Three Months Ended March 31,						Affected Line on Consolidated Condensed Statements of Operations
Details about Accumulated Other Comprehensive Loss Components	2019			2018
Foreign currency translation adjustments	$	1.6		$	—		Other income, net
	(0.4		)	—			Provision for income taxes
	$	1.2		$	—		Net of tax
Gain on hedges	$	7.6		$	(1.5	)	Cost of sales
	0.3			(1.1		)	Selling, general, and administrative expenses
	(0.9		)	—			Other income, net
	7.0			(2.6		)	Total before tax
	(2.0		)	0.7			Provision for income taxes
	$	5.0		$	(1.9	)	Net of tax
Loss on available-for-sale investments	$	—		$	(1.4	)	Other income, net
	—			0.1			Provision for income taxes
	$	—		$	(1.3	)	Net of tax
Unrealized pension costs	$	—		$	(0.6	)	Other income, net
	—			0.1			Provision for income taxes
	$	—		$	(0.5	)

13. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding during a period. Diluted earnings per share is computed based on the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding during the period calculated using the treasury stock method. Dilutive potential common shares include employee equity share options, nonvested shares, and similar equity instruments granted by the Company. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive.

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



	Three Months Ended March 31,
	2019		2018
Basic:
Net income	$	249.7	$	206.6
Weighted-average shares outstanding	207.9		210.2
Basic earnings per share	$	1.20	$	0.98
Diluted:
Net income	$	249.7	$	206.6
Weighted-average shares outstanding	207.9		210.2
Dilutive effect of stock plans	4.3		4.9
Dilutive weighted-average shares outstanding	212.2		215.1
Diluted earnings per share	$	1.18	$	0.96

Stock options, restricted stock units, and market-based restricted stock units to purchase 0.2 million and 1.2 million shares for the three months ended March 31, 2019 and 2018, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

14. INCOME TAXES

The Company's effective income tax rates were 10.2% and 21.6% for the three months ended March 31, 2019 and 2018, respectively. The effective rate for the three months ended March 31, 2019 is lower than the federal statutory rate of 21% primarily due to the tax benefit from employee share-based compensation and foreign earnings taxed at lower rates. The effective rate for the three months ended March 31, 2018 included expense of $24.0 million related to the adjustment of the estimated provisional amounts recorded at December 31, 2017 in accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. The effective rates for the three months ended March 31, 2019 and 2018 include a tax benefit from employee share-based compensation of $19.0 million and $14.2 million, respectively.

The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for matters it believes are more likely than not to require settlement, the final 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, the Company may later decide to challenge any assessments, if made, and may exercise its 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.

As of March 31, 2019 and December 31, 2018, the liability for income taxes associated with uncertain tax positions was $161.9 million and $150.7 million, respectively. The Company estimates that these liabilities would be reduced by $47.4 million and $42.7 million, respectively, from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, and timing adjustments. The net amounts of $114.5 million and $108.0 million, respectively, if not required, would favorably affect the Company's effective tax rate.

At March 31, 2019, all material state, local, and foreign income tax matters have been concluded for years through 2008. The Internal Revenue Service ("IRS") began its examination of the 2015 and 2016 tax years during the fourth quarter of 2018 and its examination of the 2017 tax year during the first quarter of 2019.

During 2018, the Company executed an Advance Pricing Agreement between the United States and Switzerland governments for tax years 2009 through 2020 covering various transfer pricing matters and the Company has updated its transfer pricing policies accordingly. Certain intercompany transactions covering tax years 2015 through 2018 were not resolved and those related tax positions remain uncertain. These transfer pricing matters may be significant to the Company's consolidated condensed financial statements.

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15. SEGMENT INFORMATION

Edwards Lifesciences conducts operations worldwide and is managed in the following geographical regions: United States, Europe, Japan, and Rest of World. All regions sell products that are used to treat advanced cardiovascular disease.

The Company's geographic segments are reported based on the financial information provided to the Chief Operating Decision Maker (the Chief Executive Officer). The Company evaluates the performance of its geographic segments based on net sales and income before provision for income taxes ("pre-tax income"). The accounting policies of the segments are substantially the same as those described in Note 2 of the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018. Segment net sales and segment pre-tax income are based on internally derived standard foreign exchange rates, which may differ from year to year, and do not include inter-segment profits. Because of the interdependence of the reportable segments, the operating profit as presented may not be representative of the geographical distribution that would occur if the segments were not interdependent. Net sales by geographic area are based on the location of the customer.

Certain items are maintained at the corporate level and are not allocated to the segments. The non-allocated items include net interest expense, global marketing expenses, corporate research and development expenses, manufacturing variances, corporate headquarters costs, special gains and charges, stock-based compensation, foreign currency hedging activities, certain litigation costs, and most of the Company's amortization expense. Although most of the Company's depreciation expense is included in segment pre-tax income, due to the Company's methodology for cost build-up, it is impractical to determine the amount of depreciation expense included in each segment, and, therefore, a portion is maintained at the corporate level. The Company neither discretely allocates assets to its operating segments, nor evaluates the operating segments using discrete asset information.

The table below presents information about Edwards Lifesciences' reportable segments (in millions):



	Three Months Ended March 31,
	2019		2018
Segment Net Sales
United States	$	562.8	$	479.5
Europe	227.3		205.3
Japan	99.2		91.1
Rest of World	96.8		91.7
Total segment net sales	$	986.1	$	867.6
Segment Operating Income
United States	$	383.3	$	313.8
Europe	119.4		103.0
Japan	61.0		54.8
Rest of World	30.8		29.0
Total segment operating income	$	594.5	$	500.6

Table of Contents

The table below presents reconciliations of segment net sales to consolidated net sales and segment operating income to consolidated pre-tax income (in millions):



	Three Months Ended March 31,
	2019		2018
Net Sales Reconciliation
Segment net sales	$	986.1	$	867.6
Foreign currency