Edwards Lifesciences 2016 Annual Report
Our Credo
At Edwards Lifesciences, we are dedicated to providing innovative
solutions for people fighting cardiovascular disease.
Through our actions, we will become trusted partners with
customers, colleagues and patients creating a community unified in its mission
to improve the quality of life around the world. Our results
will benefit customers, patients, employees and shareholders.
We will celebrate our successes, thrive on discovery and continually
expand our boundaries. We will act boldly, decisively and with
determination on behalf of people fighting cardiovascular disease.
E
d
w
a
r
d
s
L
i
f
e
s
c
i
e
n
c
e
s
2
0
1
6
A
n
n
u
a
l
R
e
p
o
r
t
Trademarks
Edwards, Edwards Lifesciences, the stylized E logo, 1-800-4-A-HEART, Acumen, CENTERA, EDWARDS INTUITY, EDWARDS INTUITY Elite, Edwards
SAPIEN, Edwards SAPIEN XT, Edwards SAPIEN 3, Edwards Ultra, Every Heartbeat Matters, HemoSphere, HPI, Hypotension Probability Indicator,
INSPIRIS, INSPIRIS RESILIA, Life is Now, newheartvalve.com, PARTNER, PARTNER II, PERIMOUNT, RESILIA, SAPIEN, SAPIEN XT, and SAPIEN 3 are all
trademarks of Edwards Lifesciences Corporation. All other trademarks are the property of their respective owners.
© 2017 Edwards Lifesciences Corporation. All rights reservedz
Edwards Lifesciences • One Edwards Way, Irvine CA 92614 USA • edwards.com
Edwards Lifesciences is the global leader in patient-
focused medical innovations for structural heart
disease, as well as critical care and surgical monitoring.
Driven by a passion to help patients, we collaborate
with the world’s leading clinicians and researchers to
address unmet healthcare needs, working to improve
patient outcomes and enhance lives.
On the Cover:
“Hard work helps you live longer!” Even as he’s gotten older and well after retirement,
Mario has remained ‘on the go.’ He stays very active as a consultant in the oil industry, enjoys
playing golf, and most of all spending more time with his family and grandchildren. However,
as his heart disease symptoms progressed, he had no choice but to slow down. After an
echocardiogram, he was diagnosed by his cardiologist with severe aortic stenosis and referred
for a TAVR evaluation by a specialized Heart Team. Based on his previous bypass surgery and
other risk factors, transcatheter aortic valve replacement (TAVR) was recommended as the
best treatment option, given he was at intermediate risk for another open heart surgery.
Mario was treated at Memorial Hermann Heart & Vascular Institute in Houston, Texas under
conscious sedation and received an Edwards SAPIEN 3 valve. The procedure lasted one hour
and after a short stay, he was discharged. “I started walking around and I knew I was a different
person. It was amazing.”
Since his procedure, Mario is back to being busy, which is just the way he and his family like
it – whether keeping up with his grandchildren, remaining involved in the family business, or
meeting his friends on the golf course. “I have all the energy I need, and I’m back to being me.
After the procedure I was out playing golf and sharing my experience.” To read more about
Mario’s story and other TAVR patient journeys, please visit newheartvalve.com, or scan the QR
code below.
Scan this QR code to experience more online.
To install a QR Code app, 1) go to your device’s
app store, 2) search for QR code reader, 3) down-
load the free app, 3) launch the app, 4) click scan,
5) center your camera on the coded image and
6) click to launch the content.
Corporate Information
Executive Management
Board of Directors
Michael A. Mussallem
Chairman & Chief Executive Officer,
Edwards Lifesciences Corporation
John T. Cardis
Former Senior Partner,
Deloitte & Touche
Kieran T. Gallahue
Former Chairman &
Chief Executive Officer,
CareFusion Corporation
Leslie S. Heisz
Former Managing Director,
Lazard Frères & Co.
William J. Link, Ph.D.
Managing Director & Co-Founder,
Versant Ventures
Steven R. Loranger
Former President &
Chief Executive Officer,
Xylem Inc.
Martha H. Marsh
Former President &
Chief Executive Officer,
Stanford Hospital & Clinics
Wesley W. von Schack
Former Chairman,
President & Chief Executive Officer,
Energy East Corporation
Nicholas J. Valeriani
Former Chief Executive Officer
Gary and Mary West Health Institute
Corporate Headquarters
Edwards Lifesciences Corporation
One Edwards Way, Irvine, California 92614
(800) 4-A-HEART or (949) 250-2500
Annual Meeting
The Annual Meeting of Stockholders will be
held on May 11, 2017 at 10:00 a.m. (Pacific) at
the offices of Edwards Lifesciences Corporation.
Stock Symbol
Michael A. Mussallem
Chairman & Chief Executive Officer
Donald E. Bobo, Jr.
Corporate Vice President,
Strategy & Corporate Development
Dirksen J. Lehman
Corporate Vice President,
Public Affairs
Edwards Lifesciences’ stock is traded
on The New York Stock Exchange
(NYSE) under the symbol EW.
Christine Z. McCauley
Corporate Vice President,
Human Resources
Information on the Internet
Edwards Lifesciences’ web site at ir.edwards.com
provides access to a wide range of information
for our stakeholders who are encouraged to
visit the “Investor Relations” section of our web
site to access our press releases, SEC filings and
other company information.
Investor Information
Members of the investing public should
contact Investor Relations at (949) 250-2806 or
investor_relations@edwards.com.
Corporate Public Relations
Members of the news media should call
(949) 250-5070.
Transfer Agent
Correspondence about shares, stock certificates
and account information may be directed to:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
(800) 446-2617
(781) 575-3120/outside U.S.
computershare.com/investor
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Orange County, CA
John P. McGrath, Ph.D.
Corporate Vice President,
Quality, Regulatory, Clinical
Joseph Nuzzolese
Corporate Vice President,
Global Supply Chain
Stanton J. Rowe
Corporate Vice President,
Advanced Technology &
Chief Scientific Officer
Katie M. Szyman
Corporate Vice President,
Critical Care
Scott B. Ullem
Corporate Vice President,
Chief Financial Officer
Patrick B. Verguet
Corporate Vice President,
EMEA, Canada & Latin America
Huimin Wang, M.D.
Corporate Vice President,
Japan, Asia & Pacific
Aimee S. Weisner
Corporate Vice President,
General Counsel
Larry L. Wood
Corporate Vice President,
Transcatheter Heart Valves
Bernard J. Zovighian
Corporate Vice President,
Surgical Heart Valve Therapy
Edwards Lifesciences is an affirmative action, equal opportunity employer.
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 1
A Letter to Our Shareholders
A few months ago, I had the pleasure of meeting Debi, a vibrant high school
English teacher who is passionate about her family, her students and her
community. Debi has a great sense of humor, and an optimistic view on life.
She is also an avid runner, who happens to have an Edwards mitral valve.
Michael A. Mussallem, Chairman & Chief Executive Officer and
Debi North, mitral heart valve patient, at Edwards’ 2017 Patient Day
When I think of Debi, I think about Edwards’ past,
are unknown to us; others are very close, such
present and future. Her story is representative of the
as a grandmother, a husband or a neighbor.
patients that inspire our work each day. Debi has
lived with heart valve disease her entire life. She had
Year in Review
previous valve interventions before her mitral valve
As I reflect on 2016, it was a remarkable year and
replacement surgery in 2016. She educated herself
I am very proud we were able to make important
so that she could actively engage with her cardiologist
progress on future advancements for patients.
and surgeon in deciding what type of valve would
Across the Company, we achieved important product
work best for her. And, as she looks to the future, she
approvals, enabling broader access to our therapies
continues to stay apprised of new developments in
for more patients around the world.
technology that may help her, as well as the other
heart valve patients that she talks to.
Most importantly, we reported impressive results
on transcatheter aortic valve replacement (TAVR)
Each day, more than 11,000 Edwards employees
for patients at intermediate risk for surgery, which
around the world come to work to help Debi and
provided clinicians with definitive answers on the
many others like her. Sometimes the people we are
positive impact of the SAPIEN XT and SAPIEN 3 valves
helping through the development of a new technology
for the treatment of these severe aortic stenosis
patients. With these results from 3,000 patients in the
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 2
rigorous, multi-year PARTNER II Trial, TAVR with the
Within Critical Care, we received a CE Mark for our
SAPIEN 3 valve was proven to be a transformational
Acumen Hypotension Probability Indicator software,
therapy that warrants broader use for patients in
a breakthrough technology that alerts clinicians to
both the U.S. and in Europe.
potential hypotension, or abnormally low blood
At the same time we are making progress on TAVR
advancements, we also continue to dedicate research
and development (R&D) to enhancing our surgical
heart valve options for patients. In 2016, we achieved
FDA approval of the EDWARDS INTUITY Elite rapid-
deployment valve, which is designed to facilitate
minimally invasive surgery and streamline complex
aortic valve replacements. We also introduced a new
valve to Europe, the INSPIRIS RESILIA aortic valve,
which is the first in a new class of resilient heart
valves designed for potential future valve-in-valve
procedures. We believe these valves represent
significant steps into the future for Edwards’ surgical
valve patients.
Underlying Net Sales (in millions)
Edwards is fortunate to have strong leadership positions in attractive
markets with the potential for sustainable growth. In 2016, sales grew
19% on an underlying basis due mainly to continued expansion of
transcatheter-based therapies.
2016
2015
2014
2013
2012
$2,962
$2,495
$2,309
$2,060
$1,900
pressure, before it occurs in their surgical and critical
care patients. At the end of the year, we received
CE Mark for the HemoSphere advanced monitoring
platform, which is designed to provide greater clarity
on a patient’s hemodynamic status, enabling clinicians
to make timely, potentially life-saving decisions. It
will offer actionable intelligence, or predictive analytics,
to better guide patient care.
Adjusted Diluted Earnings Per Share
In 2016, Edwards achieved year-over-year adjusted diluted earnings per
share growth of 25%, while continuing to make significant investments
in future growth opportunities.
2016
2015
2014
2013
2012
$2.89
$2.32
$1.78
$1.65
$1.40
Overall, Edwards was able to achieve outstanding
financial results for the year, including sales growth
of 19 percent, on an underlying basis. Adjusted diluted
earnings per share growth was 25 percent. I’m
particularly pleased we achieved that level of earnings
growth while investing 15 percent of our sales for the
year into research and development to drive future
growth and help more patients.
A Passionate, Patient-Focused Culture
We could not achieve any of what we did in 2016
without the dedication of our teams around the
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 3
world. We have continued to invest significantly in
where our employees live and work, but also addresses
our talent to ensure we have the bright minds we
important patient needs around the world. Through
need to uncover the innovations today that will pave
our Every Heartbeat Matters charitable initiative,
the path for our future. Our dedicated and passionate
we plan to impact the global burden of heart valve
employees are focused on patients and quality. They
disease by supporting the education, screening and
thrive on discoveries that address unmet patient
treatment of 1 million underserved people by 2020.
needs through breakthrough therapies.
Since launching this initiative in 2014, we have invested
The rapid growth Edwards has experienced has
required significant investment in our global operations,
including breaking ground on a new heart valve
over $15 million in our non-profit partners that have
impacted hundreds of thousands of lives and we are
on track to achieve this bold goal.
manufacturing center in Costa Rica. In an effort to
While acting as a trusted partner in a responsible manner
enhance operational excellence and reliability, we
has always been a key attribute of our Company, we
welcomed a new member to our executive leadership
have recently enhanced the reporting of our
team, Joseph Nuzzolese, in the newly created position
sustainability efforts. Our newest comprehensive
of corporate vice president, global supply chain.
report reflects the importance of sustainability as a
We also welcomed new directors to our board: Leslie
Heisz and Steven Loranger. Each brings unique insights
and extensive global experience to our board. The
addition of both Leslie and Steve to our talented
board will further strengthen the diversity of thought
component of our long-term growth strategy. While
I’m proud of our practices today, we are committed
to identifying additional opportunities for further
improvement.
and leadership as we execute our long-term strategy.
Non-GAAP Free Cash Flow (in millions)
As we welcomed these new board members, we
celebrated the service of director Barbara McNeil,
who retired from our board in 2016. We are grateful
to Barbara for her wisdom and dedication, and
wish her the best as she continues her remarkable
academic career.
Another important component to our patient-
focused culture at Edwards is our global corporate
giving, which not only strengthens the communities
Edwards generated strong non-GAAP free cash flow in 2016. Our strong
balance sheet affords us the opportunity to increase shareholder value
through strategic acquisitions and share repurchase.
2016
2015
2014
2013
2012
$528
$447
$445
$306
$253
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 4
Laying the Foundation for the Future
a privileged position of being able to learn fast and
As much progress as we made in 2016, I am even
more excited about what lies ahead for Edwards and
shape the direction of a therapy and perhaps change
the practice of medicine.
the patients that we have the opportunity to help
If we get all of this right, we can transform care. And
around the world.
Edwards’ long-term strategy is built around three core
areas. First, we are patient focused. We are singularly
dedicated to addressing the unmet needs of patients
with structural heart disease or the critically ill.
2016 Sales By Geographic Region
Edwards is globally diverse, serving patients in
more than 100 countries.
10%
10%
n United States 55%
n Europe 25%
n Japan 10%
n Rest of World 10%
55%
25%
transforming care delivers value for both patients and
shareholders alike. Because of this, we believe Edwards
has a powerful and enduring strategy, and one that is
rare within the medical technology industry around
the globe.
Our Company is strategy-driven, and we will
continue laying the foundation for the future with
our investments and dedicated work in 2017.
Transcatheter Heart Valve Therapy
In transcatheter heart valves, we continue to believe
that we have a significant opportunity to help even
more patients with severe aortic stenosis. We are
more confident than ever about the future with the
Second, we’re built on innovations – and not simply
SAPIEN family of valves. We expect the transcatheter
small iterations, but rather bold, transformative
valve opportunity to exceed $5 billion by 2021, and
innovations. We dedicate significant resources to
we are focused on indication expansions, technology
develop breakthrough technologies with superior
clinical and economic evidence.
Third, we like to lead by going first and continually
strengthen our pioneering leadership position.
Frequently, this means we are going down a road that
no one has gone down before. This allows us to be in
2016 Sales By Product Group
More than 95% of Edwards’ sales are from
products in #1 global positions.
n Transcatheter Heart Valve Therapy 55%
n Surgical Heart Valve Therapy 26%
n Critical Care 19%
19%
26%
55%
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 5
Edwards SAPIEN 3 Valve
Approved in the U.S. in June
2015, the SAPIEN 3 valve is
Edwards’ most advanced tran-
scatheter aortic heart valve.
needs, who will continue to be best served by surgery.
We have a pipeline of new technologies that is very
well suited for the future, to address these patients
and drive the transformation of surgery.
advances and therapy awareness to achieve this. We
also believe the prevalence of aortic stenosis is much
larger than we have previously estimated, with a
larger group of patients going untreated.
We are dedicated to developing evidence to support
the thoughtful expansion of TAVR, as well as making
significant investments to ensure our leadership in
advancing this therapy. In 2017, we plan to introduce
the Edwards SAPIEN 3 Ultra system in Europe, which
is focused on procedural enhancements. We also
anticipate CE Mark for the self-expanding CENTERA
system and are working on additional evolutionary,
next-generation transcatheter heart valve ideas.
Surgical Heart Valve Therapy
EDWARDS INTUITY Elite Valve
The EDWARDS INTUITY
Elite valve system is built
on our proven PERIMOUNT
valve platform, offering rapid
deployment for faster
procedures and facilitating
small incision surgery.
Critical Care
In critical care, we will be introducing the Acumen
Hypotension Probability Indicator software and
HemoSphere advanced monitoring platform around
the globe, as well as continuing our progress on our
innovative monitoring technologies of the future.
One of the technologies that I’m most excited about
is our future approach to monitoring, which will be
done in a more sophisticated way using predictive
analytics to signal a high probability of a problem
In surgical heart valves, while we are introducing our
coming before it happens.
EDWARDS INTUITY Elite valve and INSPIRIS RESILIA
aortic valve, we are also focusing our innovation
Positioned for a Bright Future
and energies on the areas where we believe surgery
In 2017, we expect another year of strong performance
will have an important role in the future. We
for Edwards, led by growth in sales of the SAPIEN 3
believe there are many patients, such as those who
valve and continued global leadership in all of our
are younger or more active, or those with complex
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 6
HemoSphere Platform
The HemoSphere advanced
monitoring platform provides
greater clarity on a patient’s
hemodynamic status to enable
clinicians to make timely,
potentially life-saving decisions.
anatomies. Progress will be made possible by partnering
with heart teams around the world, along with
innovations in small steerable catheters, sophisticated
implants and advanced imaging.
We believe 2017 will be a year of not only delivering
results, but also a year of important progress toward
our long-term aspiration of transforming patient care.
core businesses. We are projecting strong financial
results this year while we continue to invest
Looking forward, I think of Debi and all of the other
aggressively to provide breakthrough structural heart
patients we have had the opportunity to help
therapies for even more patients in need. We are very
through our heart valve and critical care technologies.
excited about the future for these promising
It is meaningful and humbling to realize that our
advancements. We realize it will take long-term
work is uniquely personal in its ability to impact the
investment and we are prepared for that commitment.
lives of individuals and their families and communities.
Our efforts in technologies for structural heart disease
We are honored to be responsible for delivering
address multiple valves within the heart, employ
live-saving and life-enhancing technologies to patients
different treatment approaches and span both internal
around the world, and we look forward to additional
R&D efforts and external strategic investments. We
progress and learning in the years ahead to ensure
believe a comprehensive approach will better enable
we help even more patients in need.
our future success.
We are in a unique position to have multiple active
clinical-stage programs to address mitral and tricuspid
valve disease. We believe that these catheter-based
Michael A. Mussallem, Chairman & Chief Executive Officer
programs have the potential to address complex
Forward Looking Statement for Annual Shareholder Letter
This Annual Report includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking
statements include, but are not limited to, the Company’s financial goals for 2017 and beyond, as well as its expectations for new product introductions and their associated
benefits; opportunities for increasing sales of our products, particularly transcatheter heart valves; increasing shareholder value; maintaining leadership positions; and making in-
vestments in and expected outcomes of research and development. Forward-looking statements are based on estimates and assumptions made by management of the Company
and are believed to be reasonable, though they are inherently uncertain and difficult to predict. Our 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. Forward-looking statements
involve risks and uncertainties that could cause actual results or experience to differ materially from that expressed or implied by the forward-looking statements. Factors that
could cause actual results or experience to differ materially from that expressed or implied by the forward-looking statements include but are not limited to the pace of adoption of
the Company’s newer products and the ability of the Company to continue to expand approved indications; the Company’s success in developing new products, obtaining timely
regulatory and reimbursement approvals, creating market opportunities and launching new products successfully; the impact of competitive products; unexpected outcomes
associated with litigation that might result in monetary damages or impair our ability to sell products; changes in currency exchange rates; the timing or results of pending or future
clinical trials; actions by the U.S. Food and Drug Administration and other regulatory agencies; economic developments in key markets; unexpected manufacturing, quality or supply
issues; and other risks detailed in the Company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2016.
These filings, along with important safety information about our products, are available at Edwards.com.
Caution: The Edwards Ultra system, INSPIRIS RESILIA valve, and Hemosphere advanced monitoring platform are investigational devices in the U.S., limited by U.S. federal law to in-
vestigational use. The Centera device is an investigational device and is not available in the United States.
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 7
Non-GAAP Financial Information
To supplement the consolidated financial results prepared
in accordance with Generally Accepted Accounting Principles
(“GAAP”), the Company uses non-GAAP historical financial
measures. Management makes adjustments to the GAAP
measures for items (both charges and gains) that (a) do not
reflect the core operational activities of the Company, (b) are
commonly adjusted within the Company’s industry, to enhance
comparability of the Company’s financial results with those of
its peer group, or (c) are inconsistent in amount or frequency
between periods (albeit such items are monitored and controlled
with equal diligence relative to core operations). The Company
uses the term “underlying” when referring to non-GAAP sales
information, which excludes foreign exchange fluctuations,
adjustments for discontinued and acquired products, and sales
return reserves associated with transcatheter heart valve therapy
(“THVT”) product upgrades; and “adjusted” to also exclude
intellectual property litigation expenses, amortization of intellectual
property, gains and losses from significant investments, impairments,
litigation, and business development transactions, and for 2012
to include the tax benefit for the U.S. Research and Development
(“R&D”) tax credit, which was required to be included in 2013.
Fluctuations in exchange rates impact the comparative results
and sales growth rates of the Company’s underlying business.
Management believes that excluding the impact of foreign
exchange rate fluctuations from its sales growth provides investors
a more meaningful comparison to historical financial results.
Guidance for sales and sales growth rates is provided on an
“underlying basis,” and projections for diluted earnings per share,
net income and growth, gross profit margin, taxes, and free
cash flow are also provided on a non-GAAP basis as adjusted for
the items identified below due to the inherent difficulty in
forecasting such items. The Company is not able to provide a
reconciliation of the non-GAAP guidance to comparable GAAP
measures due to the unknown effect, timing, and potential
significance of special charges or gains, and management’s
inability to forecast charges associated with future transactions
and initiatives.
Management considers free cash flow to be a liquidity measure
which provides useful information to management and investors
about the amount of cash generated by business operations, after
deducting payments for capital expenditures, which can then
be used for strategic opportunities or other business purposes
including, among others, investing in the Company’s business,
making strategic acquisitions, strengthening the balance sheet,
and repurchasing stock.
Management uses non-GAAP financial measures internally for
strategic decision making, forecasting future results, and evaluating
current performance. These non-GAAP financial measures are
used in addition to and in conjunction with results presented in
accordance with GAAP and reflect an additional way of viewing
aspects of the Company’s operations by investors that,
when viewed with its GAAP results, provide a more complete
understanding of factors and trends affecting the Company’s
business and facilitate comparability to historical periods.
Non-GAAP financial measures are not prepared in accordance
with GAAP; therefore, the information is not necessarily
comparable to other companies and should be considered as a
supplement to, and not as a substitute for, or superior to, the
corresponding measures calculated in accordance with GAAP.
A reconciliation of non-GAAP historical financial measures to the
most comparable GAAP measure is provided in the tables below.
Twelve months ended December 31, 2016
Non-GAAP Net Sales Growth by Product Group
Transcatheter Heart Valve Therapy
Surgical Heart Valve Therapy
Critical Care
Note: Numbers may not calculate due to rounding.
GAAP net sales
growth rate
Impact of
sales return
reserve
Impact
of foreign
exchange
Non-GAAP
net sales
growth rate
38.0%
(1.3%)
6.0%
-0.3%
0.0%
0.0%
0.2%
(0.3%)
(1.0%)
37.9%
(1.6%)
5.0%
EDWARDS LIFESCIENCES 2016 ANNUAL REPORT
PAGE 8
Reconciliation of GAAP to Non-GAAP Financial Information
Twelve months ended December 31 (in millions, except per share data)
2016
2015
2014
2013
2012
GAAP Net Income
$569.5
$494.9
$811.1
$389.1
$291.5
Non-GAAP adjustments:
THVT sales returns reserve and related costs
Intellectual property litigation expenses (income), net
Amortization of intellectual property
Acquisition of in-process research and development
Charitable fund contribution
Settlement
Asset write-down
Realignment expenses
Product recalls
Provision for income taxes:
Tax effect on reconciling items
Remeasurement of uncertain tax position reserve
Federal research and development tax credit
0.1
32.6
7.5
34.5
—
—
—
—
—
(14.2)
—
—
9.1
7.0
7.1
—
—
—
—
—
—
(8.0)
—
—
2.2
(740.4)
8.4
10.2
50.0
7.5
5.0
—
—
237.9
(6.2)
—
15.2
(61.5)
9.8
—
—
—
5.9
10.4
—
14.3
—
(8.4)
—
14.4
9.7
7.0
—
—
—
9.0
8.1
(13.8)
(2.3)
8.4
Adjusted Net Income
$630.0
$510.1
$385.7
$374.8
$332.0
Reconciliation of GAAP to Adjusted Diluted Earnings Per Share
$2.61
$2.25
$3.74
$1.71
$1.23
GAAP Diluted Earnings Per Share
Non-GAAP adjustments:
THVT sales returns reserve and related costs
Intellectual property litigation expenses (income), net
Amortization of intellectual property
Acquisition of in-process research and development
Charitable fund contribution
Settlement
Asset write-down
Realignment expenses
Product recalls
—
0.10
0.02
0.14
—
—
—
—
—
0.03
0.02
0.02
—
—
—
—
—
—
—
—
—
–
(2.22)
0.04
0.04
0.16
0.03
0.02
—
—
—
(0.03)
—
$1.78
0.05
(0.17)
0.03
–
–
–
0.03
0.04
–
—
0.04
0.03
0.02
–
–
–
0.03
0.03
—
—
(0.04)
—
(0.01)
0.03
$1.65
$1.40
Provision for income taxes:
On-going tax impact of second quarter 2016 purchased IPR&D
Remeasurement of uncertain tax position reserve
Federal research and development tax credit
0.02
—
—
Adjusted Diluted Earnings Per Share
$2.89
$2.32
Non-GAAP Free Cash Flow
Twelve months ended December 31 (in millions)
Net cash provided by operating activities
Capital expenditures
Reconciling items:
Medtronic litigation settlement
Charitable fund contribution
Medtronic litigation award
Net tax payments on Medtronic litigation and
charitable contribution
2016
2015
2014
2013
2012
$704.4
(176.1)
$549.7
(102.7)
$1,022.3
(82.9)
$472.7
(109.0)
$362.1
(109.0)
—
—
—
—
—
—
—
—
(750.0)
50.0
—
—
—
(83.6)
205.1
26.3
—
—
—
—
Non-GAAP Free Cash Flow
$528.3
$447.0
$444.5
$306.4
$253.1
Non-GAAP Net Sales Growth
Twelve months ended December 31
GAAP Net Sales Growth Rate
Impact of sales return reserve
Impact of foreign exchange
Non-GAAP Net Sales Growth Rate
Note: Numbers may not calculate due to rounding.
2016
18.8%
(0.1%)
(0.2%)
18.5%
2015
7.4%
0.7%
8.7%
16.8%
2014
13.6%
(1.5%)
1.2%
13.3%
2013
7.7%
0.7%
2.4%
10.8%
2012
13.2%
—
3.0%
16.2%
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
OR
(cid:3) 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
(State or other jurisdiction of
incorporation or organization)
36-4316614
(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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share
Name of each exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes (cid:3) No (cid:2)
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 (cid:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Smaller Reporting Company (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No (cid:2)
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2016 (the last trading day of the
registrant’s most recently completed second quarter): $21,062,047,999 based on the closing price of the registrant’s common stock on the
New York Stock Exchange. This calculation does not reflect a determination that persons are affiliates for any other purpose.
The number of shares outstanding of the registrant’s common stock, $1.00 par value, as of January 31, 2017, was 212,495,798.
Portions of the registrant’s proxy statement for the 2017 Annual Meeting of Stockholders (to be filed within 120 days of
December 31, 2016) are incorporated by reference into Part III, as indicated herein.
Documents Incorporated by Reference
EDWARDS LIFESCIENCES CORPORATION
Form 10-K Annual Report—2016
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
10
21
21
22
22
23
25
25
42
44
97
97
97
98
98
98
98
98
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures
99
99
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Item 1. Business
PART I
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
the our historical results or experiences or those expressed or implied in any forward-looking statements contained in
this report. See ‘‘Risk Factors’’ in Part I, Item 1A below for a discussion of these risks, as well as our subsequent
reports on Forms 10-Q and 8-K. 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.
Overview
Edwards Lifesciences Corporation is the global leader in patient-focused 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 aggressively invest in research and development to transform care for structural
heart disease and critically ill patients. A pioneer in the development of heart valve therapies, we are the
world’s leading manufacturer of heart valve systems and repair products used to replace or repair a patient’s
diseased or defective heart valve. Our innovative work in heart valves encompasses both surgical and
transcatheter therapies for heart valve replacement. We are also a global leader in hemodynamic monitoring
systems used to measure a patient’s cardiovascular function in the hospital setting.
Cardiovascular disease is the number-one cause of death in the world, and is the top disease in terms of
health care spending in nearly every country. Cardiovascular disease is progressive in that it tends to worsen
over time and often affects the structure of an individual’s heart.
Patients undergoing treatment for cardiovascular disease can be treated with a number of our medical
technologies. For example, an individual with a heart valve disorder may have a faulty valve that is affecting
the function of their heart or blood flow throughout their body. A clinician may elect to remove the valve and
replace it with one of our bioprosthetic surgical tissue heart valves, surgically re-shape and repair the faulty
valve with an Edwards Lifesciences annuloplasty ring, or implant an Edwards Lifesciences transcatheter valve
via a catheter-based system that does not require traditional open-heart surgery and can be done while the
heart continues to beat. Patients in the hospital setting, including high-risk patients in the operating room or
intensive care unit, are candidates for having their cardiac function or fluid levels monitored by our Critical
Care products. These technologies enable proactive clinical decisions and may be important for improving
diagnoses and developing individualized therapeutic management plans for patients.
1
Segment and Geographical Information
We conduct operations worldwide and are 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. Additional segment and geographical information is incorporated herein by reference to Note 18 to
the ‘‘Consolidated Financial Statements.’’ See also the risk factor ‘‘Our business is subject to economic, political, and
other risks associated with international sales and operations, including risks arising from currency exchange rate
fluctuations’’ in Part I, Item 1A, ‘‘Risk Factors,’’ for information regarding risks involving our international
operations.
Corporate Background
Edwards Lifesciences Corporation was incorporated in Delaware on September 10, 1999. 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.
Our principal executive offices are located at One Edwards Way, Irvine, California 92614. The telephone
number at that address is (949) 250-2500. We make available, free of charge on our website located at
www.edwards.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports, as soon as reasonably practicable after filing such reports
with the Securities and Exchange Commission (‘‘SEC’’). The contents of our website are not incorporated by
reference into this report.
Edwards Lifesciences’ Product and Technology Offerings
The following discussion summarizes the main areas of products and technologies we offer to treat
advanced cardiovascular disease. These are categorized into three main areas: Transcatheter Heart Valve
Therapy, Surgical Heart Valve Therapy, and Critical Care. For more information on net sales from these
three main areas, see ‘‘Net Sales by Product Group’’ in Part II, Item 7 ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations.’’
Transcatheter Heart Valve Therapy
We are a global leader in transcatheter heart valve replacement technologies designed for the nonsurgical
replacement of heart valves. The Edwards SAPIEN family of valves, including Edwards SAPIEN XT and
Edwards SAPIEN 3 transcatheter aortic heart valves and their respective delivery systems, are used to treat
heart valve disease using catheter-based approaches for certain patients for whom traditional open-heart
surgery is not optimal. Delivered while the heart is beating, these valves can enable patients to experience a
better quality of life sooner than patients receiving traditional surgical therapies. We began offering our
transcatheter heart valves to patients commercially in Europe in 2007, in the United States in 2011, and in
Japan in 2013. As of December 31, 2016, our transcatheter aortic heart valves were available in more than 65
countries. Supported by extensive customer training and service, and a growing body of compelling clinical
evidence, our SAPIEN family of transcatheter aortic heart valves are the most widely prescribed transcatheter
heart valves in the world.
Sales of our transcatheter heart valves represented 55%, 47%, and 41% of our net sales in 2016, 2015,
and 2014, respectively.
Surgical Heart Valve Therapy
The core of our surgical tissue heart valve product line is the Carpentier-Edwards PERIMOUNT
pericardial valve platform, including the line of PERIMOUNT Magna Ease pericardial valves for aortic and
mitral surgical valve replacement. With more long-term clinical publications on durability and performance
than any other surgical valve, PERIMOUNT valves are the most widely implanted surgical tissue heart valves
2
in the world. Our EDWARDS INTUITY Elite Valve System, which is available in Europe, the United States,
and certain other geographies, is a minimally invasive aortic heart valve system designed to enable faster
procedures, shorter patient times on cardiopulmonary bypass, and smaller incisions. In addition to our
replacement valves, we pioneered and are the worldwide leader in surgical heart valve repair therapies,
including annuloplasty rings and systems. We are also a global leader in cardiac cannula devices and offer a
variety of innovative procedure-enabling platforms to advance minimally invasive surgery.
Sales of our surgical tissue heart valve products represented 23%, 28%, and 31% of our net sales in 2016,
2015, and 2014, respectively.
Critical Care
We are a world leader in hemodynamic monitoring systems used to measure a patient’s heart function
and fluid status in surgical and intensive care settings. Hemodynamic monitoring enables a clinician to
balance the supply and demand of oxygen in critically ill patients, and plays an important role in enhancing
surgical recovery by enabling appropriate tissue and organ perfusion, and ultimately enabling the improvement
of patient outcomes and survival. Our hemodynamic monitoring technologies are used before, during, and
after surgeries, such as open-heart, major vascular, major abdominal, neurological, and orthopedic surgical
procedures; as well as for acutely ill patients with conditions such as sepsis, shock, acute respiratory distress
syndrome, and multi-organ failure.
Edwards’ complete hemodynamic portfolio helps clinicians make proactive clinical decisions for their
patients, and includes the minimally invasive FloTrac system and the noninvasive ClearSight system. Our
hemodynamic monitoring portfolio also comprises the Swan-Ganz line of pulmonary artery catheters and the
Edwards Oximetry Central Venous Catheters for continuous measurement of central venous oxygen saturation.
Our EV1000 clinical monitoring platform displays a patient’s physiological status and integrates many of our
sensors and catheters into one platform, giving clinicians multiple options to meet their clinical and patient
needs.
We are also the global leader in disposable pressure monitoring devices and innovative closed blood
sampling systems to help protect both patients and clinicians from the risk of infection.
We manufacture and sell a variety of peripheral vascular products used to treat endolumenal occlusive
disease, including the Fogarty line of embolectomy catheters, which has been an industry standard for
removing blood clots from peripheral blood vessels for more than 40 years.
Sales of our core hemodynamic products represented 12%, 13%, and 15% of our net sales in 2016, 2015,
and 2014, respectively.
Competition
The medical technology industry is highly competitive. We compete with many companies, including
divisions of companies much larger than us and smaller companies that compete in specific product lines or
certain geographies. Furthermore, new product development and technological change characterize the areas
in which we compete. Our present or future products could be rendered obsolete or uneconomical as a result
of technological advances by one or more of our present or future competitors or by other therapies, including
drug therapies. We must continue to develop and commercialize new products and technologies to remain
competitive in the cardiovascular medical technology industry. We believe that we compete primarily on the
basis of clinical superiority supported by extensive data, and innovative features that enhance patient benefit,
product performance, and reliability. Customer and clinical support, and data that demonstrate both
improvement in a patient’s quality of life and a product’s cost-effectiveness are additional aspects of
competition.
The cardiovascular segment of the medical technology industry is dynamic and subject to significant
change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and
3
evolving patient needs. The ability to provide products and technologies that demonstrate value and improve
clinical outcomes is becoming increasingly important for medical technology manufacturers.
We believe that we are a leading global competitor in each of our product lines. In Transcatheter Heart
Valve Therapy, our primary competitors include Medtronic PLC, Boston Scientific Corporation, Abbott
Laboratories, and Symetis SA. In Surgical Heart Valve Therapy, our primary competitors include
Medtronic PLC, Abbott Laboratories, and LivaNova PLC. In Critical Care, we compete primarily with a
variety of companies in specific product lines including ICU Medical, Inc., PULSION Medical Systems SE,
a subsidiary of Getinge AB, and LiDCO Group PLC.
Sales and Marketing
We have a number of broad product lines that require a sales and marketing strategy tailored to our
customers in order to deliver high-quality, cost-effective products and technologies to all of our customers
worldwide. Our portfolio includes some of the most recognizable product brands in cardiovascular devices
today. To help broaden awareness of our products and technologies, we conduct educational symposia and
provide training to our customers.
Because of the diverse global needs of the population that we serve, our distribution system consists of
several direct sales forces as well as independent distributors. We are not dependent on any single customer
and no single customer accounted for 10% or more of our net sales in 2016.
Where we choose to market our products is also influenced by the existence of, or potential for, adequate
reimbursement to hospitals by national healthcare systems. Sales personnel work closely with the customers
who purchase our products, which primarily include physicians, nurses, and other clinical personnel, but can
also include decision makers such as material managers, biomedical staff, hospital administrators and
executives, purchasing managers, and ministries of health. Also, for certain of our products and where
appropriate, our corporate sales team actively pursues approval of Edwards Lifesciences as a qualified supplier
for hospital group purchasing organizations (‘‘GPOs’’) that negotiate contracts with suppliers of medical
products. Additionally, we have contracts with a number of United States and European national and regional
buying groups.
United States.
In the United States, we sell substantially all of our products through our direct sales
forces. In 2016, 55% of our sales were derived from sales to customers in the United States.
International.
In 2016, 45% of our sales were derived internationally through our direct sales forces and
independent distributors. Of the total international sales, 56% were in Europe, 23% were in Japan, and 21%
were in Rest of World. We sell our products in approximately 100 countries, and our major international
markets include Canada, China, France, Germany, Italy, Japan, Spain, and the United Kingdom. A majority
of the sales and marketing approach outside the United States is direct sales, although it varies depending on
each country’s size and state of development.
Raw Materials and Manufacturing
We operate manufacturing facilities in various geographies around the world. Our Transcatheter Heart
Valve Therapy and Surgical Heart Valve Therapy products are manufactured primarily in the United States
(California and Utah), Singapore, and Switzerland. A heart valve manufacturing facility is also currently
under construction in Costa Rica. Critical Care products are manufactured primarily in our facilities located
in Puerto Rico and the Dominican Republic (‘‘DR’’).
We use a diverse and broad range of raw and organic materials in the design, development, and
manufacture of our products. Our non-implantable products are manufactured from man-made raw materials
including resins, chemicals, electronics, and metals. Most of our Transcatheter Heart Valve Therapy and
Surgical Heart Valve Therapy products are manufactured from natural tissues harvested from animal tissue, as
well as man-made materials. We purchase certain materials and components used in manufacturing our
4
products from external suppliers. In addition, we purchase certain supplies from single sources for reasons of
sole source availability or constraints resulting from regulatory requirements.
We work closely with our suppliers to mitigate risk and seek continuity of supply while maintaining
uncompromised quality and reliability. Alternative supplier options are generally considered, identified, and
approved for materials deemed critical to our products.
We follow rigorous sourcing and manufacturing procedures intended to safeguard humans from potential
risks associated with diseases such as bovine spongiform encephalopathy (‘‘BSE’’). We comply with all current
global guidelines regarding risks for products intended to be implanted in humans. We obtain bovine tissue
used in our pericardial tissue valve products only from sources within the United States and Australia, where
strong control measures and surveillance programs exist. In addition, bovine tissue used in our pericardial
tissue valve products is from tissue types considered by global health and regulatory organizations to have
shown no risk of infectibility. Our manufacturing and sterilization processes are designed to render tissue
biologically safe from all known infectious agents and viruses.
Quality Assurance
We are committed to providing to our patients quality products that comply with the United States
Food and Drug Administration (‘‘FDA’’) and other applicable regulations. We have implemented modern
quality systems and concepts throughout the organization. The quality system starts with the initial design
concept and product specification, and continues through the design of the product, component specification
processes, and the manufacturing, sales, and servicing of the product. The quality system is intended to
design quality into products and utilizes continuous improvement concepts, including Lean/Six Sigma
principles, throughout the product lifecycle.
Our operations are frequently inspected by the FDA, our European Notified Bodies, and other
regulatory entities. Our facilities and operations are designed to comply with all applicable international
quality systems standards, including the International Organization for Standardization (‘‘ISO’’) 13485. These
standards require, among other items, quality system controls that are applied to product design, component
material, suppliers, and manufacturing operations. These regulatory approvals and ISO certifications can be
obtained only after a successful audit of a company’s quality system has been conducted by regulatory or
independent outside auditors. Periodic reexamination by an independent outside auditor is required to
maintain these certifications.
Environmental, Health, and Safety
We are committed to providing a safe and healthy workplace, promoting environmental excellence in our
communities, and complying with all relevant regulations and medical device industry standards. Through our
corporate and site level Environmental, Health, and Safety functions, we establish and monitor programs to
reduce pollution, prevent injuries, and maintain compliance. In order to measure performance, we monitor
and report on a number of metrics, including regulated and non-regulated waste disposal, energy usage, water
consumption, air toxic emissions, and injuries from our production activities. Each of our manufacturing sites
is evaluated regularly with respect to a broad range of Environmental, Health, and Safety criteria.
Research and Development
We are engaged in ongoing research and development to deliver clinically advanced new products, to
enhance the effectiveness, ease of use, safety, and reliability of our current leading products, and to expand the
applications of our products as appropriate. We focus on opportunities within specific areas of structural heart
disease and critical care monitoring, and we are dedicated to developing novel technologies to better enable
clinicians to treat patients.
5
We invested $443 million in research and development in 2016, $383 million in 2015, and $347 million
in 2014 (15.0%, 15.4%, and 14.9% of net sales, respectively). The majority of our research and development
investment has been applied to strengthen our leadership position in our existing product lines. We have also
dedicated a sizable portion of our research and development investment to developing additional advanced
technologies designed to address unmet clinical needs within our areas of strategic focus. A considerable
portion of our research and development investment includes clinical trials and the collection of evidence that
provide data for use in regulatory submissions, and required post-market approval studies involving
applications of our products. Our investment in clinical studies also includes outcomes and cost-effectiveness
data for payers, clinicians, and healthcare systems.
In Transcatheter Heart Valve Therapy, we are developing new products to further streamline
transcatheter heart valve replacement procedures and strengthen our leadership position. The Edwards
SAPIEN 3 Ultra System is designed to incorporate several delivery system enhancements with the Axela
sheath, which allows for dynamic expansion and contraction. The self-expanding CENTERA valve is designed
to offer a low profile, repositionable technology delivered via a motorized handle.
We are also making significant investments in the development of transcatheter heart valve technologies
designed to treat mitral and tricuspid valve diseases and other structural heart conditions. We are developing
the Edwards-CardiAQ valve for mitral replacement, the PASCAL system for mitral repair, and the Edwards
FORMA tricuspid spacer. In 2016, we entered into an agreement to acquire Valtech Cardio Ltd. (‘‘Valtech’’),
which is developing both mitral and tricuspid repair technologies. We completed this acquisition on
January 23, 2017. In addition, we have made investments in several companies that are independently
developing less-invasive technologies to treat mitral regurgitation and left ventricular dysfunction. We have
rights to acquire some of these companies at pre-determined prices should we elect to do so.
Our Surgical Heart Valve Therapy development program includes innovative platforms for patients
remaining in surgery. The INSPIRIS aortic valve incorporates the RESILIA tissue integrity preservation
technology and VFit technology for potential future valve-in-valve procedures. The KONECT conduit,
designed for complex combined procedures, is a conduit pre-assembled with the PERIMOUNT Magna Ease
valve and RESILIA tissue.
In our Critical Care product line, we are pursuing the development of a variety of decision support
solutions for our clinicians. This includes next-generation noninvasive and minimally invasive hemodynamic
monitoring systems, including a next-generation hemodynamic monitor with advanced data integration
capabilities. We are also developing a comprehensive decision support software suite with advanced algorithms
for proactive decision making, including an integrated semi-closed loop system for standardized management
of patient fluid levels.
Our research and development activities are conducted primarily in facilities located in the United States
and Israel. Our experienced research and development staff is focused on product design and development,
quality, clinical research, and regulatory compliance. To pursue primary research efforts, we have developed
alliances with several leading research institutions and universities, and also work with leading clinicians
around the world in conducting scientific studies on our existing and developing products.
Proprietary Technology
Patents, trademarks, and other proprietary rights are important to the success of our business. We also
rely upon trade secrets, know-how, continuing innovations, and licensing opportunities to develop and
maintain our competitive position.
We own more than 2,700 issued United States patents, pending United States patent applications, issued
foreign patents, and pending foreign patent applications. We also have licensed various United States and
foreign patents and patent applications that relate to aspects of the technology incorporated in certain of our
products, including our heart valves and annuloplasty rings. We also own or have rights in United States and
6
foreign patents and patent applications in the field of transcatheter heart valve repair and replacement. In
addition, we own or have rights in United States and foreign patents and patent applications that cover
catheters, systems and methods for hemodynamic monitoring, and vascular access products, among others.
We are a party to several license agreements with unrelated third parties pursuant to which we have
obtained, for varying terms, the exclusive or non-exclusive rights to certain patents held by such third parties
in consideration for cross-licensing rights and/or royalty payments. We have also licensed certain patent rights
to others.
We monitor the products of our competitors for possible infringement of our owned and licensed
patents. Litigation has been necessary to enforce certain patent rights held by us, and we plan to continue to
defend and prosecute our rights with respect to such patents.
We own certain United States registered trademarks used in our business. Many of our trademarks have
also been registered for use in certain foreign countries where registration is available and where we have
determined it is commercially advantageous to do so.
Government Regulation and Other Matters
Our products and facilities are subject to regulation by numerous government agencies, including the
U.S. FDA, European Community Notified Bodies, and the Japanese Pharmaceuticals and Medical Devices
Agency, to confirm compliance with the various laws and regulations governing the development, testing,
manufacturing, labeling, marketing, and distribution of our products. We are also governed by federal, state,
local, and international laws of general applicability, such as those regulating employee health and safety, and
the protection of the environment. Overall, the amount and scope of domestic and foreign laws and
regulations applicable to our business has increased over time.
United States Regulation.
In the United States, the FDA has responsibility for regulating medical
devices. The FDA regulates design, development, testing, clinical studies, manufacturing, labeling, promotion,
and record keeping for medical devices, and reporting of adverse events, recalls, or other field actions by
manufacturers and users to identify potential problems with marketed medical devices. Many of the devices
that we develop and market are in a category for which the FDA has implemented stringent clinical
investigation and pre-market clearance or approval requirements. The process of obtaining FDA clearance or
approval to market a product is resource intensive, lengthy, and costly. FDA review may involve substantial
delays that adversely affect the marketing and sale of our products. A number of our products are pending
regulatory clearance or approval to begin commercial sales in various markets. Ultimately, the FDA may not
authorize the commercial release of a medical device if it determines the device is not safe and effective or
does not meet other standards for clearance. Additionally, even if a product is cleared or approved, the FDA
may require testing and surveillance programs to monitor the effects of these products once commercialized.
The FDA has the authority to halt the distribution of certain medical devices, detain or seize adulterated
or misbranded medical devices, order the repair, replacement, or refund of the costs of such devices, or
preclude the importation of devices that are or appear violative. The FDA also conducts inspections to
determine compliance with the quality system regulations concerning the manufacturing and design of devices
and current medical device reporting regulations, recall regulations, clinical testing regulations, and other
requirements. The FDA may withdraw product clearances or approvals due to failure to comply with
regulatory standards, or the occurrence of unforeseen problems following initial approval, and require
notification of health professionals and others with regard to medical devices that present unreasonable risks
of substantial harm to the public health. Additionally, the failure to comply with FDA or comparable
regulatory standards or the discovery of previously unknown product problems could result in fines, delays, or
suspensions of regulatory clearances or approvals, seizures, injunctions, recalls, refunds, civil money penalties,
or criminal prosecution. Our compliance with applicable regulatory requirements is subject to continual
review. Moreover, the FDA and several other United States agencies administer controls over the export of
medical devices from the United States and the import of devices into the United States, which could also
subject us to sanctions for noncompliance.
7
We are also subject to additional laws and regulations that govern our business operations, products, and
technologies, including:
(cid:129) federal, state, and foreign anti-kickback laws and regulations, which generally prohibit payments to
physicians or other purchasers of medical products as an inducement to purchase a product;
(cid:129) the Stark law, which prohibits physicians from referring Medicare or Medicaid patients to a provider
that bills these programs for the provision of certain designated health services if the physician (or a
member of the physician’s immediate family) has a financial relationship with that provider;
(cid:129) federal and state laws and regulations that protect the confidentiality of certain patient health
information, including patient records, and restrict the use and disclosure of such information, in
particular, the Health Insurance Portability and Accountability Act of 1996;
(cid:129) the Physician Payments Sunshine Act, which requires public disclosure of the financial relationships of
United States physicians and teaching hospitals with applicable manufacturers, including medical
device, pharmaceutical, and biologics companies;
(cid:129) the False Claims Act, which prohibits the submission of false or otherwise improper claims for
payment to a federally funded health care program, and health care fraud statutes that prohibit false
statements and improper claims to any third-party payor; and
(cid:129) the United States Foreign Corrupt Practices Act, which can be used to prosecute companies in the
United States for arrangements with foreign government officials or other parties outside the United
States.
Failure to comply with these laws and regulations could result in criminal liability, significant fines or
penalties, negative publicity, and substantial costs and expenses associated with investigation and enforcement
activities. To assist in our compliance efforts, we adhere to many codes of ethics and conduct regarding our
sales and marketing activities in the United States and other countries in which we operate. In addition, we
have in place a dedicated team to improve our internal business compliance programs and policies.
International Regulation.
Internationally, the regulation of medical devices is complex. In Europe, our
products are subject to extensive regulatory requirements. The regulatory regime in the European Union for
medical devices became mandatory in June 1998. It requires that medical devices may only be placed on the
market if they do not compromise safety and health when properly installed, maintained, and used in
accordance with their intended purpose. National laws conforming to the European Union’s legislation
regulate our products under the medical devices regulatory system. Although the more variable national
requirements under which medical devices were formerly regulated have been substantially replaced by the
European Union Medical Devices Directive, individual nations can still impose unique requirements that may
require supplemental submissions. The European Union medical device laws require manufacturers to declare
that their products conform to the essential regulatory requirements after which the products may be placed
on the market bearing the CE Mark. Manufacturers’ quality systems for products in all but the lowest risk
classification are also subject to certification and audit by an independent notified body. In Europe, particular
emphasis is being placed on more sophisticated and faster procedures for the reporting of adverse events to
the competent authorities.
In Japan, pre-market approval and clinical studies are required as is governmental pricing approval for
medical devices. Clinical studies are subject to a stringent ‘‘Good Clinical Practices’’ standard. Approval time
frames from the Japanese Ministry of Health, Labour and Welfare vary from simple notifications to review
periods of one or more years, depending on the complexity and risk level of the device. In addition,
importation of medical devices into Japan is subject to the ‘‘Good Import Practices’’ regulations. As with any
highly regulated market, significant changes in the regulatory environment could adversely affect future sales.
8
In many of the other foreign countries in which we market our products, we may be subject to
regulations affecting, among other things:
(cid:129) product standards and specifications;
(cid:129) packaging requirements;
(cid:129) labeling requirements;
(cid:129) product collection and disposal requirements;
(cid:129) quality system requirements;
(cid:129) import restrictions;
(cid:129) tariffs;
(cid:129) duties; and
(cid:129) tax requirements.
Many of the regulations applicable to our devices and products in these countries are similar to those of
the FDA. In some regions, the level of government regulation of medical devices is increasing, which can
lengthen time to market and increase registration and approval costs. In many countries, the national health
or social security organizations require our products to be qualified before they can be marketed and
considered eligible for reimbursement.
Health Care Initiatives. Government and private sector initiatives to limit the growth of health care
costs, including price regulation and competitive pricing, coverage and payment policies, comparative
effectiveness reviews, technology assessments, and managed-care arrangements, are continuing in many
countries where we do business, including the United States, Europe, and Japan. As a result of these changes,
the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies. For
example, government programs, private health care insurance, and managed-care plans have attempted to
control costs by restricting coverage and limiting the level of reimbursement for procedures or treatments, and
some third-party payors require their pre-approval before new or innovative devices or therapies are utilized
by patients. These various initiatives have created increased price sensitivity over medical products generally
and may impact demand for our products and technologies.
The delivery of our products is subject to regulation by the Department of Health and Human Services
(‘‘HHS’’) in the United States and comparable state and foreign agencies responsible for reimbursement and
regulation of health care items and services. Foreign governments also impose regulations in connection with
their health care reimbursement programs and the delivery of health care items and services. Reimbursement
schedules regulate the amount the United States government will reimburse hospitals and doctors for the
inpatient care of persons covered by Medicare. HHS’ Centers for Medicare & Medicaid Services may also
review whether and/or under what circumstances a procedure or technology is reimbursable for Medicare
beneficiaries. Changes in current reimbursement levels could have an adverse effect on market demand and
our pricing flexibility.
Health care cost containment efforts have also prompted domestic hospitals and other customers of
medical device manufacturers to consolidate into larger purchasing groups to enhance purchasing power, and
this trend is expected to continue. The medical device industry has also experienced some consolidation,
partly in order to offer a broader range of products to large purchasers. As a result, transactions with
customers are larger, more complex, and tend to involve more long-term contracts than in the past. These
larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product
pricing.
Health Care Reform.
In 2010, significant reforms to the health care system were adopted as law in the
United States. The law includes provisions that, among other things, reduce or limit Medicare
9
reimbursement, require all individuals to have health insurance (with limited exceptions), and impose
increased taxes. Specifically, the law requires the medical device industry to subsidize health care reform in
the form of a 2.3% excise tax on United States sales of most medical devices. The excise tax, which increased
our operating expenses, was suspended for calendar years 2016 and 2017, but is scheduled to resume in 2018.
The long term impact of the payment reform provisions in the 2010 health care law remains uncertain to us
as these programs continue to evolve. This law or any future legislation, including deficit reduction legislation,
could reduce medical procedure volumes, lower reimbursement for our products, and impact the demand for
our products or the prices at which we sell our products.
In late 2016, legislation was signed into law that, among other things, increases funding for medical
research and eases the development and approval of experimental treatments. Known as the 21st Century
Cures Act, the law also provides new funding for the National Institutes of Health and the FDA. Although
it will take some time to be fully implemented, the 21st Century Cures Act could help accelerate the
discovery, development, and delivery of medical advancements to ensure more timely access to new treatments
and cures for patients in need.
Seasonality
Our quarterly net sales are influenced by many factors, including new product introductions, acquisitions,
regulatory approvals, patient and physician holiday schedules, and other factors. Net sales in the third quarter
are typically lower than other quarters of the year due to the seasonality of the United States and European
markets, where summer vacation schedules normally result in fewer medical procedures.
Employees
As of December 31, 2016, we had approximately 11,100 employees worldwide, the majority of whom
were located in the United States, the Dominican Republic, Singapore, and Puerto Rico. Other major
concentrations of employees are located in Europe and Japan. We emphasize competitive compensation,
benefits, equity participation, and a positive and attractive work environment in our efforts to attract and
retain qualified personnel, and employ a rigorous talent management system. None of our North American
employees are represented by a labor union. In various countries outside of North America, we interact with
trade unions and work councils that represent a limited number of employees.
Item 1A. Risk Factors
Our business and assets are subject to varying degrees of risk and uncertainty. An investor should carefully
consider the risks described below, as well as other information contained in this Annual Report on Form 10-K and
in our other filings with the SEC. Additional risks not presently known to us or that we currently deem immaterial
may also adversely affect our business. If any of these events or circumstances occurs, our business, financial condition,
results of operations, or prospects could be materially harmed. In that case, the value of our securities could decline
and an investor could lose part or all of his or her investment. In addition, forward-looking statements within the
meaning of the federal securities laws that are contained in this Annual Report on Form 10-K or in our other
filings or statements may be subject to the risks described below as well as other risks and uncertainties. Please read
the cautionary notice regarding forward-looking statements in Item 1, ‘‘Business,’’ above.
Business and Operating Risks
If we do not introduce new products in a timely manner, our products may become obsolete and our operating results
may suffer.
The cardiovascular products industry is characterized by technological changes, frequent new product
introductions, and evolving industry standards. Without the timely introduction of new and improved
products, our products could become technologically obsolete or more susceptible to competition and our
revenue and operating results would suffer. Even if we are able to develop new or improved products, our
10
ability to market them could be limited by the need for regulatory clearance, restrictions imposed on approved
indications, entrenched patterns of clinical practice, uncertainty over third-party reimbursement, or other
factors. We devote significant financial and other resources to our research and development activities;
however, the research and development process is prolonged and entails considerable uncertainty. Accordingly,
products we are currently developing may not complete the development process or obtain the regulatory or
other approvals required to market such products in a timely manner or at all.
Technical innovations often require substantial time and investment before we can determine their
commercial viability. We may not have the financial resources necessary to fund all of these projects. In
addition, even if we are able to successfully develop new or improved products, they may not produce revenue
in excess of the costs of development, and they may be rendered obsolete or less competitive by changing
customer preferences or the introduction by our competitors of products with newer technologies or features
or other factors.
We may experience supply interruptions that could harm our ability to manufacture products.
We use a broad range of raw and organic materials and other items in the design and manufacture of
our products. Our Surgical and Transcatheter Heart Valve Therapy products are manufactured from treated
natural animal tissue and man-made materials. Our non-implantable products are manufactured from
man-made raw materials including resins, chemicals, electronics, and metals. We purchase certain of the
materials and components used in the manufacture of our products from external suppliers, and we purchase
certain supplies from single sources for reasons of quality assurance, cost-effectiveness, availability, or
constraints resulting from regulatory requirements. We also contract with third parties for important services
related to infrastructure and information technology. General economic conditions could adversely affect the
financial viability of our suppliers, resulting in their inability to provide materials and components used in the
manufacture of our products. While we work closely with suppliers to monitor their financial viability, assure
continuity of supply, and maintain high quality and reliability, these efforts may not be successful. In addition,
due to the rigorous regulations and requirements of the FDA and foreign regulatory authorities regarding the
manufacture of our products (including the need for approval of any change in supply arrangements), we may
have difficulty establishing additional or replacement sources on a timely basis or at all if the need arises.
Certain suppliers may also elect to no longer service medical device companies due to the high amount of
requirements and regulation. Although alternative supplier options are considered and identified, we typically
do not pursue regulatory qualification of alternative sources due to the strength of our existing supplier
relationships and the time and expense associated with the regulatory validation process. A change in
suppliers could require significant effort or investment in circumstances where the items supplied are integral
to product performance or incorporate unique technology, and the loss of any existing supply contract could
have a material adverse effect on us.
Regulatory agencies in the United States or other international geographies from time to time have
limited or banned the use of certain materials used in the manufacture of our products. In these
circumstances, transition periods typically provide time to arrange for alternative materials. In addition, the
SEC enacted disclosure rules regarding products that may contain certain minerals that originate from conflict
areas in and around the Democratic Republic of Congo. If our suppliers cannot verify that their components
do not originate from these conflict areas, we may need to source components from alternative suppliers. If
we are unable to identify alternative materials or suppliers and secure approval for their use in a timely
manner, our business could be harmed.
Some of our suppliers are located outside the United States. As a result, trade or regulatory embargoes
imposed by foreign countries or the United States could result in delays or shortages that could harm our
business.
11
The manufacture of many of our products is highly complex and subject to strict quality controls. If we or one of our
suppliers or logistics partners encounters manufacturing, logistics, or quality problems, including as a result of natural
disasters, our business could suffer.
The manufacture of many of our products is highly complex and subject to strict quality controls, due in
part to rigorous regulatory requirements. In addition, quality is extremely important due to the serious and
costly consequences of a product failure. Problems can arise during the manufacturing process for a number of
reasons, including equipment malfunction, failure to follow protocols and procedures, raw material problems,
software problems, or human error. Although closely managed, disruptions can occur during implementation
of new equipment and systems to replace aging equipment, as well as during production line transfers and
expansions. As we expand into new markets, we may face unanticipated surges in demand which could strain
our production capacity. If these problems arise or if we otherwise fail to meet our internal quality standards
or those of the FDA or other applicable regulatory body, which include detailed record-keeping requirements,
our reputation could be damaged, we could become subject to a safety alert or a recall, we could incur
product liability and other costs, product approvals could be delayed, and our business could otherwise be
adversely affected.
In addition, our manufacturing and warehousing facilities, as well as those of our suppliers and logistics
partners, could be materially damaged by earthquakes, hurricanes, volcanoes, fires, and other natural disasters
or catastrophic circumstances. While we believe that our exposure to significant losses from a catastrophic
disaster could be partially mitigated by our ability to manufacture, store, and distribute some of our products
at other facilities, the losses could have a material adverse effect on our business for an indeterminate period
of time before this transition is complete and operates without significant disruption.
We may be required, from time to time, to recognize charges in connection with the write-down of our assets or
dispositions of business operations or for other reasons.
From time to time, we identify operations and products that are not performing at a level commensurate
with the rest of our business. We may seek to dispose of these underperforming operations or products. We
may also seek to dispose of other operations or products for strategic or other business reasons. If we cannot
dispose of an operation or product on acceptable terms, we may voluntarily cease operations related to that
product. Any of these events could result in charges, which could be substantial and which could adversely
affect our results of operations.
We may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve
anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen
operating difficulties and expenditures, require significant management resources, and require significant charges or
write-downs.
We regularly explore potential acquisitions of complementary businesses, technologies, services, or
products, as well as potential strategic alliances. We may be unable to find suitable acquisition candidates or
appropriate partners with which to form alliances. Even if we identify appropriate acquisition or alliance
candidates, we may be unable to complete the acquisitions or alliances on favorable terms, if at all. In
addition, the process of integrating an acquired business, technology, service, or product into our existing
operations could result in unforeseen difficulties and expenditures. Integration of an acquired company often
requires significant expenditures as well as significant management resources that otherwise would be available
for ongoing development of our other businesses. Moreover, we may not realize the anticipated financial or
other benefits of an acquisition or alliance.
We may be required to take charges or write-downs in connection with acquisitions. In particular,
acquisitions of businesses engaged in the development of new products may give rise to in-process research
and development (‘‘IPR&D’’) assets. To the extent that the value of these assets declines, we may be required
to write down the value of the assets. Also, in connection with certain asset acquisitions, we may be required
12
to take an immediate charge related to acquired IPR&D. Either of these situations could result in substantial
charges, which could adversely affect our results of operations.
Future acquisitions could also involve the issuance of equity securities, the incurrence of debt, contingent
liabilities, or amortization of expenses related to other intangible assets, any of which could adversely impact
our financial condition or results of operations. In addition, equity or debt financing required for such
acquisitions may not be available.
We face intense competition, and if we do not compete effectively, our business will be harmed.
The cardiovascular medical device industry is highly competitive. We compete with many companies,
some of which are larger and have longer operating histories, better brand or name recognition, and broader
product offerings. Our customers consider many factors when selecting a product, including product
reliability, breadth of product line, clinical outcomes, product availability, price, availability and rate of
reimbursement, and services provided by the manufacturer. In addition, our ability to compete will depend in
large part on our ability to develop and acquire new products and technologies, anticipate technology
advances, and keep pace with other developers of cardiovascular therapies and technologies. Our sales,
technical, and other key personnel play an integral role in the development, marketing, and selling of new
and existing products. If we are unable to recruit, hire, develop, and retain a talented, competitive workforce,
our ability to compete may be adversely affected. Our competitive position can also be adversely affected by
product problems, physician advisories, and safety alerts, reflecting the importance of quality in the medical
device industry. Our position can shift as a result of any of these factors. In addition, given the trend toward
value-based healthcare, if we are not able to continue to demonstrate the full value of our products to
healthcare providers and payors, our competitive position could be adversely affected. See ‘‘Competition’’ under
‘‘Business’’ included herein.
Unsuccessful clinical trials or procedures relating to products under development could have a material adverse effect
on our prospects.
The regulatory approval process for new products and new indications for existing products requires
extensive clinical trials and procedures, including early clinical feasibility and regulatory studies. Unfavorable
or inconsistent clinical data from current or future clinical trials or procedures conducted by us, our
competitors, or third parties, or perceptions regarding this clinical data, could adversely affect our ability to
obtain necessary approvals and the market’s view of our future prospects. Such clinical trials and procedures
are inherently uncertain and there can be no assurance that these trials or procedures will be completed in a
timely or cost-effective manner or result in a commercially viable product or expanded indication. Failure to
successfully complete these trials or procedures in a timely and cost-effective manner could have a material
adverse effect on our prospects. Clinical trials or procedures may experience significant setbacks even after
earlier trials have shown promising results. Further, preliminary results from clinical trials or procedures may
be contradicted by subsequent clinical analysis. In addition, results from our clinical trials or procedures may
not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later
contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, our
business could be adversely affected. Clinical trials or procedures may be delayed, suspended, or terminated by
us, the FDA, or other regulatory authorities at any time if it is believed that the trial participants face
unacceptable health risks or any other reasons.
13
The success of many of our products depends upon strong relationships with certain key physicians.
The development, marketing, and sale of many of our products requires us to maintain working
relationships with physicians upon whom we rely to provide considerable knowledge and experience. These
physicians may assist us as researchers, marketing consultants, product trainers and consultants, inventors, and
as public speakers. If new laws, regulations, or other developments limit our ability to maintain strong
relationships with these professionals or to continue to receive their advice and input, the development and
marketing of our products could suffer, which could have a material adverse effect on our business, financial
condition, and results of operations.
Market and Other External Risks
General economic and political conditions could have a material adverse effect on our business.
External factors can affect our profitability and financial condition. Such external factors include general
domestic and global economic conditions, such as interest rates, tax rates, and factors affecting global
economic stability, and the political environment regarding health care in general. The strength and timing of
the current economic recovery remains uncertain, and we cannot predict to what extent the global economic
conditions may negatively impact our business. For example, negative conditions in the credit and capital
markets could impair our ability to access the financial markets for working capital or other funds, and could
negatively impact our ability to borrow. An increase in interest rates could result in an increase in our
borrowing costs and could otherwise restrict our ability to access the capital markets. Such conditions could
result in decreased liquidity and impairments in the carrying value of our investments, and could adversely
affect our results of operations and financial condition. These and other conditions could also adversely affect
our customers, and may impact their ability or decision to purchase our products or make payments on a
timely basis.
In 2010, significant reforms to the health care system were adopted as law in the United States. The law
includes provisions that, among other things, reduce or limit Medicare reimbursement, require all individuals
to have health insurance (with limited exceptions), and impose increased taxes. Specifically, the law requires
the medical device industry to subsidize health care reform in the form of a 2.3% excise tax on United States
sales of most medical devices. The excise tax, which increased our operating expenses, was suspended for
calendar years 2016 and 2017, but is scheduled to resume in 2018. The long term impact of the payment
reform provisions in the 2010 health care law remains uncertain to us as these programs continue to evolve.
This law or any future legislation, including deficit reduction legislation, could adversely affect our results of
operations, financial condition, and prospects if they were to impact the demand for our products or pricing,
or result in cuts to, or a restructuring of, entitlement programs such as Medicare and Medicaid.
Our business is subject to economic, political, and other risks associated with international sales and operations,
including risks arising from currency exchange rate fluctuations.
Because we sell our products in a number of countries, our business is subject to the risks of doing
business internationally, including risks associated with anti-corruption and anti-bribery laws. Our net sales
originating outside the United States, as a percentage of total net sales, were 45% in 2016. We anticipate that
sales from international operations will continue to represent a substantial portion of our total sales. In
addition, many of our manufacturing facilities and suppliers are located outside of the United States.
Accordingly, our future results could be harmed by a variety of factors, including:
(cid:129) changes in local medical reimbursement policies and programs;
(cid:129) changes in foreign regulatory requirements;
(cid:129) changes in a specific country’s or region’s political or economic conditions, including changing
circumstances in emerging regions, that may reduce the number of procedures that use our products;
14
(cid:129) trade protection measures, quotas, embargoes, import or export licensing requirements, and duties,
tariffs, or surcharges;
(cid:129) potentially negative impact of tax laws, including transfer pricing liabilities and tax costs associated
with the repatriation of cash;
(cid:129) difficulty in staffing and managing global operations;
(cid:129) cultural, exchange rate, or other local factors affecting financial terms with customers;
(cid:129) local economic and financial conditions, including sovereign defaults and decline in sovereign credit
ratings, affecting the collectability of receivables, including receivables from sovereign entities;
(cid:129) an outbreak of any life-threatening communicable disease;
(cid:129) economic and political instability and local economic and political conditions;
(cid:129) differing labor regulations; and
(cid:129) differing protection of intellectual property.
Substantially all of our sales outside of the United States are denominated in local currencies, principally
in Europe (and primarily denominated in the Euro) and in Japan. The United States dollar value of our
international sales varies with currency exchange rate fluctuations. Decreases in the value of the United States
dollar to the Euro or the Japanese yen, as well as other currencies, have the effect of increasing our reported
revenues even when the volume of international sales has remained constant. Increases in the value of the
United States dollar relative to the Euro or the Japanese yen, as well as other currencies, have the opposite
effect. Significant increases or decreases in the value of the United States dollar could have a material effect
on our revenues, cost of sales, and results of operations. We have a hedging program for certain currencies
that attempts to manage currency exchange rate risks to an acceptable level based on management’s judgment
of the appropriate trade-off between risk, opportunity, and cost; however, this hedging program does not
completely eliminate the effects of currency exchange rate fluctuations.
The United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act, and similar laws in
other jurisdictions contain prohibitions against bribery and other illegal payments, and make it an offense to
fail to have procedures in place that prevent such payments. Recent years have seen an increasing number of
investigations and other enforcement activities under these laws. Although we have compliance programs in
place with respect to these laws, which may be used as a defense to prove we had adequate procedures, no
assurance can be given that a violation will not be found, and if found, the resulting penalties could adversely
affect us and our business.
The stock market can be volatile and fluctuations in our quarterly sales and operating results as well as other factors
could cause our financial guidance to vary from actual results and our stock price to decline.
From time to time, the stock market experiences extreme price and volume fluctuations. This volatility
can have a significant effect on the market prices of securities for reasons unrelated to underlying
performance. These broad market fluctuations may materially adversely affect our stock price, regardless of
our operating results. In addition, the market price of our common stock could fluctuate substantially in
response to any of the other risk factors set out above and below, as well as a number of other factors,
including the performance of comparable companies or the medical device industry, or changes in financial
estimates and recommendations of securities analysts.
Our sales and operating results may vary significantly from quarter to quarter. A high proportion of our
costs are fixed, due in part to significant selling, research and development, and manufacturing costs. Thus,
15
small declines in revenue could disproportionately affect our operating results in a quarter, and the price of
our common stock could fall. Other factors that could affect our quarterly sales and operating results include:
(cid:129) announcements of innovations, new products, strategic developments, or business combinations by us
or our competitors;
(cid:129) demand for and clinical acceptance of products;
(cid:129) the timing and execution of customer contracts, particularly large contracts that would materially affect
our operating results in a given quarter;
(cid:129) the timing of sales of products and of the introduction of new products;
(cid:129) the timing of marketing, training, and other expenses related to the introduction of new products;
(cid:129) the timing of regulatory approvals;
(cid:129) changes in foreign currency exchange rates;
(cid:129) delays or problems in introducing new products, such as slower than anticipated adoption of
transcatheter heart valves;
(cid:129) changes in our pricing policies or the pricing policies of our competitors;
(cid:129) the timing of approvals of governmental reimbursement rates or changes in reimbursement rates for
our products;
(cid:129) increased expenses, whether related to sales and marketing, raw materials or supplies, product
development, or administration;
(cid:129) changes in the level of economic activity in the United States or other regions in which we do
business;
(cid:129) changes to accounting standards;
(cid:129) costs related to acquisitions of technologies or businesses; and
(cid:129) our ability to expand our operations and the amount and timing of expansion-related expenditures.
The quarterly and full-year financial guidance we provide to investors and analysts with insight to our
view of our future performance is based on assumptions about our sales and operating results. Due to the
nature of our business and the numerous factors that can impact our sales and operating performance,
including those described above, our financial guidance may vary from actual results. If we fail to meet any
financial guidance that we provide, or if we find it necessary to revise such guidance during the year, the price
of our common stock could decline.
Consolidation in the health care industry could have an adverse effect on our sales and results of operations.
The health care industry has been consolidating, and organizations such as GPOs, independent delivery
networks, and large single accounts, such as the United States Veterans Administration, continue to
consolidate purchasing decisions for many of our health care provider customers. As a result, transactions with
customers are larger and more complex, and tend to involve more long-term contracts. The purchasing power
of these larger customers has increased, and may continue to increase, causing downward pressure on product
pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from
making sales to its members or participants. Even if we are one of the selected providers, we may be at a
disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of
a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that
has a material adverse effect on our revenues, profit margins, business, financial condition, and results of
operations. We expect that market demand, governmental regulation, third-party reimbursement policies, and
16
societal pressures will continue to change the worldwide health care industry, resulting in further business
consolidations and alliances, which may exert further downward pressure on the prices of our products and
could adversely impact our business, financial condition, and results of operations.
If third-party payors decline to reimburse our customers for our products or impose other cost containment measures to
reduce reimbursement levels, our ability to profitably sell our products will be harmed.
We sell our products and technologies to hospitals and other health care providers, all of which receive
reimbursement for the health care services provided to patients from third-party payors, such as government
programs (both domestic and international), private insurance plans, and managed care programs. The ability
of customers to obtain appropriate reimbursement for their products from private and governmental third-
party payors is critical to the success of medical technology companies. The availability of reimbursement
affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from
country to country and can significantly impact acceptance of new products.
Third-party payors are increasingly attempting to contain health care costs by limiting both coverage and
the level of reimbursement for medical products and services. There can be no assurance that levels of
reimbursement, if any, will not be decreased in the future, or that future legislation, regulation, or
reimbursement policies of third-party payors will not otherwise adversely affect the demand for and price
levels of our products. The introduction of cost containment incentives, combined with closer scrutiny of
health care expenditures by both private health insurers and employers, has resulted in increased discounts and
contractual adjustments to hospital charges for services performed. Hospitals or physicians may respond to
such cost-containment pressures by substituting lower cost products or other therapies. In addition, the 2010
United States health care law could adversely affect reimbursement levels for our products, or otherwise
adversely affect our product pricing and profitability.
Initiatives to limit the growth of health care costs, including price regulation, are underway in several
countries around the world. In many countries, customers are reimbursed for our products under a
government operated insurance system. Under such a system, the government periodically reviews
reimbursement levels and may limit patient access. If a government were to decide to reduce reimbursement
levels, our product pricing could be adversely affected.
Third-party payors may deny reimbursement if they determine that a device used in a procedure was not
used in accordance with cost-effective treatment methods as determined by such third-party payors, or was
used for an unapproved indication. Third-party payors may also deny reimbursement for experimental
procedures and devices. We believe that many of our existing products are cost-effective, even though the
one-time cost may be significant, because they are intended to improve quality of life and reduce overall
health care costs over a long period of time. We cannot be certain that these third-party payors will recognize
these cost savings instead of merely focusing on the lower initial costs associated with competing therapies. If
our products are not considered cost-effective by third-party payors, our customers may not be reimbursed for
them, resulting in lower sales of our products.
Legal, Compliance, and Regulatory Risks
We may incur losses from product liability or other claims that could adversely affect our operating results.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture,
and marketing of medical devices. Our products are often used in surgical and intensive care settings with
seriously ill patients. In addition, many of the medical devices we manufacture and sell are designed to be
implanted in the human body for long periods of time. Component failures, manufacturing and assembly
flaws, design defects, or inadequate disclosure of product-related risks or product-related information could
result in an unsafe condition or injury to, or death of, patients. Such problems could result in product
liability, medical malpractice or other lawsuits and claims, safety alerts, or product recalls in the future, which,
regardless of their ultimate outcome, could have a material adverse effect on our business, reputation, and
17
ability to attract and retain customers. Product liability claims may be brought from time to time either by
individuals or by groups seeking to represent a class. We may incur charges related to such matters in excess
of any established reserves and such charges, including the establishment of any such reserves, could have a
material adverse impact on our net income and net cash flows.
Our inability to protect our intellectual property or failure to maintain the confidentiality and integrity of data or
other sensitive company information, by cyber-attack or other event, could have a material adverse effect on our
business.
Our success and competitive position are dependent in part upon our proprietary intellectual property.
We rely on a combination of patents and trade secrets to protect our proprietary intellectual property, and we
expect to continue to do so. Although we seek to protect our proprietary rights through a variety of means,
we cannot guarantee that the protective steps we have taken are adequate to protect these rights. Patents
issued to or licensed by us in the past or in the future may be challenged and held invalid. In addition, as our
patents expire, we may be unsuccessful in extending their protection through patent term extensions. The
expiration of, or the failure to maintain or extend our patents, could have a material adverse effect on us.
We also rely on confidentiality agreements with certain employees, consultants, and other third parties to
protect, in part, trade secrets and other proprietary information. These agreements could be breached, and we
may not have adequate remedies for such a breach. In addition, others could independently develop
substantially equivalent proprietary information or gain access to our trade secrets or proprietary information.
Our intellectual property, other proprietary technology, and other sensitive company information is
dependent on sophisticated information technology systems and is potentially vulnerable to cyber-attacks, loss,
damage, destruction from system malfunction, computer viruses, loss of data privacy, or misappropriation or
misuse of it by those with permitted access, and other events. While we have invested to protect our
intellectual property and other information, and continue to work diligently to upgrade and enhance our
systems to keep pace with continuing changes in information processing technology, there can be no
assurance that our precautionary measures will prevent breakdowns, breaches, cyber-attacks, or other events.
Such events could have a material adverse effect on our reputation, financial condition, or results of
operations.
We spend significant resources to enforce our intellectual property rights, sometimes resulting in
litigation. Intellectual property litigation is complex and can be expensive and time-consuming. However, our
efforts in this regard may not be successful. We may not be able to detect infringement. In addition,
competitors may design around our technology or develop competing technologies. Patent litigation can result
in substantial cost and diversion of effort. Intellectual property protection may also be unavailable or limited
in some foreign countries, enabling our competitors to capture increased market position. The invalidation of
key intellectual property rights or an unsuccessful outcome in lawsuits filed to protect our intellectual property
could have a material adverse effect on our financial condition, results of operations, or prospects.
Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or
licensing expenses or be prevented from selling products.
During recent years, we and our competitors have been involved in substantial litigation regarding patent
and other intellectual property rights in the medical device industry. From time to time, we have been and
may in the future be forced to defend against claims and legal actions alleging infringement of the intellectual
property rights of others, and such intellectual property litigation is typically costly and time-consuming.
Adverse determinations in any such litigation could result in significant liabilities to third parties or
injunctions that bar the sale of our products, or could require us to seek licenses from third parties and, if
such licenses are not available on commercially reasonable terms, prevent us from manufacturing, selling, or
using certain products, any one of which could have a material adverse effect on us. In addition, some licenses
may be non-exclusive, which could provide our competitors access to the same technologies.
18
Third parties could also obtain patents that may require us to either redesign products or, if possible,
negotiate licenses from such third parties. Such licenses may materially increase our expenses. If we are unable
to redesign products or obtain a license, we might have to exit a particular product offering.
We and our customers are subject to rigorous governmental regulations and we may incur significant expenses to
comply with these regulations and develop products that are compatible with these regulations. In addition, failure to
comply with these regulations could subject us to substantial sanctions which could adversely affect our business, results
of operations, and financial condition.
The medical technologies we manufacture and market are subject to rigorous regulation by the FDA and
numerous other federal, state, and foreign governmental authorities, including regulations that cover the
composition, labeling, testing, clinical study, design, sourcing, manufacturing, packaging, marketing,
advertising, promotion, and distribution of our products.
We are required to register with the FDA as a device manufacturer. As a result, we are subject to
periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (‘‘QSR’’)
requirements, which require manufacturers of medical devices to adhere to certain regulations, including
testing, design, quality control, and documentation procedures. The FDA may also inspect our compliance
with requirements related to adverse event reporting, recalls or corrections (field actions), the conduct of
clinical studies, and other requirements. In the European Union, we are required to maintain certain CE
Mark and ISO certifications in order to sell our products, and are subject to periodic inspections by notified
bodies to obtain and maintain these certifications. If we or our suppliers fail to adhere to QSR, CE Mark,
ISO, or similar requirements, this could delay or interrupt product production or sales and/or lead to fines,
difficulties in obtaining regulatory clearances, recalls, or other consequences, which in turn could have a
material adverse effect on our financial condition and results of operations or prospects.
Medical devices must receive FDA clearance or approval before they can be commercially marketed in
the United States. In addition, the FDA may require testing and surveillance programs to monitor the effects
of approved products that have been commercialized, and can prevent or limit further marketing of a product
based upon the results of post-marketing programs. In addition, the federal Medical Device Reporting
regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests
that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur,
would be likely to cause or contribute to a death or serious injury. Federal regulations also require us to report
certain recalls or corrective actions to the FDA. Furthermore, most major markets for medical devices outside
the United States require clearance, approval, or compliance with certain standards before a product can be
commercially marketed. The process of obtaining regulatory clearances or approvals to market a medical
device, particularly from the FDA and certain foreign governmental authorities, can be costly and
time-consuming, and clearances or approvals may not be granted for products or product improvements on a
timely basis, if at all. Delays in receipt of, or failure to obtain, clearances or approvals for products or product
improvements could result in delayed realization of product revenues or in substantial additional costs, which
could have a material adverse effect on our business or results of operations or prospects. At any time after
approval of a product for commercial sale, the FDA may conduct periodic inspections to determine
compliance with QSR requirements, and/or current Medical Device Reporting regulations, or other regulatory
requirements. Noncompliance with applicable requirements may subject us or responsible individuals to
sanctions including civil money penalties, product seizure, injunction, or criminal prosecution. In addition, the
FDA may withhold or delay pre-market approval of our products until the noncompliance is resolved. Product
approvals by the FDA can also be withdrawn due to failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial approval.
Regulatory agencies in the United States or other international geographies from time to time limit or
ban the use of certain materials used in the manufacture of our products, require collection and disposal of
products at the end of their lifecycle, and require disclosure of the origin of certain raw materials in our
products. Noncompliance with applicable requirements could have a material adverse effect on our business.
19
The United States Physician Payment Sunshine Act, and similar laws in other jurisdictions, also impose
reporting and disclosure requirements on device, pharmaceutical, and biologics companies for certain financial
relationships with United States health care providers and teaching hospitals. Failure to submit required
information or submitting incorrect information may result in significant civil monetary penalties.
We are also subject to various United States and international laws pertaining to health care pricing,
anti-corruption, and fraud and abuse, including prohibitions on kickbacks and the submission of false claims
laws and restrictions on relationships with physicians and other referral sources. These laws are broad in scope
and are subject to evolving interpretation, which could require us to incur substantial costs to monitor
compliance or to alter our practices if we are found not to be in compliance. Violations of these laws may be
punishable by criminal or civil sanctions against us and our officers and employees, including substantial fines,
imprisonment, and exclusion from participation in governmental health care programs.
Despite our implementation of robust compliance processes, we may be subject, from time to time, to
inspections, investigations, and other enforcement actions by governmental authorities. If we are found not to
be in compliance with applicable laws or regulations, the applicable governmental authority can impose fines,
delay, suspend, or revoke regulatory clearances or approvals, institute proceedings to detain or seize our
products, issue a recall, impose marketing or operating restrictions, enjoin future violations and assess civil
penalties against us or our officers or employees, and institute criminal prosecution. Moreover, governmental
authorities can ban or request the recall, repair, replacement, or refund of the cost of any device or product
we manufacture or distribute. Any of the foregoing actions could result in decreased sales as a result of
negative publicity and product liability claims, and could have a material adverse effect on our financial
condition, results of operations, and prospects. In addition to the sanctions for noncompliance described
above, commencement of an enforcement proceeding, inspection, or investigation could divert substantial
management attention from the operation of our business and have an adverse effect on our business, results
of operations, and financial condition.
Our industry is experiencing greater scrutiny and regulation by governmental authorities, which may lead to greater
governmental regulation in the future.
In recent years, the medical device industry has been subject to increased regulatory scrutiny, including
by the FDA, numerous other federal, state, and foreign governmental authorities, as well as members of
Congress. This has included increased regulation, enforcement, inspections, and governmental investigations
of the medical device industry and disclosure of financial relationships with health care professionals. We
anticipate that the government will continue to scrutinize our industry closely, and that additional regulation
by governmental authorities, both foreign and domestic, may increase compliance costs, exposure to litigation,
and other adverse effects to our operations.
We are subject to risks arising from concerns and/or regulatory actions relating to ‘‘mad cow disease.’’
Certain of our products, including pericardial tissue valves, are manufactured using bovine tissue.
Concerns relating to the potential transmission of BSE, commonly known as ‘‘mad cow disease,’’ from cows
to humans may result in reduced acceptance of products containing bovine materials. Certain medical device
regulatory agencies have considered whether to continue to permit the sale of medical devices that incorporate
bovine material. We obtain bovine tissue only from closely controlled sources within the United States and
Australia. The bovine tissue used in our pericardial tissue valves is from tissue types considered by global
health and regulatory organizations to have shown no risk of infectibility for the suspected BSE infectious
agent. We have not experienced any significant adverse impact on our sales as a result of concerns regarding
BSE, but no assurance can be given that such an impact may not occur in the future.
20
Use of our products in unapproved circumstances could expose us to liabilities.
The marketing approval from the FDA and other regulators of certain of our products are, or are
expected to be, limited to specific indications. We are prohibited from marketing or promoting any
unapproved use of our products. Physicians, however, can use these products in ways or circumstances other
than those strictly within the scope of the regulatory approval. Although the product training we provide to
physicians and other health care professionals is limited to approved uses or for clinical trials, no assurance
can be given that claims might not be asserted against us if our products are used in ways or for procedures
that are not approved.
Our operations are subject to environmental, health, and safety regulations that could result in substantial costs.
Our operations are subject to environmental, health, and safety laws, and regulations concerning, among
other things, the generation, handling, transportation, and disposal of hazardous substances or wastes, the
cleanup of hazardous substance releases, and emissions or discharges into the air or water. We have incurred
and may incur expenditures in the future in connection with environmental, health and safety laws, and
regulations. New laws and regulations, violations of these laws or regulations, stricter enforcement of existing
requirements, or the discovery of previously unknown contamination could require us to incur costs or could
become the basis for new or increased liabilities that could be material.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The locations and uses of our major properties are as follows:
North America
Irvine, California . . . . . . . . . . . . . . . .
(1) Corporate Headquarters, Research and Development,
Regulatory and Clinical Affairs, Manufacturing,
Administration
Draper, Utah . . . . . . . . . . . . . . . . . . .
Haina, Dominican Republic . . . . . . . .
A˜nasco, Puerto Rico . . . . . . . . . . . . . .
(1) Administration, Manufacturing
(2) Manufacturing
(2) Manufacturing
Central America
Costa Rica . . . . . . . . . . . . . . . . . . . .
Europe
Horw, Switzerland . . . . . . . . . . . . . . .
Nyon, Switzerland . . . . . . . . . . . . . . .
Prague, Czech Republic . . . . . . . . . . .
Asia
Tokyo, Japan . . . . . . . . . . . . . . . . . . .
Shanghai, China . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . .
(1) Owned property.
(2) Leased property.
(2) Manufacturing
(2) Manufacturing, Administration
(1) Administration, Marketing
(2) Administration
(2) Administration, Marketing, Distribution
(2) Administration
(1),(2) Manufacturing, Marketing, Distribution, Administration
The Dominican Republic lease expires in 2022; the Puerto Rico property has one lease that expires in
2017 and one that expires in 2018; the Costa Rica lease expires in 2021; the Horw, Switzerland lease expires
21
in 2018; the Prague, Czech Republic lease expires in 2019; the Tokyo, Japan lease expires in 2018; the
Shanghai, China lease expires in 2018; and Singapore has one land lease that expires in 2036 and one that
expires in 2041. We believe our properties have been well maintained, are in good operating condition, and
are adequate for current needs.
Item 3. Legal Proceedings
For a description of our material pending legal proceedings, please see Note 17 to the ‘‘Consolidated
Financial Statements’’ of this Annual Report on Form 10-K, which is incorporated by reference.
Item 4. Mine Safety Disclosures
Not applicable.
22
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Market Price
The principal market for our common stock is the New York Stock Exchange (the ‘‘NYSE’’). The table
below sets forth, for the calendar quarters indicated, the high and low prices of our common stock, as
reported by the NYSE.
2016
2015
High
Low
High
Low
Calendar Quarter Ended:
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89.93
112.00
121.73
121.75
$72.20
86.73
98.02
81.12
$75.21
73.65
79.50
83.43
$61.99
61.38
62.53
70.32
Number of Stockholders
On January 31, 2017, there were 11,371 stockholders of record of our common stock.
Dividends
We have never paid any cash dividends on our capital stock and have no current plans to pay any cash
dividends. Our current policy is to retain any future earnings for use in our business.
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
(or Units)
Purchased(a)
Total Number of
Shares (or Units)
Purchased as
Average
Price Paid
Part of Publicly
per Share Announced Plans
(or Unit)
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
(in millions)(b)(c)
October 1, 2016 through October 31, 2016 . . . . .
November 1, 2016 through November 30, 2016 . .
December 1, 2016 through December 31, 2016 . .
44,109
411
2,700,000
$101.82
89.63
91.25
44,109
—
2,700,000
$ 277.5
1,277.5
1,031.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,744,520
91.42
2,744,109
(a) The difference between the total number of shares (or units) purchased and the total number of shares
(or units) purchased as part of publicly announced plans or programs is due to shares withheld by us to
satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to
employees.
(b) On July 10, 2014, the Board of Directors approved a stock repurchase program authorizing us to
purchase on the open market, including pursuant to a Rule 10b5-1 plan and in privately negotiated
transactions, up to $750.0 million of our common stock. On November 10, 2016, the Board of Directors
approved a new stock repurchase program providing for an additional $1.0 billion of repurchases of our
common stock.
23
(c)
In October 2016, our accelerated share repurchase (‘‘ASR’’) agreement concluded and we received an
additional 44 thousand shares of our common stock. Shares purchased pursuant to the ASR agreement
are presented in the table above in the periods in which they were received.
Performance Graph
The following graph compares the performance of our common stock with that of the S&P 500 Index
and the S&P 500 Healthcare Equipment Index. The cumulative total return listed below assumes an initial
investment of $100 at the market close on December 30, 2011 and reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
s
r
a
l
l
o
D
300
250
200
150
100
50
2011
2012
2013
2014
2015
2016
December 31
Edwards Lifesciences Corporation
S&P 500
S&P 500 Healthcare Equipment Index
2MAR201707015999
Total Cumulative Return
2012
2013
2014
2015
2016
Edwards Lifesciences . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 Healthcare Equipment Index . . . . . . . . . .
$127.54
116.00
117.42
$ 93.01
153.58
150.28
$180.17
174.60
181.96
$223.42
177.01
194.37
$265.06
198.18
207.46
24
Item 6. Selected Financial Data
OPERATING
RESULTS . . . . . . . Net sales
Gross profit
Net income(a)
COMMON STOCK
INFORMATION . . Net income per
As of or for the Years Ended December 31,
2016
2015
2014
2013
2012
(in millions, except per share data)
$2,963.7 $2,493.7 $2,322.9 $2,045.5
1,528.9
2,166.3
389.1
569.5
1,876.5
494.9
1,697.3
811.1
$1,899.6
1,408.6
291.5
common share(a):
Basic
Diluted
Cash dividends declared
per common share
$
2.67 $
2.61
2.30 $
2.25
3.81 $
3.74
1.74
1.71
$
—
—
—
—
1.27
1.23
—
BALANCE SHEET
DATA . . . . . . . . . . Total assets
Long-term debt(b)
$4,510.0 $4,056.3 $3,519.0 $2,704.8
588.0
596.9
594.1
822.3
$2,209.3
189.3
(a) The above results include special charges of $34.5 million during 2016 and $70.7 million during 2014.
In addition, the above results include $750.0 million ($487.9 million, net of tax) in 2014 for an upfront
payment received under a litigation settlement agreement. See Part II, Item 7, ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations’’ and Note 3 and Note 4 to the ‘‘Consolidated
Financial Statements’’ for additional information.
(b)
In October 2013, we issued $600.0 million of 2.875% fixed-rate unsecured senior notes due October 15,
2018 (‘‘the Notes’’).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents the factors that had a material effect on our results of
operations during the three years ended December 31, 2016. Also discussed is our financial position as of
December 31, 2016. You should read this discussion in conjunction with the historical consolidated financial
statements and related notes included elsewhere in this Form 10-K.
Overview
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 aggressively invest in research and development to transform care for structural heart disease
and critically ill patients. 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
main areas: Transcatheter Heart Valve Therapy (‘‘THVT’’), Surgical Heart Valve Therapy (‘‘SHVT’’), and
Critical Care.
25
Financial Highlights
s
n
o
i
l
l
i
m
n
i
$
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2014
2015
2016
Net Sales
Gross profit
Net Income
e
r
a
h
s
r
e
p
$
5
4
3
2
1
0
3.74
2.61
2.25
2014
2015
2016
Diluted Earnings per Share
2MAR201707020128
Our sales growth was led by our THVT products, which benefited from the launches of the Edwards
SAPIEN 3 transcatheter heart valve in the United States ( July 2015), Europe ( January 2014), and Japan
(March 2016). Our gross profit margin in 2016 was negatively impacted relative to 2015 by foreign currency
exchange rate fluctuations, partially offset by an improved product mix, led by THVT products. Our gross
profit margin in 2015 benefited from foreign exchange rate fluctuations and an improved product mix, led by
THVT products. Our net income in 2016 increased compared to 2015 primarily due to increased sales,
partially offset by an in-process research and development (‘‘IPR&D’’) charge for technology we acquired for
use in our transcatheter heart valve programs. Net income in 2014 benefited from the receipt of
$750.0 million ($487.9 million, net of tax) for an upfront payment due under a litigation settlement
agreement.
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. In 2016, we invested 15.0% of our net
sales in research and development. The following is a summary of important developments during 2016:
(cid:129) we received FDA approval for an expanded indication study of the Edwards SAPIEN 3 valve. The
investigational device exemption study will enroll elderly patients with severe, symptomatic aortic
stenosis who have been determined by a heart team to be at low risk for mortality if they were to
undergo surgical aortic valve replacement;
(cid:129) we received FDA approval to expand use of the Edwards SAPIEN XT transcatheter heart valve for
pulmonic valve replacement procedures. The approval enables the treatment of adult and pediatric
patients who suffer from either a narrowed pulmonary valve or moderate or greater pulmonary
regurgitation caused by congenital heart disease;
(cid:129) we received approval in Japan of the Edwards SAPIEN 3 valve for the treatment of patients suffering
from severe, symptomatic aortic stenosis;
(cid:129) we received FDA approval of our advanced EDWARDS INTUITY Elite Valve System, a rapid
deployment device for surgical aortic valve replacement, and CE Mark for our INSPIRIS RESILIA
26
aortic valve, the first in a new class of resilient heart valves, designed for potential future valve-in-valve
procedures;
(cid:129) we received FDA approval and CE Mark to expand use of the Edwards SAPIEN 3 valve for the
treatment of patients suffering from severe, symptomatic aortic stenosis who have been determined by
a heart team to be at intermediate risk for open-heart surgery;
(cid:129) we received CE Mark for our Acumen Hypotension Probability Indicator (‘‘HPI’’), a technology that
alerts clinicians to potential hypotension, or abnormally low blood pressure, in their surgical and
critical care patients before it occurs; and
(cid:129) we entered into an agreement to acquire Valtech, a privately held company based in Israel and
developer of the Cardioband System for transcatheter repair of the mitral and tricuspid valves. We
completed the acquisition on January 23, 2017.
We are dedicated to generating robust clinical, economic, and quality of life evidence increasingly
expected by patients, clinicians, and payors in the current healthcare environment, with the goal of
encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes.
Results of Operations
Net Sales by Major Regions
(dollars in millions)
Years Ended December 31,
Change
Percent
Change
2016
2015
2014
2016
2015
2016
2015
United States . . . . . . . . . . . . . . . . . . . . .
$1,615.7
$1,262.9
$1,047.3
$352.8
$215.6
27.9% 20.6%
Europe . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . .
749.0
309.3
289.7
717.3
246.2
267.3
744.5
257.9
273.2
31.7
63.1
22.4
(27.2)
4.4% (3.6)%
(11.7) 25.6% (4.6)%
8.4% (2.1)%
(5.9)
International . . . . . . . . . . . . . . . . . . . . . .
1,348.0
1,230.8
1,275.6
117.2
(44.8)
9.5% (3.5)%
Total net sales . . . . . . . . . . . . . . . . . . . . .
$2,963.7
$2,493.7
$2,322.9
$470.0
$170.8
18.8% 7.4%
International net sales 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. For more information see ‘‘Quantitative and
Qualitative Disclosures About Market Risk.’’
Net Sales by Product Group
(dollars in millions)
Year Ended December 31,
Change
Percent
Change
2016
2015
2014
2016
2015
2016
2015
Transcatheter Heart Valve Therapy . . . . . .
Surgical Heart Valve Therapy . . . . . . . . . .
Critical Care . . . . . . . . . . . . . . . . . . . . . .
$1,628.5
774.9
560.3
$1,180.3
785.0
528.4
$ 943.6
826.1
553.2
$448.2
(10.1)
31.9
$236.7
(41.1)
(24.8)
38.0% 25.1%
(1.3)% (5.0)%
6.0% (4.5)%
Total net sales . . . . . . . . . . . . . . . . . . . . .
$2,963.7
$2,493.7
$2,322.9
$470.0
$170.8
18.8% 7.4%
27
Transcatheter Heart Valve Therapy
For the years ended December 31, 2016, 2015, and 2014:
)
s
n
o
i
l
l
i
M
(
$
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,628.5
$639.0
$989.5
1,180.3
$545.5
$634.8
943.6
$514.0
$429.6
2014
2015
2016
United States
International
2MAR201705393363
2016 Compared with 2015
The increase in net sales of THVT products in the United States was due primarily to:
(cid:129) increased sales of the Edwards SAPIEN 3 valve, driven by its launch in July 2015;
partially offset by:
(cid:129) lower sales of the Edwards SAPIEN XT valve as customers converted to Edwards SAPIEN 3.
The increase in international net sales of THVT products was due primarily to increased sales of the
Edwards SAPIEN 3 valve, driven primarily by its launch in Europe in January 2014 and in Japan in March
2016.
2015 Compared with 2014
The increase in net sales of THVT products in the United States was due primarily to:
(cid:129) the Edwards SAPIEN 3 valve, driven by its launch in July 2015; and
(cid:129) the Edwards SAPIEN XT valve, driven by its launch in June 2014;
partially offset by:
(cid:129) lower sales of the Edwards SAPIEN valve as customers converted to Edwards SAPIEN XT.
The increase in international net sales of THVT products was due primarily to:
(cid:129) the Edwards SAPIEN 3 valve, driven primarily by its launch in Europe in January 2014; and
(cid:129) the Edwards SAPIEN XT valve in Japan, driven by its launch in October 2013;
partially offset by:
(cid:129) lower sales of the Edwards SAPIEN XT valve in Europe, as customers converted to Edwards
SAPIEN 3; and
(cid:129) foreign currency exchange rate fluctuations, which decreased net sales by $71.2 million, due primarily
to the weakening of the Euro against the United States dollar.
28
In March 2016, we received approval from the the FDA to expand use of the Edwards SAPIEN XT
transcatheter heart valve for pulmonic valve replacement procedures. The approval enables the treatment of
adult and pediatric patients who suffer from either a narrowed pulmonary valve, or moderate or greater
pulmonary regurgitation caused by congenital heart disease. Also in March 2016, we received approval for
SAPIEN 3 in Japan for the treatment of patients suffering from severe, symptomatic aortic stenosis. In
August 2016, we received approval from the FDA, and in September 2016, we received CE Mark in Europe,
to expand use of the Edwards SAPIEN 3 transcatheter heart valve for the treatment of patients suffering from
severe, symptomatic aortic stenosis who have been determined to be at intermediate risk for open-heart
surgery. In January 2017, we received FDA approval for EARLY-TAVR, our trial that will study patients
diagnosed with severe aortic stenosis who have not yet developed symptoms. Patients will be randomized to
receive either transfemoral SAPIEN 3 or clinical surveillance.
Surgical Heart Valve Therapy
For the years ended December 31, 2016, 2015, and 2014:
)
s
n
o
i
l
l
i
M
(
$
1,000
800
600
400
200
0
826.1
$436.3
785.0
$392.6
774.9
$395.7
$389.8
$392.4
$379.2
2014
2015
2016
United States
International
2MAR201705393240
2016 Compared with 2015
The decrease in net sales of SHVT products was due primarily to:
(cid:129) lower sales of aortic tissue valves in the United States, as sales of Edwards SAPIEN 3 increased; and
(cid:129) lower international sales of mitral tissue valves, primarily in Europe and Rest of World, primarily due
to supply constraints;
partially offset by:
(cid:129) higher sales of aortic tissue valves in Europe, Japan, and Rest of World; and
(cid:129) foreign currency exchange rate fluctuations, which increased net sales by $2.2 million, due primarily to
the strengthening of the Japanese yen against the United States dollar, partially offset by the
weakening of various currencies against the United States dollar.
2015 Compared with 2014
The decrease in net sales of SHVT products was due primarily to:
(cid:129) foreign currency exchange rate fluctuations, which decreased net sales by $59.7 million, due primarily
to the weakening of the Euro and the Japanese yen against the United States dollar;
29
partially offset by:
(cid:129) higher sales of (1) surgical heart valve products, driven by pericardial aortic tissue valves, primarily in
Europe, Japan, and the United States, and (2) EDWARDS INTUITY Elite valves, primarily in Europe.
In August 2016, the FDA approved our advanced EDWARDS INTUITY Elite Valve System, a rapid
deployment device for surgical aortic valve replacement. In September 2016, we received CE Mark for our
INSPIRIS RESILIA aortic valve, the first in a new class of resilient heart valves designed for potential future
valve-in-valve procedures.
Critical Care
For the years ended December 31, 2016, 2015, and 2014:
)
s
n
o
i
l
l
i
M
(
$
600
500
400
300
200
100
0
553.2
$325.3
528.4
$292.7
560.3
$313.3
$227.9
$235.7
$247.0
2014
2015
2016
United States
International
2MAR201705392613
2016 Compared with 2015
The increase in net sales of Critical Care products was due primarily to:
(cid:129) higher sales of enhanced surgical recovery products in the United States, Europe, and Rest of World;
(cid:129) higher sales of core hemodynamic products, primarily in Rest of World;
(cid:129) higher sales of hardware in the United States; and
(cid:129) foreign currency exchange rate fluctuations, which increased net sales by $5.0 million due primarily to
the strengthening of the Japanese yen against the United States dollar, partially offset by the
weakening of various currencies against the United States dollar.
2015 Compared with 2014
The decrease in net sales of Critical Care products was due primarily to:
(cid:129) foreign currency exchange rate fluctuations, which decreased net sales by $41.3 million due primarily
to the weakening of the Euro and the Japanese yen against the United States dollar;
partially offset by:
(cid:129) higher sales of enhanced surgical recovery products in the United States, Europe, and Rest of World.
In October 2016, we received CE Mark for our HPI, a technology that alerts clinicians to potential
hypotension, or abnormally low blood pressure, in their surgical and critical care patients. HPI is enabled by
the minimally invasive FloTrac IQ sensor, which also received CE Mark.
30
Gross Profit
For the years ended December 31, 2016, 2015, and 2014:
s
n
o
i
l
l
i
m
n
i
$
2,500
2,000
1,500
1,000
500
0
$1,876.5
$2,166.3
$1,697.3
73.1%
75.2%
73.1%
100
95
90
85
80
75
70
e
g
a
t
n
e
c
r
e
P
2014
2015
2016
Gross profit
Percent of net sales
2MAR201707145745
The decrease in gross profit as a percentage of net sales in 2016 was driven by:
(cid:129) a 4.3 percentage point decrease due to the impact of foreign currency exchange rate fluctuations,
including the settlement of foreign currency hedging contracts; and
(cid:129) investments in manufacturing capacity;
partially offset by:
(cid:129) a 1.6 percentage point increase in the United States, and a 0.5 percentage point increase in
international markets, due to an improved product mix, driven by THVT products.
The increase in gross profit as a percentage of net sales in 2015 was driven by:
(cid:129) a 1.9 percentage point increase due to the impact of foreign currency exchange rate fluctuations,
including the settlement of foreign currency hedging contracts; and
(cid:129) a 0.9 percentage point increase in the United States, and a 0.4 percentage point increase in
international markets, due to an improved product mix, driven by THVT products;
partially offset by:
(cid:129) multiple investments in our operations, including an increase in costs to improve our manufacturing
processes.
31
Selling, General, and Administrative (‘‘SG&A’’) Expenses
For the years ended December 31, 2016, 2015, and 2014:
s
n
o
i
l
l
i
m
n
i
$
1,200
1,000
800
600
400
200
0
$858.0
$850.7
$904.7
36.9%
34.1%
30.5%
100
80
60
40
20
e
g
a
t
n
e
c
r
e
P
2014
2015
2016
SG&A
Percent of net sales
2MAR201707145999
The increase in SG&A expenses in 2016 resulted primarily from (1) higher sales and marketing expenses
in the United States and Europe, mainly to support our THVT program, and (2) higher personnel-related
costs. These increases were partially offset by the suspension of the medical device excise tax in the United
States, which was suspended for calendar years 2016 and 2017. The decrease in SG&A expenses as a
percentage of net sales in 2016 was due primarily to higher sales in the United States and Japan.
The decrease in SG&A expenses in 2015 resulted primarily from foreign currency, which reduced
expenses by $61.1 million due primarily to the weakening of the Euro and the Japanese yen against the
United States dollar. This decrease was partially offset by (1) higher sales and marketing expenses in Europe,
the United States, and Japan, mainly to support our THVT program and (2) higher personnel-related costs.
The decrease in SG&A expenses as a percentage of net sales in 2015 was due primarily to higher sales in the
United States, Europe, and Japan.
Research and Development (‘‘R&D’’) Expenses
For the years ended December 31, 2016, 2015, and 2014:
$346.5
$383.1
$443.3
14.9%
15.4%
15.0%
s
n
o
i
l
l
i
m
n
i
$
500
400
300
200
100
0
100
80
60
40
20
0
e
g
a
t
n
e
c
r
e
P
2014
2015
2016
R&D
Percent of net sales
2MAR201707145875
32
The increase in R&D expenses in 2016 was due primarily to mitral and aortic THVT product
development efforts. The suspension of the United States medical device excise tax during 2016 provided
additional flexibility to accelerate investments in structural heart initiatives.
The increase in R&D expenses in 2015 was due primarily to new THVT and SHVT product
development efforts. These costs were partially offset by lower spending for THVT clinical trials.
Intellectual Property Litigation Expenses (Income), Net
In May 2014, we entered into an agreement with Medtronic, Inc. (‘‘Medtronic’’) to settle all outstanding
patent litigation between the companies, and, pursuant to the agreement, we received an upfront payment
from Medtronic in the amount of $750.0 million.
We incurred external legal costs related to intellectual property litigation of $32.6 million, $7.0 million,
and $9.6 million for the years ended December 31, 2016, 2015, and 2014, respectively. The increase in
intellectual property litigation expenses in 2016 was due primarily to the first quarter resolution of an
intellectual property litigation matter, and increased costs associated with ongoing litigation in the United
States and Europe.
Special Charges
For information on special charges, see Note 4 to the ‘‘Consolidated Financial Statements.’’
Interest Expense
Interest expense was $19.2 million, $17.2 million, and $17.2 million in 2016, 2015, and 2014,
respectively. The increase in interest expense for 2016 as compared to 2015 resulted primarily from higher
average interest rates. Interest expense for 2015 remained flat compared to 2014 as the impact of higher
average interest rates was offset by a lower average debt balance compared to 2014.
Interest Income
Interest income was $10.8 million, $7.9 million, and $6.4 million in 2016, 2015, and 2014, respectively.
The increase in interest income for 2016 resulted primarily from higher average interest rates. The increase in
interest income for 2015 resulted primarily from higher average investment balances and higher average
interest rates.
Other Expense, net
(in millions)
Charitable foundation contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease contract termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31,
2015
2016
2014
$ 5.0
0.5
(0.2)
—
—
—
(0.4)
$ — $ —
2.0
4.8
4.5
(0.1)
—
4.0
— (3.7)
1.0
—
(0.1)
(0.7)
Total other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4.9
$ 4.0
$ 7.7
In March 2016, we contributed $5.0 million to the Edwards Lifesciences Foundation, a related-party
not-for-profit organization intended to provide philanthropic support to health- and community-focused
33
charitable organizations. The contribution was irrevocable and was recorded as an expense at the time of
payment.
The foreign exchange losses relate to the foreign currency fluctuations primarily in our intercompany
receivable and payable balances, partially offset by the gains and losses on derivative instruments intended to
hedge those exposures.
The (gain) loss on investments represents our net share of gains and losses in investments accounted for
under the equity method, and realized gains and losses on our available-for-sale and cost method investments.
During 2014, we recorded an other-than-temporary impairment charge of $3.5 million related to one of our
cost method investments.
In December 2014, we recorded a $4.0 million impairment charge related to a promissory note
receivable because it was likely that we would be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the promissory note agreement.
In March 2014, we recorded a $3.7 million insurance settlement gain related to inventory that was
damaged in the fourth quarter of 2013.
In September 2014, we committed to purchase our Draper, Utah facility under a purchase option
provided in the lease agreement. Under the terms of the lease agreement, we accrued $1.0 million for certain
lease contract termination costs.
Provision for Income Taxes
Our effective income tax rates for 2016, 2015, and 2014 were impacted as follows (in millions):
Income tax expense at U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . .
Foreign income taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of federal tax benefit
. . . . . . . . . . . . . . . . . . . . . . .
Tax credits, federal and state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Build (release) of reserve for uncertain tax positions for prior years . . . . . . . . . .
U.S. tax on foreign earnings, net of credits . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2016
2015
2014
$258.3
(88.6)
9.7
(21.3)
4.6
5.1
3.6
(3.0)
$ 217.8
(105.8)
3.1
(15.7)
3.3
20.5
2.3
2.0
$400.4
(67.1)
19.3
(13.5)
(4.8)
(3.1)
2.1
(0.4)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168.4
$ 127.5
$332.9
Uncertain Tax Positions
As of December 31, 2016 and 2015, the gross uncertain tax positions were $245.5 million and
$216.1 million, respectively. We estimate that these liabilities would be reduced by $44.9 million and
$40.6 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 $200.6 million
and $175.5 million, respectively, if not required, would favorably affect our effective tax rate.
34
A reconciliation of the beginning and ending amount of uncertain tax positions, excluding interest,
penalties, and foreign exchange, is as follows (in millions):
Years Ended December 31,
2016
2015
2014
Uncertain gross tax positions, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease prior year tax positions
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$216.1
29.0
2.7
(0.9)
(0.3)
(1.1)
$192.3
29.6
2.2
(7.4)
(0.4)
(0.2)
$127.7
75.9
0.6
(10.5)
(1.0)
(0.4)
Uncertain gross tax positions, December 31 . . . . . . . . . . . . . . . . . . . . . . . .
$245.5
$216.1
$192.3
We recognize interest and penalties, if any, related to uncertain tax positions in the provision for income
taxes. As of December 31, 2016, we had accrued $14.7 million (net of $10.8 million tax benefit) of interest
related to uncertain tax positions, and as of December 31, 2015, we had accrued $10.7 million (net of
$7.6 million tax benefit) of interest related to uncertain tax positions. During 2016, 2015, and 2014, we
recognized interest expense, net of tax benefit, of $4.0 million, $3.9 million, and $2.3 million, respectively, in
‘‘Provision for Income Taxes’’ on the consolidated statements of operations.
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 final outcome with a tax authority may result in a tax liability that is more
or less than that reflected in the consolidated 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. Management
believes that adequate amounts of tax and related penalty and interest have been provided in income tax
expense for any adjustments that may result from our uncertain tax positions.
At December 31, 2016, all material state, local, and foreign income tax matters have been concluded for
years through 2008. The Internal Revenue Service (‘‘IRS’’) has substantially completed its fieldwork for the
2009 through 2012 tax years. However, the audits are currently in suspense pending a final determination
with respect to a pending application for an Advance Pricing Agreement (‘‘APA’’). The IRS began its
examination of the 2014 tax year during the fourth quarter of 2016.
We have been pursuing an APA between the Switzerland and United States governments for the years
2009 through 2013 covering transfer pricing matters with the possibility of a roll-forward of the results to
subsequent years. These discussions remain ongoing as of December 31, 2016. These transfer pricing matters
are significant to our consolidated financial statements as the disputed amounts are material, and the final
outcome is uncertain. We continue to believe our positions are supportable.
Additionally, during the fourth quarter of 2016, we received notification of preliminary agreement on
methodology between the respective Competent Authorities for the requested APAs for 2015-2019 between
the United States and Japan, Switzerland and Japan, and Singapore and Japan. These are expected to be
formalized and executed during 2017.
During 2014, we filed with the IRS a request for a pre-filing agreement associated with a tax return
filing position on a portion of the litigation settlement payment received from Medtronic in May 2014.
During the first quarter of 2015, the IRS accepted the pre-filing agreement into the pre-filing agreement
program. The closing agreement for this matter was finalized during the fourth quarter of 2016. There
remains a disputed issue and we expect to enter the Fast-Track Appeals process during 2017. We made an
35
advance payment of tax in December 2015 solely to prevent the further accrual of interest on any potential
deficiency, not to signify any potential agreement to a contrary position that may be taken by the IRS.
Management believes that adequate amounts of tax and related penalty and interest have been provided
in income tax expense for any adjustments that may result from our uncertain tax positions. Based upon 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 thus have recorded the
gross uncertain tax positions as a long-term liability. However, if the APA and/or the appeals process related
to the pre-filing agreement is finalized in the next 12 months, it is reasonably possible that these events could
result in a significant change in our uncertain tax positions within the next 12 months.
The effective income tax rate for the year ended December 31, 2016 was higher than the rate for the
year ended December 31, 2015 primarily because of fluctuations in the relative contribution of our foreign
operations and United States operations to worldwide pre-tax income, offset by an increase in benefits from
the federal and California research credits.
We have received tax incentives in certain non-U.S. tax jurisdictions, the primary benefit of which will
expire in 2024. The tax reductions as compared to the local statutory rates were $77.4 million ($0.32 per
diluted share), $59.1 million ($0.25 per diluted share), and $68.3 million ($0.31 per diluted share) for the
years ended December 31, 2016, 2015, and 2014, respectively.
Our DR branch receives tax incentives, including an exemption from paying DR income taxes, under a
Free Trade Zone law. Effective November 9, 2012, DR enacted a law which, among other tax provisions,
would apply a 10% withholding tax on dividends or branch remittances from a Free Trade Zone company to
its shareholder(s). The DR withholding tax provision was, however, contingent upon certain future events. On
October 5, 2016, the DR Ministry of Finance published a notification confirming that the 10% withholding
tax on branch remittances would be due and payable by DR Free Trade Zone companies for dividends and
remittances paid on or after October 5, 2016. As a result, we expect this action will increase our effective tax
rate in 2017; however, the amount is not expected to have a material impact on our results of operations.
Liquidity and Capital Resources
Our sources of cash liquidity include cash and cash equivalents, short-term investments, amounts
available under credit facilities, and cash from operations. We believe that these sources are sufficient to fund
the current requirements of working capital, capital expenditures, and other financial commitments for the
next twelve months. 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 December 31, 2016, cash and cash equivalents and short-term investments held in the United
States and outside the United States were $214.1 million and $1,057.0 million, respectively. We believe that
cash held in the United States, in addition to amounts available under credit facilities and cash from
operations, are sufficient to fund our United States operating requirements for the next twelve months. Cash
and cash equivalents and short-term investments held outside the United States, the majority of which relates
to undistributed earnings of our foreign subsidiaries, which are considered by us to be indefinitely reinvested,
have historically been used to fund international operations and acquire businesses and assets outside of the
United States. We consider making short-term loans of cash held outside the United States to the United
States from time to time based on facts and circumstances. The permanent repatriations of cash and cash
equivalents and short-term investments held outside the United States are subject to restrictions in certain
jurisdictions, and may be subject to withholding and other taxes. The potential tax liability related to any
repatriation would be dependent on the facts and circumstances that exist at the time such repatriation is
made and the complexities of the tax laws of the United States and the respective foreign jurisdictions.
On November 26, 2016, we entered into an agreement and plan of merger to acquire Valtech for
approximately $340.0 million, subject to certain adjustments, in stock and cash to be paid at closing, with the
36
potential for up to $350.0 million in additional pre-specified milestone-driven payments over the next
10 years. Our acquisition of Valtech closed on January 23, 2017, and we issued an aggregate of approximately
2.8 million shares of our common stock, and paid approximately $84.3 million in cash to holders of Valtech
securities. Prior to the close of the transaction, Valtech spun off its early-stage transseptal mitral valve
replacement technology program. We have an option to acquire that program and its associated intellectual
property for approximately $200.0 million, subject to certain adjustments. For further information, see Note 7
to the ‘‘Consolidated Financial Statements.’’
In December 2015, we purchased an exclusive option to acquire Harpoon Medical, Inc. (‘‘Harpoon
Medical’’) for up to $250.0 million, depending upon the achievement of certain milestones and regulatory
approvals. In December 2014, we purchased an exclusive option to acquire CardioKinetix, Inc.
(‘‘CardioKinetix’’) for up to $375.0 million, depending upon the achievement of certain milestones and
regulatory approvals. For further information, see Note 6 to the ‘‘Consolidated Financial Statements.’’
On July 3, 2015, we entered into an agreement and plan of merger to acquire CardiAQ for an aggregate
cash purchase price of $350.0 million, subject to certain adjustments, plus an additional $50.0 million if a
certain European regulatory approval is obtained within 48 months of the acquisition closing date. We closed
the purchase in August 2015 with available cash on hand in the United States. For further information, see
Note 7 to the ‘‘Consolidated Financial Statements.’’
We have a Five-Year Credit Agreement (‘‘Credit Agreement’’) which provides up to an aggregate of
$750.0 million in borrowings in multiple currencies. We may increase the amount available under the Credit
Agreement, subject to agreement of the lenders, by up to an additional $250.0 million in the aggregate. As of
December 31, 2016, borrowings of $225.0 million were outstanding under the Credit Agreement, and have
been classified as long-term obligations in accordance with the terms of the Credit Agreement. In October
2013, we issued $600.0 million of 2.875% fixed-rate unsecured senior notes due October 15, 2018. As of
December 31, 2016, the total carrying value of our long-term debt was $822.3 million. For further
information on our long-term debt, see Note 9 to the ‘‘Consolidated Financial Statements.’’
We periodically 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 2016, under the Board authorized repurchase programs, we repurchased a total of
7.2 million shares at an aggregate cost of $646.5 million, including amounts purchased under accelerated
share repurchase agreements, and as of December 31, 2016, we had remaining authority to purchase
$1,031.0 million of our common stock. For further information, see Note 13 to the ‘‘Consolidated Financial
Statements.’’
Consolidated Cash Flows—For the twelve months ended December 31, 2016, 2015, and 2014
Operating Cash Flows
Investing Cash Flows
Financing Cash Flows
)
s
n
o
i
l
l
i
M
(
$
1,200
900
600
300
0
)
s
n
o
i
l
l
i
M
(
$
0
-200
-400
-600
-800
)
s
n
o
i
l
l
i
M
(
$
0
-100
-200
-300
-400
2014 2015 2016
2014 2015 2016
2014 2015 2016
2MAR201705392355
37
Net cash flows provided by operating activities of $704.4 million for 2016 increased $154.7 million
from 2015 due primarily to (1) improved operating performance and (2) lower supplier payments in 2016
compared to 2015, partially offset by (1) the impact of excess tax benefits from stock plans, primarily due to
our increased stock price, and (2) an increase in accounts receivable due to increased sales, primarily in the
United States.
Net cash flows provided by operating activities of $549.7 million for 2015 decreased $472.6 million from
2014 due primarily to (1) the $750.0 million upfront payment received from Medtronic under a litigation
settlement agreement, and (2) a higher bonus payout in 2015 associated with 2014 performance. These
decreases were partially offset by (1) income tax payments of $224.5 million made in 2014 related to the
Medtronic settlement, (2) improved operating performance in 2015, and (3) the $50.0 million charitable
contribution made in 2014 to the Edwards Lifesciences Foundation.
Net cash used in investing activities of $211.7 million in 2016 consisted primarily of capital
expenditures of $176.1 million and $41.3 million for the acquisition of intangible assets.
Net cash used in investing activities of $316.1 million in 2015 consisted primarily of a $320.1 million
net payment associated with the acquisition of CardiAQ, and capital expenditures of $102.7 million, partially
offset by net proceeds from investments of $119.6 million.
Net cash used in investing activities of $633.0 million in 2014 consisted primarily of net purchases of
investments of $527.4 million and capital expenditures of $82.9 million.
Net cash used in financing activities of $268.5 million in 2016 consisted primarily of purchases of
treasury stock of $662.3 million, partially offset by (1) net proceeds from the issuance of debt of
$222.1 million, (2) proceeds from stock plans of $103.3 million, and (3) the excess tax benefit from stock
plans of $64.3 million.
Net cash used in financing activities of $158.6 million in 2015 consisted primarily of purchases of
treasury stock of $280.1 million, partially offset by (1) proceeds from stock plans of $87.2 million, and (2) the
excess tax benefit from stock plans of $41.3 million.
Net cash used in financing activities of $153.0 million in 2014 consisted primarily of purchases of
treasury stock of $300.9 million, partially offset by (1) proceeds from stock plans of $113.3 million, and
(2) the excess tax benefit from stock plans of $49.4 million (including the realization of previously unrealized
excess tax benefits).
A summary of all of our contractual obligations and commercial commitments as of December 31, 2016
were as follows (in millions):
Contractual Obligations
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension obligations(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital commitment obligations(b) . . . . . . . . . . . . . . . . . . .
Purchase and other commitments . . . . . . . . . . . . . . . . . . . .
Payments Due by Period
Less Than
1 Year
1-3
Years
4-5
Years
After 5
Years
$ — $ —
$ — $825.0
16.6
24.9
22.3
8.8
—
14.4 —
16.4
—
— —
6.1
—
0.3 —
0.3
—
2.7 —
13.7
Total
$825.0
72.6
30.8
6.1
0.6
16.4
Total contractual cash obligations(c),(d) . . . . . . . . . . . . . . . .
$951.5
$58.8
$867.3
$8.8
$16.6
(a) The amount included in ‘‘Less Than 1 Year’’ reflects anticipated contributions to our various pension
plans. Anticipated contributions beyond one year are not determinable. The total accrued benefit liability
for our pension plans recognized as of December 31, 2016 was $50.1 million. This amount is impacted
38
by, among other items, pension expense funding levels, changes in plan demographics and assumptions,
and investment returns on plan assets. Therefore, we are unable to make a reasonably reliable estimate of
the amount and period in which the liability might be paid, and did not include this amount in the
contractual obligations table. See Note 12 to the ‘‘Consolidated Financial Statements’’ for further
information.
(b) Capital commitment obligations consist primarily of cash that we are obligated to pay to our limited
partnership and limited liability corporation investees. These investees make equity investments in
various development stage biopharmaceutical and medical device companies, and it is not certain if
and/or when these payments will be made.
(c) As of December 31, 2016, the gross liability for uncertain tax positions, including interest, was
$271.0 million. We have been pursuing an APA between the Switzerland and United States
governments for the years 2009 through 2013 covering transfer pricing matters with the possibility of a
roll-forward of the results to subsequent years. These transfer pricing matters are significant to our
consolidated financial statements, and the final outcome of the negotiations is uncertain. Management
believes that adequate amounts of tax and related penalty and interest have been provided in income tax
expense for any adjustments that may result for our uncertain tax positions. We are unable to make a
reasonably reliable estimate of the amount and period in which the liability might be paid, and did not
include this amount in the contractual obligations table.
(d) We acquire assets still in development, enter into research and development arrangements, acquire
businesses, and sponsor certain clinical trials that often require milestone, royalty, or other future
payments to third-parties, contingent upon the occurrence of certain future events. In situations where
we have no ability to influence the achievement of the milestone or otherwise avoid the payment, we
have included those payments in the table above. However, we have excluded from the table contingent
milestone payments and other contingent liabilities for which we cannot reasonably predict future
payments or for which we can avoid making payment by unilaterally deciding to stop development of a
product or cease progress of a clinical trial. We estimate that these contingent payments could be up to
approximately $510.0 million if all milestones or other contingent obligations were met. Included in this
amount is $350.0 million of contingent obligations related to our acquisition of Valtech, which may be
paid through a combination of cash and issuance of common stock. In addition, the Valtech acquisition
closed in January 2017, and the consideration paid included the issuance of approximately 2.8 million
shares of our common stock (fair value of $266.5 million) and cash of $84.3 million, which has not been
included in the above table.
Critical Accounting Policies and Estimates
Our results of operations and financial position are determined based upon the application of our
accounting policies, as discussed in the notes to the ‘‘Consolidated Financial Statements.’’ Certain of our
accounting policies represent a selection among acceptable alternatives under Generally Accepted Accounting
Principles in the United States (‘‘GAAP’’). In evaluating our transactions, management assesses all relevant
GAAP and chooses the accounting policy that most accurately reflects the nature of the transactions.
The application of accounting policies requires the use of judgment and estimates. These matters that are
subject to judgments and estimation are inherently uncertain, and different amounts could be reported using
different assumptions and estimates. Management uses its best estimates and judgments in determining the
appropriate amount to reflect in the consolidated financial statements, using historical experience and all
available information. We also use outside experts where appropriate. We apply estimation methodologies
consistently from year to year.
We believe the following are the critical accounting policies which could have the most significant effect
on our reported results and require subjective or complex judgments by management.
39
Revenue Recognition
When we recognize revenue from the sale of our products, we record an estimate of various sales returns
and allowances which reduces product sales and accounts receivable. These adjustments include estimates for
rebates, returns, and other sales allowances. These provisions are estimated based upon historical payment
experience, historical relationship to revenues, estimated customer inventory levels, and current contract sales
terms with direct and indirect customers. Product returns are not significant because returns are generally not
allowed unless the product is damaged at time of receipt. If the historical data and inventory estimates used
to calculate these provisions do not approximate future activity, our financial position, results of operations,
and cash flows could be impacted.
In addition, we may allow customers to return previously purchased products for next-generation product
offerings. For these transactions, we defer recognition of revenue on the sale of the earlier generation product
based upon an estimate of the amount to be returned when the next-generation products are shipped to the
customer. Uncertain timing of next-generation product approvals, variability in product launch strategies,
product recalls, and variation in product utilization all affect the estimates related to sales returns and could
cause actual returns to differ from these estimates.
Our sales adjustment related to distributor rebates given to our United States distributors represents the
difference between our sales price to the distributor (at our distributor ‘‘list price’’) and the negotiated price to
be paid by the end-customer. We validate the distributor rebate accrual quarterly through either a review of
the inventory reports obtained from our distributors or an estimate of the distributor’s inventory. This
distributor inventory information is used to verify the estimated liability for future distributor rebate claims
based on historical rebates and contract rates. We periodically monitor current pricing trends and distributor
inventory levels to ensure the credit for future distributor rebates is fairly stated.
Excess and Obsolete Inventory
The valuation of our inventory requires us to estimate excess, obsolete, and expired inventory. We base
our provisions for excess, obsolete, and expired inventory on our estimates of forecasted net sales. A
significant change in the timing or level of demand for our products as compared to forecasted amounts may
result in recording additional allowances for excess, obsolete, and expired inventory in the future. In addition,
our industry is characterized by rapid product development and frequent new product introductions.
Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls,
increasing levels of consigned inventory, and variation in product utilization all affect our estimates related to
excess, obsolete, and expired inventory.
Intangible Assets and Long-lived Assets
We acquire intangible assets in connection with business combinations and asset purchases. The acquired
intangible assets are recorded at fair value, which is determined based on a discounted cash flow analysis. The
determination of fair value requires significant estimates, including, but not limited to, the amount and timing
of projected future cash flows, the discount rate used to discount those cash flows, the assessment of the
asset’s life cycle, including the timing and expected costs to complete in-process projects, and the
consideration of legal, technical, regulatory, economic, and competitive risks.
IPR&D acquired in business combinations is reviewed for impairment annually, or whenever an event
occurs or circumstances change that would indicate the carrying amount may be impaired. Additionally,
management reviews the carrying amounts of other intangible and long-lived assets whenever events or
circumstances indicate that the carrying amounts of an asset may not be recoverable. The impairment reviews
require significant estimates about fair value, including estimation of future cash flows, selection of an
appropriate discount rate, and estimates of long-term growth rates.
40
Contingent Consideration
We record contingent consideration resulting from a business combination at its fair value on the
acquisition date. We determine the fair value of the contingent consideration based primarily on the following
factors:
(cid:129) timing and probability of success of clinical events or regulatory approvals;
(cid:129) timing and probability of success of meeting commercial milestones; and
(cid:129) discount rates.
On a quarterly basis, we revalue these obligations and record changes in their fair value as an adjustment
to earnings. Changes to contingent consideration obligations can result from adjustments to discount rates,
accretion of the discount rates due to the passage of time, changes in our estimates of the likelihood or
timing of achieving development or commercial milestones, changes in the probability of certain clinical
events, or changes in the assumed probability associated with regulatory approval.
The assumptions related to determining the value of contingent consideration include a significant
amount of judgment, and any changes in the underlying estimates could have a material impact on the
amount of contingent consideration expense recorded in any given period.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates,
and the interpretation and application of complex tax laws. Realization of certain deferred tax assets, primarily
net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the
appropriate jurisdiction prior to the expiration of the carryforward periods. Failure to achieve forecasted
taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets
and could result in an increase in our effective tax rate on future earnings.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our income tax
returns are periodically audited by domestic and foreign tax authorities. These audits include questions
regarding our tax filing positions, including the timing and amount of deductions and the allocation of
income amongst various tax jurisdictions. We evaluate our tax positions and establish liabilities in accordance
with the applicable accounting guidance on uncertainty in income taxes. Significant judgment is required in
evaluating our uncertain tax positions, including estimating the ultimate resolution to intercompany pricing
controversies between countries when there are numerous possible outcomes. We review these tax
uncertainties quarterly and adjust the liability as events occur that affect potential liabilities for additional
taxes, such as the progress of tax audits, lapsing of applicable statutes of limitations, negotiations between tax
authorities, identification of new issues, and issuance of new legislation, regulations, or case law.
For additional details on our income taxes, see Note 2 and Note 16 to the ‘‘Consolidated Financial
Statements.’’
Stock-based Compensation
We measure and recognize compensation expense for all stock-based awards based on estimated fair
values. Stock-based awards consist of stock options, service-based restricted stock units, market-based
restricted stock units, performance-based restricted stock units, and employee stock purchase subscriptions.
The fair value of each option award and employee stock purchase subscription is estimated on the date of
grant using the Black-Scholes option valuation model. The fair value of market-based restricted stock units is
determined using a Monte Carlo simulation model, which uses multiple input variables to determine the
probability of satisfying the market condition requirements. The Black-Scholes and Monte Carlo models
require various highly judgmental assumptions, including stock price volatility, risk-free interest rate, and
expected option term. For performance-based restricted stock units, expense is recognized if and when we
41
conclude that it is probable that the performance condition will be achieved, which requires judgment. Stock-
based compensation expense is recorded net of estimated forfeitures. Judgment is required in estimating the
stock awards that will ultimately be forfeited. If actual results differ significantly from these estimates, stock-
based compensation expense and our results of operations would be impacted.
New Accounting Standards
Information regarding new accounting standards is included in Note 2 to the ‘‘Consolidated Financial
Statements.’’
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our business and financial results are affected by fluctuations in world financial markets, including
changes in currency exchange rates and interest rates. We manage these risks through a combination of
normal operating and financing activities and derivative financial instruments. We do not use derivative
financial instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio
and our long-term debt. Our investment strategy is focused on preserving capital and supporting our liquidity
requirements, while earning a reasonable market return. We invest in a variety of fixed-rate debt securities,
primarily time deposits, commercial paper, U.S. government and agency securities, asset-backed securities,
corporate debt securities, and municipal debt securities. The market value of our investments may decline if
current market interest rates rise. As of December 31, 2016, we had $839.2 million of investments in
fixed-rate debt securities which had an average remaining term to maturity of approximately 1.1 years. Taking
into consideration the average maturity of our fixed-rate debt securities, a hypothetical 0.5% to 1.0% absolute
increase in interest rates at December 31, 2016 would have resulted in a $4.8 million to $9.5 million decrease
in the fair value of these investments. Such a decrease would only result in a realized loss if we choose or are
forced to sell the investments before the scheduled maturity, which we currently do not anticipate.
We are also exposed to interest rate risk on our debt obligations. As of December 31, 2016, we had
$600.0 million of Notes outstanding that carry a fixed rate, and also had available a $750.0 million Credit
Agreement that carries a variable interest rate based on the London interbank offered rate (‘‘LIBOR’’). As of
December 31, 2016, borrowings of $225.0 million were outstanding under the Credit Agreement. To diversify
our interest rate risk, we entered into interest rate swaps with an aggregate notional amount of
$300.0 million. The critical terms of the swaps match the critical terms of $300.0 million of the aggregate
principal amount of the Notes, effectively converting that portion of the fixed-rate issue to a floating variable
rate based on a 6-month LIBOR benchmark. Based on our year end 2016 variable debt levels, a hypothetical
1.0% absolute increase in our floating market interest rates would increase our interest expense by
approximately $5.3 million, most of which would be offset by increased returns on our short-term
investments. The impact on net interest would be immaterial to our financial condition and results of
operations. As of December 31, 2016, a hypothetical 1.0% absolute increase in market interest rates would
decrease the fair value of the fixed-rate debt by approximately $10.4 million. This hypothetical change in
interest rates would not impact the interest expense on the fixed-rate debt.
For more information related to outstanding debt obligations, see Note 9 to the ‘‘Consolidated Financial
Statements.’’
Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include
the translation of local currency balances and results of our non-United States subsidiaries into United States
dollars, currency gains and losses related to intercompany and third-party transactions denominated in
42
currencies other than a location’s functional currency, and currency gains and losses associated with
intercompany loans. Our principal currency exposures relate to the Euro and the Japanese yen. Our objective
is to minimize the volatility of our exposure to these risks through a combination of normal operating and
financing activities and the use of derivative financial instruments in the form of foreign currency forward
exchange contracts and foreign currency options contracts. The total notional amount of our derivative
financial instruments entered into for foreign currency management purposes at December 31, 2016 was
$949.7 million. A hypothetical 10% increase/decrease in the value of the United States dollar against all
hedged currencies would increase/decrease the fair value of these derivative contracts by $66.0 million. Any
gains or losses on the fair value of derivative contracts would generally be offset by gains and losses on the
underlying transactions, so the net impact would not be significant to our financial condition or results of
operations.
For more information related to outstanding foreign exchange contracts, see Note 2 and Note 11 to the
‘‘Consolidated Financial Statements.’’
Credit Risk
Derivative financial instruments involve credit risk in the event the financial institution counterparty
should default. It is our policy to execute such instruments with major financial institutions that we believe to
be creditworthy. At December 31, 2016, all derivative financial instruments were with bank counterparties
assigned investment grade ratings by national rating agencies. We further diversify our derivative financial
instruments among counterparties to minimize exposure to any one of these entities. We have not experienced
a counterparty default and do not anticipate any non-performance by our current derivative counterparties.
Concentrations of Risk
We invest excess cash in a variety of fixed-rate debt securities, and diversify the investments between
financial institutions. Our investment policy limits the amount of credit exposure to any one issuer.
In the normal course of business, we provide credit to customers in the health care industry, perform
credit evaluations of these customers, and maintain allowances for potential credit losses, which have
historically been adequate compared to actual losses. In 2016, we had no customers that represented 10% or
more of our total net sales or accounts receivable, net.
Investment Risk
We are exposed to investment risks related to changes in the underlying financial condition and credit
capacity of certain of our investments. As of December 31, 2016, we had $839.2 million of investments in
fixed-rate debt securities of various companies, of which $498.2 million were long-term. In addition, we had
$33.9 million of investments in equity instruments of public and private companies. Should these companies
experience a decline in financial condition or credit capacity, or fail to meet certain development milestones, a
decline in the investments’ values may occur, resulting in unrealized or realized losses.
43
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
Financial Statements:
Consolidated Balance Sheets at December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
For the Years Ended December 31, 2016, 2015, and 2014:
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
48
49
50
51
Other schedules are not applicable and have not been submitted.
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Edwards Lifesciences Corporation:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in
all material respects, the financial position of Edwards Lifesciences Corporation and its subsidiaries at
December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2016 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial
statements and on the Company’s internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Irvine, California
February 17, 2017
45
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
December 31,
2016
2015
Current assets
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
930.1
341.0
365.5
49.1
396.6
45.9
111.8
$
718.4
506.3
315.4
56.4
339.9
45.1
66.4
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,240.0
2,047.9
Long-term investments (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net (Note 8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
532.1
580.0
626.1
204.8
203.8
123.2
379.9
482.5
628.3
205.4
180.5
131.8
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,510.0
$ 4,056.3
Current liabilities
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97.1
435.4
532.5
822.3
229.8
306.4
$
63.9
412.3
476.2
596.9
194.7
285.4
Commitments and contingencies (Notes 9 and 17)
Stockholders’ equity (Note 13)
Preferred stock, $.01 par value, authorized 50.0 shares, no shares outstanding . . . .
Common stock, $1.00 par value, 350.0 shares authorized, 242.6 and 239.1 shares
issued, and 211.6 and 215.4 shares outstanding, respectively . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 31.0 and 23.7 shares, respectively . . . . . . . . . . . . . . . . . .
—
—
242.6
1,167.8
3,906.3
(198.4)
(2,499.3)
239.1
946.8
3,336.8
(182.6)
(1,837.0)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,619.0
2,503.1
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,510.0
$ 4,056.3
The accompanying notes are an integral part of these consolidated financial statements.
46
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share information)
Years Ended December 31,
2016
2015
2014
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,963.7
797.4
$2,493.7
617.2
$2,322.9
625.6
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property litigation expenses (income), net (Note 3) . . . . . . . .
Special charges (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . .
2,166.3
904.7
443.3
32.6
34.5
19.2
(10.8)
4.9
737.9
168.4
1,876.5
850.7
383.1
7.0
—
17.2
(7.9)
4.0
622.4
127.5
1,697.3
858.0
346.5
(740.4)
70.7
17.2
(6.4)
7.7
1,144.0
332.9
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 569.5
$ 494.9
$ 811.1
Share information (Note 2):
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.67
2.61
$
$
2.30
2.25
$
$
3.81
3.74
Weighted-average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
213.0
217.8
215.5
220.3
213.0
217.0
The accompanying notes are an integral part of these consolidated financial statements.
47
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Years Ended December 31,
2016
2015
2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$569.5
$494.9
$811.1
Other comprehensive loss, net of tax (Note 14):
Foreign currency translation adjustments
. . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit pension plans—net actuarial (loss) gain and other . . . . . . . . .
Unrealized gain (loss) on available-for-sale investments . . . . . . . . . . . . . . . . .
Reclassification of net realized investment loss to earnings . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16.1)
4.9
(6.2)
0.5
1.1
(15.8)
(65.1)
(20.5)
5.4
(2.6)
1.1
(81.7)
(96.2)
28.8
(5.6)
(0.3)
—
(73.3)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$553.7
$413.2
$737.8
The accompanying notes are an integral part of these consolidated financial statements.
48
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended December 31,
2016
2015
2014
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 569.5
$ 494.9
$
811.1
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation (Notes 2 and 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock plans (Notes 2 and 13) . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased in-process research and development (Note 4)
. . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts and other receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of held-to-maturity investments (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from held-to-maturity investments (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale investments (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from available-for-sale investments (Note 6)
Investments in unconsolidated affiliates (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from unconsolidated affiliates (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in trading securities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions (Notes 7 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in intangible assets and in-process research and development . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt and capital lease obligations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock plans (Notes 2 and 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents
71.2
56.9
(64.3)
(37.4)
34.5
7.9
(56.7)
(65.6)
74.0
105.1
(12.6)
21.9
704.4
(176.1)
(594.7)
852.5
(470.4)
232.6
(7.6)
1.9
(9.8)
—
(41.3)
2.4
(1.2)
(211.7)
253.5
(31.4)
(662.3)
103.3
64.3
4.1
(268.5)
(12.5)
211.7
718.4
65.8
49.9
(41.3)
(95.0)
—
11.0
(38.3)
(67.7)
29.4
134.5
(0.2)
6.7
549.7
(102.7)
(928.5)
1,260.1
(380.3)
179.6
(5.1)
3.0
(9.2)
(331.6)
(3.8)
2.4
—
68.6
48.3
(49.4)
(71.1)
10.6
13.9
(26.8)
(30.5)
112.9
128.1
(0.9)
7.5
1,022.3
(82.9)
(1,956.4)
1,611.2
(160.4)
1.7
(11.2)
2.1
(14.4)
(15.0)
(10.8)
3.1
—
(316.1)
(633.0)
31.4
(29.5)
(280.1)
87.2
41.3
(8.9)
(158.6)
(10.4)
64.6
653.8
226.3
(239.0)
(300.9)
113.3
49.4
(2.1)
(153.0)
(2.9)
233.4
420.4
Cash and cash equivalents at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 930.1
$ 718.4
$
653.8
Supplemental disclosures:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes
$ 16.1
$ 99.9
Non-cash investing and financing transactions:
Capital expenditures accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital additions transferred from inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22.7
3.8
$
0.4
$
$
$
$
$
$
14.1
86.9
$
$
15.5
274.7
$
15.1
3.0
$
— $
8.3
4.0
13.3
The accompanying notes are an integral part of these consolidated financial statements.
49
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
BALANCE AT DECEMBER 31,
2013 . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . .
Other comprehensive loss, net of
tax . . . . . . . . . . . . . . . . . . .
Common stock issued under equity
. . .
Stock-based compensation expense .
Purchases of treasury stock . . . . .
plans, including tax benefits
BALANCE AT DECEMBER 31,
2014 . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . .
Other comprehensive loss, net of
plans, including tax benefits
tax . . . . . . . . . . . . . . . . . . .
Common stock issued under equity
. . .
Stock-based compensation expense .
Purchases of treasury stock . . . . .
. .
Stock issued to effect stock split
BALANCE AT DECEMBER 31,
2015 . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . .
Other comprehensive loss, net of
tax . . . . . . . . . . . . . . . . . . .
Common stock issued under equity
. . .
Stock-based compensation expense .
Purchases of treasury stock . . . . .
plans, including tax benefits
BALANCE AT DECEMBER 31,
2016 . . . . . . . . . . . . . . . . .
Common Stock
Treasury Stock
Shares
Par
Value
Shares Amount
Additional
Paid-in
Capital
126.0
$126.0
16.7
$(1,256.0)
$ 671.2
2.9
2.9
158.9
48.3
4.4
(300.9)
128.9
128.9
21.1
(1,556.9)
878.4
2.0
2.0
108.2
108.2
2.6
(280.1)
126.7
49.9
(108.2)
239.1
239.1
23.7
(1,837.0)
946.8
3.5
3.5
164.1
56.9
7.3
(662.3)
Accumulated
Other
Total
Retained Comprehensive Stockholders’
Earnings
Equity
Loss
$2,030.8
811.1
$ (27.6)
(73.3)
2,841.9
494.9
(100.9)
(81.7)
3,336.8
569.5
(182.6)
(15.8)
$1,544.4
811.1
(73.3)
161.8
48.3
(300.9)
2,191.4
494.9
(81.7)
128.7
49.9
(280.1)
—
2,503.1
569.5
(15.8)
167.6
56.9
(662.3)
242.6
$242.6
31.0
$(2,499.3)
$1,167.8
$3,906.3
$(198.4)
$2,619.0
The accompanying notes are an integral part of these consolidated financial statements.
50
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Edwards Lifesciences Corporation (‘‘Edwards Lifesciences’’ or the ‘‘Company’’) conducts operations
worldwide and is managed in the following geographical regions: United States, Europe, Japan, and Rest of
World. Edwards Lifesciences is focused on technologies that treat structural heart disease and critically ill
patients. The products and technologies provided by Edwards Lifesciences are categorized into the following
main areas: Transcatheter Heart Valve Therapy, Surgical Heart Valve Therapy, and Critical Care.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Edwards Lifesciences and
its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation. The Company reviews its investments in other entities to determine whether the Company is
the primary beneficiary of a variable interest entity (‘‘VIE’’). The Company would be the primary beneficiary
of the VIE, and would be required to consolidate the VIE, if it has the power to direct the significant
activities of the entity and the obligation to absorb losses or receive benefits from the entity that may be
significant to the VIE. Based on the Company’s analysis, it determined it is not the primary beneficiary of
any VIEs; however, future events may require VIEs to be consolidated if the Company becomes the primary
beneficiary.
Use of Estimates
The consolidated financial statements of Edwards Lifesciences have been prepared in accordance with
Generally Accepted Accounting Principles in the United States of America (‘‘GAAP’’) which have been
applied consistently in all material respects. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those estimates.
Foreign Currency Translation
When the local currency of the Company’s foreign entities is the functional currency, all assets and
liabilities are translated into United States dollars at the rate of exchange in effect at the balance sheet date.
Income and expense items are translated at the weighted-average exchange rate prevailing during the period.
The effects of foreign currency translation adjustments for these entities are deferred and reported in
stockholders’ equity as a component of ‘‘Accumulated Other Comprehensive Loss.’’ The effects of foreign
currency transactions denominated in a currency other than an entity’s functional currency are included in
‘‘Other Expense, net.’’
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. Revenue is considered
realized or realizable and earned upon delivery of the product, provided that an agreement of sale exists, the
sales price is fixed or determinable, and collection is reasonably assured. In the case of certain products where
the Company maintains consigned inventory at customer locations, revenue is recognized at the time the
customer has used the inventory.
The Company’s principal sales terms provide for title and risk of loss transferring upon delivery to the
customer, limited right of return, and no unusual provisions or conditions. When the Company recognizes
51
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
revenue from the sale of its products, an estimate of various sales returns and allowances is recorded which
reduces product sales and accounts receivable. These adjustments include estimates for rebates, returns, and
other sales allowances. These provisions are estimated and recorded at the time of sale based upon historical
payment experience, historical relationship to revenues, estimated customer inventory levels, and current
contract sales terms with direct and indirect customers. Other than in limited circumstances, product returns
are not significant because returns are generally not allowed unless the product is damaged at time of receipt.
In addition, the Company may allow customers to return previously purchased products for next-generation
product offerings. For these transactions, the Company defers recognition of revenue on the sale of the earlier
generation product based upon an estimate of the amount of product to be returned when the
next-generation products are shipped to the customer.
The Company’s sales adjustment related to distributor rebates given to the Company’s United States
distributors represents the difference between the Company’s sales price to the distributor (at the Company’s
distributor ‘‘list price’’) and the negotiated price to be paid by the end-customer. This distributor rebate is
recorded by the Company as a reduction to sales and a reduction to the distributor’s accounts receivable at the
time of sale to a distributor. The Company validates the distributor rebate accrual quarterly through either a
review of the inventory reports obtained from its distributors or an estimate of its distributor’s inventory. This
distributor inventory information is used to verify the estimated liability for future distributor rebate claims
based on historical rebates and contract rates. The Company periodically monitors current pricing trends and
distributor inventory levels to ensure the credit for future distributor rebates is fairly stated.
The Company also offers volume rebates to certain group purchasing organizations (‘‘GPOs’’) and
customers based upon target sales levels. For volume rebates offered to GPOs, the rebates are recorded as a
reduction to sales and an obligation to the GPOs, as the Company expects to pay in cash. For volume rebates
offered to customers, the rebates are recorded as a reduction to sales and accounts receivable, as the Company
expects a net payment from the customer. The provision for volume rebates is estimated based on customers’
contracted rebate programs and historical experience of rebates paid. The Company periodically monitors its
customer rebate programs to ensure that the allowance and liability for accrued rebates is fairly stated.
Shipping and Handling Costs
Shipping costs, which are costs incurred to physically move product from the Company’s premises to the
customer’s premises, are included in ‘‘Selling, General, and Administrative Expenses.’’ Handling costs, which are
costs incurred to store, move, and prepare products for shipment, are included in ‘‘Cost of Sales.’’ For the years
ended December 31, 2016, 2015, and 2014, shipping costs of $64.1 million, $58.8 million, and $60.5 million,
respectively, were included in ‘‘Selling, General, and Administrative Expenses.’’
Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less to be
cash equivalents. These investments are valued at cost, which approximates fair value.
Investments
The Company invests its excess cash in fixed-rate debt securities, including time deposits, commercial
paper, U.S. government and agency securities, asset-backed securities, corporate debt securities, and municipal
debt securities. Investments with maturities of one year or less are classified as short-term, and investments
with maturities greater than one year are classified as long-term. Investments that the Company has the
52
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ability and intent to hold until maturity are classified as held-to-maturity and carried at amortized cost.
Investments that are classified as available-for-sale are carried at fair value with unrealized gains and losses
included in ‘‘Accumulated Other Comprehensive Loss.’’ The Company determines the appropriate classification of
its investments in fixed-rate debt securities at the time of purchase and reevaluates such designation at each
balance sheet date.
The Company also has long-term equity investments in companies that are in various stages of
development. These investments are designated as available-for-sale. Other investments in unconsolidated
affiliates are accounted for under the cost or the equity method of accounting, as appropriate. The Company
accounts for investments in limited partnerships or limited liability corporations, whereby the Company owns
a minimum of 5% of the investee’s outstanding voting stock, under the equity method of accounting. These
investments are recorded at the amount of the Company’s investment and adjusted each period for the
Company’s share of the investee’s income or loss, and dividends paid. As investments accounted for under the
cost method do not have readily determinable fair values, the Company only estimates fair value if there are
identified events or changes in circumstances that could have a significant adverse effect on the investment’s
fair value.
Realized gains and losses on investments that are sold are determined using the specific identification
method, or the first-in, first-out method, depending on the investment type, and recorded to ‘‘Other Expense,
net.’’ Income relating to investments in fixed-rate debt securities is recorded to ‘‘Interest Income.’’
The Company periodically reviews its investments for impairment. When the fair value of an investment
declines below cost, management uses the following criteria to determine if such a decline should be
considered other-than-temporary and result in a recognized loss:
(cid:129) the duration and extent to which the market value has been less than cost;
(cid:129) the financial condition and near term prospects of the investee/issuer;
(cid:129) the reasons for the decline in market value;
(cid:129) the Company’s ability and intent to hold the investment for a period of time sufficient to allow for
any anticipated recovery in market value; and
(cid:129) the investee’s performance against product development milestones.
Allowance for Doubtful Accounts
The Company records allowances for doubtful accounts based on customer-specific analysis and general
matters such as current assessments of past due balances and economic conditions. When evaluating its
allowances for doubtful accounts related to receivables from customers in certain European countries that have
historically paid beyond the stated terms, the Company’s analysis considers a number of factors including
evidence of the customer’s ability to comply with credit terms, economic conditions, and procedures
implemented by the Company to collect the historical receivables. Additional allowances for doubtful accounts
may be required if there is deterioration in past due balances, if economic conditions are less favorable than
the Company has anticipated, or for customer-specific circumstances, such as financial difficulty. The
allowance for doubtful accounts related to both short-term and long-term receivables was $12.8 million and
$13.1 million at December 31, 2016 and 2015, respectively.
53
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Market value for
raw materials is based on replacement costs, and for other inventory classifications is based on net realizable
value.
A write-down for excess or slow moving inventory is recorded for inventory which is obsolete, nearing
its expiration date (generally triggered at six months prior to expiration), is damaged, or slow moving
(generally defined as quantities in excess of a two-year supply). The allowance for excess and slow moving
inventory was $29.1 million and $30.1 million at December 31, 2016 and 2015, respectively.
The Company allocates to inventory general and administrative costs that are related to the production
process. These costs include insurance, manufacturing accounting personnel, human resources personnel, and
information technology. During the years ended December 31, 2016, 2015, and 2014, the Company allocated
$37.2 million, $30.6 million, and $29.1 million, respectively, of general and administrative costs to inventory.
General and administrative costs included in inventory at December 31, 2016 and 2015 were $22.9 million
and $16.8 million, respectively.
At December 31, 2016 and 2015, approximately $64.2 million and $58.8 million, respectively, of the
Company’s finished goods inventories were held on consignment.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation is principally calculated for financial
reporting purposes on the straight-line method over the estimated useful lives of the related assets, which
range from 10 to 40 years for buildings and improvements, from 3 to 15 years for machinery and equipment,
and from 3 to 7 years for software. Leasehold improvements are amortized over the life of the related facility
leases or the asset, whichever is shorter. Straight-line and accelerated methods of depreciation are used for
income tax purposes.
Depreciation expense for property, plant, and equipment was $63.6 million, $58.7 million, and
$57.5 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Impairment of Goodwill and Long-lived Assets
Goodwill is reviewed for impairment annually in the fourth quarter of each fiscal year or whenever an
event occurs or circumstances change that would indicate that the carrying amount may be impaired. The
Company identifies its reporting units and determines the carrying value of each reporting unit by assigning
the assets and liabilities, including existing goodwill, to those reporting units. The fair value of the reporting
unit is estimated based on the Company’s market capitalization and a market revenue multiple. If the carrying
value of the reporting unit exceeds its estimated fair value, then the Company measures the amount of the
impairment loss by comparing the implied fair value of goodwill to its carrying value. In 2016, 2015, and
2014, the Company did not record any impairment loss as the fair value of each reporting unit significantly
exceeded its respective carrying value.
Indefinite-lived intangible assets relate to in-process research and development (‘‘IPR&D’’) acquired in
business combinations. The estimated fair values of IPR&D projects acquired in a business combination
which have not reached technological feasibility are capitalized and accounted for as indefinite-lived
intangible assets subject to impairment testing until completion or abandonment of the projects. Upon
54
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
successful completion of the project, the capitalized amount is amortized over its estimated useful life. If the
project is abandoned, all remaining capitalized amounts are written off immediately. Indefinite-lived intangible
assets are reviewed for impairment annually, or whenever an event occurs or circumstances change that would
indicate the carrying amount may be impaired. An impairment loss is recognized when the asset’s carrying
value exceeds its fair value. IPR&D projects acquired in an asset acquisition are expensed unless the project
has an alternative future use. In 2016, 2015, and 2014, the Company did not record any impairment loss
related to its IPR&D assets.
Management reviews the carrying amounts of other finite-lived intangible assets and long-lived tangible
assets whenever events or circumstances indicate that the carrying amounts of an asset may not be
recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated
declines in revenue or operating profit, and adverse legal or regulatory developments. If it is determined that
such indicators are present and the review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced
to estimated fair market value. Estimated fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. For the purposes of identifying and
measuring impairment, long-lived assets are grouped with other assets and liabilities at the lowest level for
which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that
have been recognized in the Company’s financial statements or tax returns. The Company evaluates quarterly
the realizability of its deferred tax assets by assessing its valuation allowance and adjusting the amount, if
necessary. The factors used to assess the likelihood of realization are both historical experience and the
Company’s forecast of future taxable income and available tax planning strategies that could be implemented
to realize the net deferred tax assets. Failure to achieve forecasted taxable income in the applicable taxing
jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the
Company’s effective tax rate on future earnings.
When assessing whether a windfall tax benefit relating to stock-based compensation has been realized,
the Company follows the with and without approach, under which the windfall benefit is recognized only if
an incremental benefit is provided after considering all other tax attributes presently available to the
Company. Consideration is given only to the direct impact of stock awards when calculating the amount of
windfalls and shortfalls.
The Company is subject to income taxes in the United States and numerous foreign jurisdictions.
Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its
provision for income taxes. The Company recognizes the financial statement benefit of a tax position only
after determining that a position would more likely than not be sustained based upon its technical merit if
challenged by the relevant taxing authority and taken by management to the court of last resort. For tax
positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial
statements is the largest benefit that has a greater than 50% likelihood of being realized upon settlement with
the relevant tax authority. The Company recognizes interest and penalties related to income tax matters in
income tax expense.
55
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development Costs
Research and development costs are charged to expense when incurred.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted-average common shares
outstanding during a period. Employee equity share options, nonvested shares, and similar equity instruments
granted by the Company are treated as potential common shares in computing diluted earnings per share.
Diluted shares outstanding include the dilutive effect of restricted stock units and in-the-money options. The
dilutive impact of the restricted stock units and in-the-money options is calculated based on the average share
price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount
that the employee must pay for exercising stock options, the amount of compensation expense for future
service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in
‘‘Additional Paid-in Capital’’ when the award becomes deductible are assumed to be used to repurchase shares.
Potential common share equivalents have been excluded where their inclusion would be anti-dilutive.
The table below presents the computation of basic and diluted earnings per share (in millions, except for
per share information):
Basic:
Years Ended December 31,
2016
2015
2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$569.5
$494.9
$811.1
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
213.0
215.5
213.0
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.67
$ 2.30
$ 3.81
Diluted:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$569.5
$494.9
$811.1
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . .
213.0
4.8
217.8
215.5
4.8
220.3
213.0
4.0
217.0
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.61
$ 2.25
$ 3.74
Stock options and restricted stock units to purchase approximately 0.9 million, 1.4 million, and
4.8 million shares for the years ended December 31, 2016, 2015, and 2014, respectively, were outstanding,
but were not included in the computation of diluted earnings per share because the effect would have been
anti-dilutive.
Stock-based Compensation
The Company measures and recognizes compensation expense for all stock-based awards based on
estimated fair values. Stock-based awards consist of stock options, restricted stock units (service-based,
market-based, and performance-based), and employee stock purchase subscriptions. Stock-based compensation
expense is measured at the grant date based on the fair value of the award and is recognized as expense over
56
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the requisite service period (vesting period) on a straight-line basis. For performance-based restricted stock
units, the Company recognizes stock-based compensation expense if and when the Company concludes that it
is probable that the performance condition will be achieved, net of estimated forfeitures. The Company
reassesses the probability of vesting at each quarter end and adjusts the stock-based compensation expense
based on its probability assessment. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. Upon exercise of stock options or vesting
of restricted stock units, the Company issues common stock.
Total stock-based compensation expense was as follows (in millions):
Years Ended
December 31,
2016
2015
2014
Cost of sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.4
38.0
10.5
$ 6.8
34.3
8.8
$ 6.1
34.9
7.3
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56.9
$49.9
$48.3
Upon retirement, all unvested stock options and performance-based restricted stock units are immediately
forfeited. In addition, upon retirement, a participant will immediately vest in 25% of service-based restricted
stock units for each full year of employment with the Company measured from the grant date. All remaining
unvested service-based restricted stock units are immediately forfeited. For market-based restricted stock units,
upon retirement and in certain other specified cases, a participant will receive a pro-rated portion of the
shares that would ultimately be issued based on attainment of the performance goals as determined on the
vesting date. The pro-rated portion is based on the participant’s whole months of service with the Company
during the performance period prior to the date of termination.
Derivatives
The Company uses derivative financial instruments to manage interest rate and foreign currency risks. It
is the Company’s policy not to enter into derivative financial instruments for speculative purposes. The
Company uses interest rate swaps to convert a portion of its fixed-rate debt into variable-rate debt. These
interest rate swaps are designated as fair value hedges and meet the shortcut method requirements under the
accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate
swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. The
Company uses foreign currency forward exchange contracts to offset the changes due to currency rate
movements in the amount of future cash flows associated with intercompany transactions and certain local
currency expenses expected to occur within the next 13 months. These foreign currency forward exchange
contracts are designated as cash flow hedges. Certain of the Company’s locations have assets and liabilities
denominated in currencies other than their functional currencies resulting principally from intercompany and
local currency transactions. The Company uses foreign currency forward exchange contracts and foreign
currency option contracts that are not designated as hedging instruments to offset the transaction gains and
losses associated with certain of these assets and liabilities. The Company also uses foreign currency forward
exchange contracts to protect its net investment in certain foreign subsidiaries from adverse changes in foreign
currency exchange rates. These foreign currency forward exchange contracts are designated as net investment
57
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
hedges. All foreign currency forward exchange contracts and foreign currency option contracts are
denominated in currencies of major industrial countries, principally the Euro and the Japanese yen.
All derivative financial instruments are recognized at fair value in the consolidated balance sheets. For
each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the
derivative is recognized immediately to earnings, and offsets the loss or gain on the underlying hedged item.
The gain or loss on fair value hedges is classified in net interest expense, as they hedge the interest rate risk
associated with the Company’s fixed-rate debt. The Company reports in ‘‘Accumulated Other Comprehensive
Loss’’ the effective portion of 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 period
in which the underlying hedged transactions affect earnings. The effective portions 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
ineffective portions of cash flow hedges and net investment hedges are recorded in current period earnings.
During 2016, 2015, and 2014, the Company did not record any gains or losses due to hedge ineffectiveness.
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.
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.
Recently Adopted Accounting Standards
In September 2015, the Financial Accounting Standards Board (‘‘FASB’’) issued an update to the
guidance on business combinations. The new guidance requires that an acquirer recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the
adjustment amounts are determined. The guidance was effective for fiscal years beginning after December 15,
2015, including interim periods within those fiscal years. The adoption of this guidance did not impact the
Company’s consolidated financial statements.
In April 2015, the FASB issued an amendment to the accounting guidance on the presentation of debt
issuance costs. The guidance requires an entity to present debt issuance costs related to a recognized debt
liability as a direct deduction from the carrying amount of that debt, consistent with debt discounts. In
August 2015, the FASB clarified that for a line-of-credit arrangement, a company can continue to defer and
present debt issuance costs as an asset and subsequently amortize the debt issuance costs over the term of the
line-of-credit arrangement, whether or not there are any outstanding borrowings on the line-of-credit
arrangement. The guidance was effective for annual reporting periods beginning after December 31, 2015 and
interim periods within those periods, and must be applied retrospectively to each prior reporting period
presented. The adoption of this guidance did not have a material impact on the Company’s consolidated
financial statements.
58
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Standards Not Yet Adopted
In January 2017, the FASB issued an amendment to the guidance on intangible assets. The amendment
simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill
impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a
reporting unit’s goodwill with the carrying amount. Instead, under this amendment, an entity performs its
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The
guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance will
impact its consolidated financial statements.
In January 2017, the FASB issued an amendment to the guidance on business combinations. The
amendment clarifies the definition of a business and provides a screen to determine when an integrated set of
assets and activities is not a business. The screen requires that when substantially all of the fair value of the
gross assets acquired (or disposed of ) is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. The guidance is effective for annual periods beginning after
December 15, 2017, including interim periods within those periods.
In August 2016, the FASB issued an amendment to the guidance on the statement of cash flows. The
standard addresses eight specific cash flow issues, and is intended to reduce the diversity in practice around
how certain transactions are classified within the statement of cash flows. The guidance is effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years with early adoption
permitted. This guidance will impact how the Company classifies contingent consideration payments made
after a business combination. Contingent consideration payments that are not made soon after the acquisition
date will be classified as a financing activity up to the amount of the contingent consideration liability
recognized at the acquisition date, with any excess classified as an operating activity. The Company does not
expect the adoption of the other provisions of this guidance will have a material impact on its consolidated
financial statements.
In March 2016, the FASB issued an amendment to the guidance on stock compensation. The
amendment simplifies several aspects of the accounting for share-based payment award transactions, including
the income tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. The Company anticipates that adoption of this guidance will
introduce more volatility to its effective tax rate, generally reducing the rate.
In February 2016, the 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 is effective for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The
Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
59
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 2014, the FASB issued an update to the accounting guidance on revenue recognition. The new
guidance provides a comprehensive, principles-based approach to revenue recognition, and supersedes most
previous revenue recognition guidance. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance
also requires improved disclosures on the nature, amount, timing, and uncertainty of revenue that is
recognized. In August 2015, the FASB issued an update to the guidance to defer the effective date by one
year, such that the new standard will be effective for annual reporting periods beginning after December 15,
2017 and interim periods therein. The new guidance can be applied retrospectively to each prior reporting
period presented, or retrospectively with the cumulative effect of the change recognized at the date of the
initial application. The Company is assessing all of the potential impacts of the revenue recognition guidance
and has not yet selected an adoption method. The Company will adopt the new guidance effective January 1,
2018.
Although the Company has not yet completed its assessment of the new revenue recognition guidance,
the Company’s analysis of contracts related to the sale of its heart valve therapy products under the new
revenue recognition guidance supports the recognition of revenue at a point-in-time, which is consistent with
its current revenue recognition model. Heart valve therapy sales accounted for approximately 80% of the
Company’s sales for the year ended December 31, 2016. The Company is currently assessing the potential
impact of the guidance on contracts related to the sale of its critical care products, specifically sales outside of
the United States.
3.
INTELLECTUAL PROPERTY LITIGATION EXPENSES (INCOME), NET
In May 2014, the Company entered into an agreement with Medtronic, Inc. and its affiliates
(‘‘Medtronic’’) to settle all outstanding patent litigation between the companies, including all cases related to
transcatheter heart valves. Pursuant to the agreement, all pending cases or appeals in courts and patent offices
worldwide have been dismissed, and the parties will not litigate patent disputes with each other in the field of
transcatheter valves for the eight-year term of the agreement. Under the terms of a patent cross-license that is
part of the agreement, Medtronic made a one-time, upfront payment to the Company for past damages in
the amount of $750.0 million. In addition, Medtronic will pay the Company quarterly license royalty
payments through April 2022. For sales in the United States, subject to certain conditions, the royalty
payments will be based on a percentage of Medtronic’s sales of transcatheter aortic valves, with a minimum
annual payment of $40.0 million and a maximum annual payment of $60.0 million. A separate royalty
payment will be calculated based on sales of Medtronic transcatheter aortic valves manufactured in the United
States but sold elsewhere.
The Company accounted for the settlement agreement as a multiple-element arrangement and allocated
the total consideration to the identifiable elements based upon their relative fair value. The consideration
assigned to each element was as follows (in millions):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past damages
License agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenant not to sue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 754.3
238.0
77.7
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,070.0
60
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
INTELLECTUAL PROPERTY LITIGATION EXPENSES (INCOME), NET (Continued)
The Company recognized the upfront payment of $750.0 million in ‘‘Intellectual Property Litigation
Expenses (Income), net’’ during the second quarter of 2014. The accounting guidance limits the amount to be
recognized upfront to the amount of cash received. The remaining fair value associated with the past damages
element, as well as the license agreement and the covenant not to sue, will be recognized in ‘‘Net Sales’’ over
the term of the license agreement as delivery occurs since the Company considers the future royalties to be
part of its revenue-earning activities that constitute its ongoing major or central operations.
The Company incurred external legal costs related to intellectual property litigation of $32.6 million,
$7.0 million, and $9.6 million during 2016, 2015, and 2014, respectively. The increase in intellectual property
litigation expenses in 2016 was primarily due to the resolution of an intellectual property litigation matter,
and the increased costs associated with ongoing litigation in the United States and Europe.
4. SPECIAL CHARGES
Years Ended
December 31,
2016
2015
2014
(in millions)
Acquisition of IPR&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charitable foundation contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.5
$— $10.2
— — 50.0
7.5
— —
3.0
— —
Total special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.5
$— $70.7
Acquisition of IPR&D
In May 2016, the Company entered into two separate agreements to acquire technologies for use in its
transcatheter heart valve programs. In connection with these agreements, the Company recorded an IPR&D
charge totaling $34.5 million. The acquired technologies are in the early stages of development and have no
alternative uses. Additional design developments, bench testing, pre-clinical studies, and human clinical
studies must be successfully completed prior to selling any product using these technologies.
In December 2014, the Company acquired technology for use in its transcatheter mitral valve program.
In connection with this acquisition, the Company recorded a $10.2 million IPR&D charge, including related
expenses. The acquired technology has no alternative uses. Additional design developments, bench testing,
pre-clinical studies, and human clinical studies must be successfully completed prior to selling any product.
Under the terms of the purchase agreement, the Company must pay an additional $10.0 million if, within
9 years of the acquisition closing date, the Company receives CE Mark for a transcatheter mitral valve repair
or replacement product that incorporates the acquired technology.
Charitable Foundation Contribution
In June 2014, the Company contributed $50.0 million to the Edwards Lifesciences Foundation, a
related-party not-for-profit organization intended to provide philanthropic support to health- and community-
focused charitable organizations. The contribution was irrevocable and was recorded as an expense at the time
of payment.
61
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. SPECIAL CHARGES (Continued)
Settlement
In March 2014, the Company recorded a $7.5 million charge to settle past and future obligations related
to one of its intellectual property agreements.
Asset Write-down
In September 2014, due to a strategic shift of the Company’s investment initiatives, the Company
decided to refocus resources from its automated glucose monitoring program. As a result, the Company
recorded a charge of $3.0 million to write down an intangible asset and fixed assets, and to record severance
costs. In addition, the Company recorded a $2.0 million charge to ‘‘Cost of Sales,’’ primarily related to the
disposal of inventory and equipment held by customers.
62
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Components of selected captions in the consolidated balance sheets are as follows:
As of December 31,
2016
2015
(in millions)
Accounts receivable, net
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts
$ 374.5
(9.0)
$ 322.2
(6.8)
$ 365.5
$ 315.4
Inventories
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60.6
102.4
233.6
$ 63.8
64.1
212.0
$ 396.6
$ 339.9
Property, plant, and equipment, net
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment with customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30.1
367.2
346.5
37.4
100.6
79.6
$ 25.1
293.4
328.6
34.6
97.4
75.2
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
961.4
(381.4)
854.3
(371.8)
$ 580.0
$ 482.5
Accrued and other liabilities
Employee compensation and withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, payroll, and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation reserves (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 216.1
40.0
35.3
36.1
12.6
5.9
7.8
3.3
78.3
$ 209.4
38.6
34.5
23.9
9.6
14.5
5.6
4.2
72.0
$ 435.4
$ 412.3
63
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
INVESTMENTS
Debt Securities
Investments in debt securities at the end of each period were as follows (in millions):
December 31, 2016
Gross
Gross
Unrealized Unrealized
December 31, 2015
Gross
Gross
Unrealized Unrealized
Held-to-maturity
Cost
Gains
Losses
Fair Value Cost
Gains
Losses
Fair Value
Bank time deposits . . . . . . . . . . . . $217.0
U.S. government and agency
securities . . . . . . . . . . . . . . . . .
Asset-backed securities
. . . . . . . . .
Corporate debt securities . . . . . . . .
. . . . . . . . . . .
Municipal securities
16.1
0.3
3.0
1.9
$ —
$ —
$217.0
$440.1
$—
$ —
$440.1
—
—
—
—
(0.1)
—
—
—
16.0
0.3
3.0
1.9
32.5
1.2
16.4
5.2
—
—
—
—
(0.2)
—
—
—
32.3
1.2
16.4
5.2
$238.3
$ —
$(0.1)
$238.2
$495.4
$—
$(0.2)
$495.2
Available-for-sale
Commercial paper
U.S. government and agency
. . . . . . . . . . . . $ 35.4
securities . . . . . . . . . . . . . . . . .
Asset-backed securities
. . . . . . . . .
Corporate debt securities . . . . . . . .
. . . . . . . . . . .
Municipal securities
143.4
86.0
333.6
4.6
$ —
$ —
$ 35.4
$ 28.1
$—
$ —
$ 28.1
—
—
0.4
—
(0.7)
(0.2)
(1.5)
(0.1)
142.7
85.8
332.5
4.5
38.7
62.8
230.0
4.7
—
—
—
—
(0.2)
(0.2)
(1.3)
—
38.5
62.6
228.7
4.7
$603.0
$0.4
$(2.5)
$600.9
$364.3
$—
$(1.7)
$362.6
The cost and fair value of investments in debt securities, by contractual maturity, as of December 31,
2016 were as follows:
Held-to-Maturity
Available-for-Sale
Cost
Fair Value
Cost
Fair Value
(in millions)
Due in 1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 1 year through 5 years . . . . . . . . . . . . . . . . . . . . . . . .
Instruments not due at a single maturity date . . . . . . . . . . . . . . . .
$230.9
—
7.4
$230.9
—
7.3
$110.2
406.9
85.9
$110.1
405.1
85.7
$238.3
$238.2
$603.0
$600.9
Actual maturities may differ from the contractual maturities due to call or prepayment rights.
64
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
INVESTMENTS (Continued)
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 balance sheets,
and are as follows:
December 31,
2016
2015
(in millions)
Available-for-sale investments
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ —
0.2
0.1
Fair value of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.2
Equity method investments
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in losses
Carrying value of equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.5
(3.9)
5.6
10.9
(4.2)
6.7
Cost method investments
Carrying value of cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.2
21.3
Total investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33.9
$28.2
In December 2015, the Company made a $1.5 million investment in Harpoon Medical, Inc. (‘‘Harpoon
Medical’’). As part of the agreement, the Company also paid $11.5 million, included in ‘‘Other Assets,’’ for an
exclusive option to acquire Harpoon Medical for up to $250.0 million, depending upon the achievement of
certain milestones and regulatory approvals. Harpoon Medical is developing a surgical device for minimally
invasive mitral valve repair and the treatment of mitral valve regurgitation that is currently in the clinical
testing phase, and is financed primarily through equity investments.
In December 2014, the Company made a $10.0 million investment in one of its existing cost method
investees, CardioKinetix, Inc. (‘‘CardioKinetix’’), for a total investment carrying value of $14.4 million. As
part of the agreement, the Company also paid $15.0 million, included in ‘‘Other Assets,’’ for an exclusive
option to acquire CardioKinetix for up to $375.0 million, depending upon the achievement of certain
milestones and regulatory approvals. CardioKinetix is pioneering a catheter-based treatment for heart failure
that is currently in the clinical testing phase, and is financed primarily through equity investments.
Harpoon Medical and CardioKinetix are VIEs; however, the Company has determined that it is not the
primary beneficiary of these VIEs since the Company does not have the power to direct the activities of the
VIEs that most significantly impact their economic performance. The Company made this determination
based on the development stage of the VIEs’ products; the Company’s inability to exercise influence over the
VIEs, based on the Company’s ownership percentage and voting rights, as well as its lack of involvement in
day-to-day operations and management decisions; and the fact that the option to acquire each of the VIEs is
currently significantly out of the money. Accordingly, the Company accounts for these investments as cost
method investments. The Company’s maximum exposure to loss as a result of its involvement with
CardioKinetix and Harpoon Medical is limited to the carrying amount of its investment and the cost of the
option to acquire each of these entities.
During 2016, 2015, and 2014, the gross realized gains or losses from sales of available-for-sale
investments were not material.
65
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. ACQUISITIONS
Valtech Cardio Ltd.
On November 26, 2016, the Company entered into an agreement and plan of merger to acquire Valtech
Cardio Ltd. (‘‘Valtech’’) for approximately $340.0 million, subject to certain adjustments, with the potential
for up to an additional $350.0 million in pre-specified milestone-driven payments over the next 10 years. The
transaction closed on January 23, 2017, and the consideration paid included the issuance of approximately
2.8 million shares of the Company’s common stock (fair value of $266.5 million) and cash of $84.3 million.
Acquisition-related costs of $4.1 million were recorded in ‘‘Selling, General, and Administrative Expenses’’
during the year ended December 31, 2016. Prior to the close of the transaction, Valtech spun off its early-
stage transseptal mitral valve replacement technology program. Concurrent with the closing, the Company
entered into an agreement for an exclusive option to acquire that program and its associated intellectual
property for approximately $200.0 million, subject to certain adjustments. The option expires 2 years after the
closing date of the transaction, but can be extended by up to a year depending on the results of certain
clinical trials. The initial purchase accounting for this transaction has not yet been completed given the short
period of time between the acquisition date and the issuance of these financial statements.
Valtech is a developer of a transcatheter mitral and tricuspid valve repair system. The Company plans to
add this technology to its portfolio of mitral and tricuspid repair products. The acquisition will be accounted
for as a business combination, and is expected to consist primarily of goodwill, developed technology, and
in-process research and development. The Company is in the process of evaluating the potential impact of
the business combination on its consolidated financial statements.
CardiAQ Valve Technologies, Inc.
On July 3, 2015, the Company entered into an agreement and plan of merger to acquire CardiAQ Valve
Technologies, Inc. (‘‘CardiAQ’’) for an aggregate cash purchase price of $350.0 million, subject to certain
adjustments. The transaction closed on August 26, 2015, and the cash purchase price after the adjustments
was $348.0 million. In addition, the Company agreed to pay an additional $50.0 million if a certain
European regulatory approval is obtained within 48 months of the acquisition closing date. The Company
recognized in ‘‘Other Long-term Liabilities’’ a $30.3 million liability for the estimated fair value of this
contingent milestone payment. The fair value of the contingent milestone payment will be remeasured each
quarter, with changes in the fair value recognized within operating expenses on the consolidated statements of
operations. For further information on the fair value of the contingent milestone payment, see Note 10.
In connection with the acquisition, the Company placed $30.0 million of the purchase price into escrow
to satisfy any claims for indemnification made in accordance with the merger agreement. Pending resolution
of an outstanding claim under the agreement and plan of merger, any remaining funds will be disbursed to
CardiAQ’s former shareholders. Acquisition-related costs of $1.2 million were recorded in ‘‘Selling, General,
and Administrative Expenses’’ during the year ended December 31, 2015.
CardiAQ is a developer of a transcatheter mitral valve replacement system. The Company plans to
integrate the acquired technology platform into its mitral heart valve program. The acquisition was accounted
for as a business combination. Tangible and intangible assets acquired were recorded based on their estimated
fair values at the acquisition date. The excess of the purchase price over the fair value of net assets acquired
66
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. ACQUISITIONS (Continued)
was recorded to goodwill. The following table summarizes the fair values of the assets acquired and liabilities
assumed (in millions):
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IPR&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28.1
0.2
258.9
190.0
(32.9)
(66.0)
(30.3)
348.0
(27.9)
Total cash purchase price, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$320.1
Goodwill includes expected synergies and other benefits the Company believes will result from the
acquisition. Goodwill was assigned to the Company’s United States segment and is not deductible for tax
purposes. IPR&D has been capitalized at fair value as an intangible asset with an indefinite life and will be
assessed for impairment in subsequent periods. The fair value of the IPR&D was determined using the
income approach. This approach determines fair value based on cash flow projections which are discounted to
present value using a risk-adjusted rate of return. The discount rate used to determine the fair value of the
IPR&D was 16.5%. Completion of successful design developments, bench testing, pre-clinical studies and
human clinical studies are required prior to selling any product. The risks and uncertainties associated with
completing development within a reasonable period of time include those related to the design, development,
and manufacturability of the product, the success of pre-clinical and clinical studies, and the timing of
regulatory approvals. The valuation assumed $97.7 million of additional research and development
expenditures would be incurred prior to the date of product introduction, and the Company does not
currently anticipate significant changes to forecasted research and development expenditures associated with
the CardiAQ program. The Company’s valuation model also assumed net cash inflows would commence in
late 2018, if successful clinical trial experiences lead to a CE mark approval. Upon completion of
development, the underlying research and development intangible asset will be amortized over its estimated
useful life. The Company disclosed in early February 2017 that it had voluntarily paused enrollment in its
clinical trials for the Edwards-CardiAQ valve to perform further design validation testing on a feature of the
valve. This testing has been completed and, in collaboration with clinical investigators, the Company has
decided to resume screening patients for enrollment in its clinical trials.
The results of operations for CardiAQ have been included in the accompanying consolidated financial
statements from the date of acquisition. Pro forma results have not been presented as the results of CardiAQ
are not material in relation to the consolidated financial statements of the Company.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
On July 3, 2015, the Company acquired CardiAQ (see Note 7). This transaction resulted in an increase
to goodwill of $258.9 million and IPR&D of $190.0 million.
67
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
The changes in the carrying amount of goodwill, by segment, during the years ended December 31,
2016 and 2015 were as follows:
Goodwill at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United
States
$308.3
258.9
Europe
Total
(in millions)
$67.7
$376.0
— 258.9
(6.6)
— (6.6)
Goodwill at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61.1
567.2
—
—
— (2.2)
628.3
—
(2.2)
Goodwill at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$567.2
$58.9
$626.1
Other intangible assets consist of the following (in millions):
December 31,
2016
2015
Cost
Accumulated
Amortization
Net
Carrying
Value
Cost
Accumulated
Amortization
$187.6
43.0
9.8
240.4
$(177.0)
(39.6)
(9.0)
(225.6)
$ 10.6
3.4
0.8
$180.6
43.6
10.0
$(172.3)
(37.9)
(8.6)
14.8
234.2
(218.8)
Net
Carrying
Value
$
8.3
5.7
1.4
15.4
Amortizable intangible assets
Patents . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
Unamortizable intangible assets
IPR&D . . . . . . . . . . . . . . . . . . . . . .
190.0
—
190.0
190.0
—
190.0
$430.4
$(225.6)
$204.8
$424.2
$(218.8)
$205.4
Goodwill and IPR&D resulting from purchase business combinations are not subject to amortization.
Other acquired intangible assets with definite lives are amortized on a straight-line basis over their expected
useful lives. The Company expenses costs incurred to renew or extend the term of acquired intangible assets.
Amortization expense related to other intangible assets for the years ended December 31, 2016, 2015,
and 2014 was $7.6 million, $7.1 million, and $8.4 million, respectively. Estimated amortization expense for
each of the years ending December 31 is as follows (in millions):
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.3
2.2
1.7
1.2
1.0
68
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DEBT, CREDIT FACILITIES, AND LEASE OBLIGATIONS
In October 2013, the Company issued $600.0 million of fixed-rate unsecured senior notes (the ‘‘Notes’’).
Interest is payable semi-annually in arrears, with payment due in April and October. The Company may
redeem the Notes, in whole or in part, at any time and from time to time at specified redemption prices. In
addition, upon the occurrence of certain change of control triggering events, the Company may be required to
repurchase all or a portion of the Notes at a price equal to 101% of their principal amount, plus accrued and
unpaid interest. The Notes also include covenants that limit the Company’s ability to incur secured
indebtedness, enter into sale and leaseback transactions, and consolidate, merge, or transfer all or substantially
all of its assets. The following is a summary of the Notes as of December 31, 2016 and 2015:
December 31,
2016
2015
Fixed-rate 2.875% notes due October 15, 2018 . . . . . .
Unamortized discount . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . .
Hedge accounting fair value adjustments (see Note 11) .
Effective
Interest Rate
2.983%
Amount
(in millions)
$600.0
(1.2)
(1.9)
0.4
Total carrying amount
. . . . . . . . . . . . . . . . . . . . .
$597.3
Effective
Interest Rate
2.983%
Amount
(in millions)
$600.0
(1.7)
(3.0)
1.6
$596.9
As of December 31, 2016 and 2015, the fair value of the Notes, based on Level 2 inputs, was $609.6
million and $607.7 million, respectively. Issuance costs of $5.4 million, as well as the issuance discount on the
Notes, are being amortized to interest expense over the term of the Notes.
The Company has a Five-Year Credit Agreement (‘‘the Credit Agreement’’) which matures on July 18,
2019. The Credit Agreement provides up to an aggregate of $750.0 million in borrowings in multiple
currencies. The Company may increase the amount available under the Credit Agreement, subject to
agreement of the lenders, by up to an additional $250.0 million in the aggregate. Borrowings generally bear
interest at the London interbank offered rate (‘‘LIBOR’’) plus a spread ranging from 1.0% to 1.5%, depending
on the leverage ratio, as defined in the Credit Agreement. The Company also pays a facility fee ranging from
0.125% to 0.25%, depending on the leverage ratio, on the entire credit commitment available, whether or not
drawn. The facility fee is expensed as incurred. During 2016, the spread over LIBOR was 1.0% and the
facility fee was 0.125%. Issuance costs of $3.0 million are being amortized to interest expense over the term
of the Credit Agreement. As of December 31, 2016, borrowings of $225.0 million, which were drawn at the
end of 2016, were outstanding under the Credit Agreement. All amounts outstanding under the Credit
Agreement have been classified as long-term obligations in accordance with the terms of the Credit
Agreement. The Credit Agreement is unsecured and contains various financial and other covenants, including
a maximum leverage ratio and a minimum interest coverage ratio, as defined in the Credit Agreement. The
Company was in compliance with all covenants at December 31, 2016.
The weighted-average interest rate under all debt obligations was 3.1% and 2.9% at December 31, 2016
and 2015, respectively.
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 $22.9 million, $22.5
million, and $22.9 million for the years 2016, 2015, and 2014, respectively.
69
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DEBT, CREDIT FACILITIES, AND LEASE OBLIGATIONS (Continued)
Future minimum lease payments (including interest) under non-cancelable operating leases and aggregate
debt maturities at December 31, 2016 were as follows (in millions):
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Total obligations and commitments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Leases
Aggregate
Debt
Maturities
$22.3
16.5
8.4
5.5
3.3
16.6
$72.6
$ —
600.0
225.0
—
—
—
$825.0
10. FAIR VALUE MEASUREMENTS
The consolidated 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. The carrying value of these financial
instruments generally approximates fair value due to their short-term nature. Financial instruments also
include long-term notes payable. See Note 9 for further information on the fair value of the Notes.
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.
70
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. FAIR VALUE MEASUREMENTS (Continued)
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 as of December 31, 2016 and 2015 (in millions):
December 31, 2016
Assets
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments:
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Equity investments in unconsolidated affiliates
Investments held for deferred compensation plans . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
Level 2
Level 3
Total
$ 44.1
$ — $ — $ 44.1
— 332.5
85.8
—
42.0
100.7
35.4
—
4.5
—
—
0.1
—
46.0
35.2
—
— 332.5
—
85.8
— 142.7
35.4
—
4.5
—
0.1
—
46.0
—
35.2
—
$190.9
$535.4
$ — $726.3
Liabilities
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration obligation . . . . . . . . . . . . . . . . . . . . . . .
$ — $
46.7
—
$ — $
3.3
—
—
— 31.6
3.3
46.7
31.6
$ 46.7
$
3.3
$31.6
$ 81.6
December 31, 2015
Assets
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments:
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Equity investments in unconsolidated affiliates
Investments held for deferred compensation plans . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.5
$
8.5
$ — $ 12.0
— 228.7
62.6
—
28.9
9.6
28.1
—
4.7
—
—
0.1
—
35.3
23.3
—
— 228.7
62.6
—
38.5
—
28.1
—
4.7
—
0.1
—
35.3
—
23.3
—
$ 48.5
$384.8
$ — $433.3
Liabilities
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration obligation . . . . . . . . . . . . . . . . . . . . . . .
$ — $
35.5
—
4.2
—
—
— 30.5
$ — $ 4.2
35.5
30.5
$ 35.5
$
4.2
$30.5
$ 70.2
71
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. FAIR VALUE MEASUREMENTS (Continued)
The following table summarizes the changes in fair value of the contingent consideration obligation for
the year ended December 31, 2016 (in millions):
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value (recorded in ‘‘Research and Development Expenses’’) . . . . . . . . . . . . . . . . . . . . .
$30.5
—
1.1
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31.6
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 commercial paper, U.S. government
and agency 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.
Investments in unconsolidated affiliates are long-term equity investments in companies that are in various
stages of development. Certain of the Company’s investments in unconsolidated affiliates are designated as
available-for-sale. These investments are carried at fair market value based on quoted market prices.
Deferred Compensation Plans
The Company holds investments in trading securities related to its deferred compensation plans. The
investments are in a variety of stock, bond, and money market 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 foreign currency option contracts to manage foreign currency exposures, and interest rate swap
agreements to manage its interest rate exposures. All derivatives contracts are recognized on the balance sheet
at their fair value. The fair value of foreign currency derivative financial instruments was estimated based on
quoted market foreign exchange rates and market discount rates. The fair value of the interest rate swap
agreements was determined based on a discounted cash flow analysis reflecting the contractual terms of the
agreements and the 6-month LIBOR forward interest rate curve. 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.
72
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. FAIR VALUE MEASUREMENTS (Continued)
Contingent Consideration Obligation
The Company recorded a contingent consideration obligation related to its acquisition of CardiAQ
(Note 7). The $50.0 million contingent consideration obligation has been recorded at its estimated fair value,
which was determined using a probability weighted discounted cash flow analysis that considered significant
unobservable inputs. These inputs included a 1.9% discount rate used to present value the projected cash
flows, a 65.0% probability of milestone achievement, and a projected payment date in 2018. The use of
different assumptions could have a material effect on the estimated fair value amount.
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative financial instruments to manage its currency exchange rate risk and its
interest rate risk as summarized below. Notional amounts are stated in United States dollar equivalents at spot
exchange rates at the respective dates. The Company does not enter into these arrangements for trading or
speculation purposes.
Notional Amount
December 31, December 31,
2016
2015
(in millions)
Foreign currency forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$949.7
300.0
$1,061.6
300.0
The following table presents the location and fair value amounts of derivative instruments reported in
the consolidated balance sheets (in millions):
Balance Sheet Location
Fair Value
December 31, December 31,
2016
2015
Derivatives designated as hedging instruments
Assets
Foreign currency contracts . . . . . . . . . . . . . . . . . . Other current assets
Interest rate swap agreements
. . . . . . . . . . . . . . . Other assets
$28.6
$ 0.4
$15.0
$ 1.6
Liabilities
Foreign currency contracts . . . . . . . . . . . . . . . . . . Accrued and other liabilities
$ 3.3
$ 4.2
Derivatives not designated as hedging instruments
Assets
Foreign currency contracts . . . . . . . . . . . . . . . . . . Other current assets
Foreign currency contracts . . . . . . . . . . . . . . . . . . Other assets
$ 6.2
$ —
$ —
$ 6.7
73
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
The following table presents the effect of master-netting agreements and rights of offset on the
consolidated balance sheets (in millions):
Gross Amounts
Offset in the
Consolidated
Balance Sheet
Net Amounts
Presented in the
Consolidated
Balance Sheet
Gross
Amounts
Gross Amounts
Not Offset in
the Consolidated
Balance Sheet
Financial
Instruments
Cash
Collateral
Received
Net
Amount
$34.8
$ 0.4
$ 3.3
$21.7
$ 1.6
$ 4.2
$—
$—
$—
$—
$—
$—
$34.8
$ 0.4
$(3.3)
$ —
$—
$—
$31.5
$ 0.4
$ 3.3
$(3.3)
$—
$ —
$21.7
$ 1.6
$(4.0)
$ —
$—
$—
$17.7
$ 1.6
$ 4.2
$(4.0)
$—
$ 0.2
December 31, 2016
Derivative Assets
Foreign currency contracts . . . . .
Interest rate swap agreements . . .
Derivative Liabilities
Foreign currency contracts . . . . .
December 31, 2015
Derivative Assets
Foreign currency contracts . . . . .
Interest rate swap agreements . . .
Derivative Liabilities
Foreign currency contracts . . . . .
The following tables present the effect of derivative instruments on the consolidated statements of
operations and consolidated statements of comprehensive income:
Cash flow hedges
Foreign currency contracts . . . . . . . . . . . . . . . . .
Amount of
Gain or (Loss)
Recognized in
OCI on
Derivative
(Effective
Portion)
2016
2015
(in millions)
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
Amount of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
2016
2015
(in millions)
$16.1
$35.3 Cost of sales
$ 8.4
$67.1
Selling, general, and
administrative expenses
$(0.4) $ 0.9
Net investment hedges
Foreign currency contracts . . . . . . . . . . . . . . . . .
$ (4.1) $ 2.9 Other expense, net
$ — $ —
74
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Location of Gain or
(Loss) Recognized in
Income on Derivative
Amount of Gain or
(Loss) Recognized in
Income on
Derivative(a)
2016
2015
2014
(in millions)
Fair value hedges
Interest rate swap agreements
. . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense
$(1.2) $1.2
$4.4
(a) The gains and losses on the interest rate swap agreements are fully offset by the changes in the fair value
of the fixed-rate debt being hedged.
Location of Gain or
(Loss) Recognized in
Income on Derivative
Amount of Gain or
(Loss) Recognized in
Income on Derivative
2016
2015
2014
(in millions)
Derivatives not designated as hedging instruments
Foreign currency contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense, net
$8.6
$6.6
$13.7
The Company expects that during 2017 it will reclassify to earnings a $2.6 million gain currently
recorded in ‘‘Accumulated Other Comprehensive Loss.’’
For the years ended December 31, 2016, 2015, and 2014, the Company did not record any gains or
losses due to hedge ineffectiveness.
75
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
Edwards Lifesciences maintains defined benefit pension plans in Japan and certain European countries.
Information regarding the Company’s defined benefit pension plans is as follows:
Years Ended
December 31,
2016
2015
(in millions)
Change in projected benefit obligation:
Beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate changes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$118.1
6.8
1.2
1.9
6.5
(3.7)
1.9
—
(4.0)
$123.1
7.0
1.5
1.8
(1.4)
(1.3)
(2.9)
(4.1)
(5.6)
End of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$128.7
$118.1
Change in fair value of plan assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning of year
Actual return on plan assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate changes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75.1
1.4
6.3
1.9
—
(3.7)
(2.4)
$ 73.8
1.3
6.1
1.8
(4.1)
(1.3)
(2.5)
End of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78.6
$ 75.1
76
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE BENEFIT PLANS (Continued)
Years Ended
December 31,
2016
2015
(in millions)
Funded Status
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(128.7) $(118.1)
75.1
78.6
Underfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (50.1) $ (43.0)
Net amounts recognized on the consolidated balance sheet:
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50.1
$ 43.0
Accumulated other comprehensive loss, net of tax:
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service (cost) credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (18.0) $ (20.0)
5.1
3.5
(4.6)
5.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (17.6) $ (11.4)
The accumulated benefit obligation (‘‘ABO’’) for all defined benefit pension plans was $116.9 million and
$103.7 million as of December 31, 2016 and 2015, respectively. The projected benefit obligation and ABO
were in excess of plan assets for all pension plans as of December 31, 2016 and 2015.
The components of net periodic benefit cost are as follows (in millions):
Service cost, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31,
2016
2015
2014
$ 6.8
1.2
(1.3)
—
0.7
(0.7)
$ 7.0
1.5
(1.5)
0.6
1.0
(0.4)
$ 6.3
2.2
(1.6)
—
0.5
(0.3)
Net periodic pension benefit cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6.7
$ 8.2
$ 7.1
The net actuarial loss and prior service cost that will be amortized from ‘‘Accumulated Other
Comprehensive Loss’’ into net periodic benefits cost in 2017 are expected to be $0.7 million and $0.3 million,
respectively.
Expected long-term returns for each of the plans’ strategic asset classes were developed through
consultation with investment advisors. Several factors were considered, including survey of investment
managers’ expectations, current market data, minimum guaranteed returns in certain insurance contracts, and
historical market returns over long periods. Using policy target allocation percentages and the asset class
expected returns, a weighted-average expected return was calculated.
To select the discount rates for the defined benefit pension plans, the Company uses a modeling process
that involves matching the expected duration of its benefit plans to a yield curve constructed from a portfolio
77
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE BENEFIT PLANS (Continued)
of AA-rated fixed-income debt instruments, or their equivalent. For each country, the Company uses the
implied yield of this hypothetical portfolio at the appropriate duration as a discount rate benchmark.
The weighted-average assumptions used to determine the benefit obligations are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Social securities increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
0.7% 1.0%
2.5% 2.7%
1.4% 1.6%
1.8% 2.0%
The weighted-average assumptions used to determine the net periodic benefit cost are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Social securities increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended
December 31,
2016
2015
2014
1.0% 1.4% 2.2%
1.6% 1.9% 2.6%
2.7% 3.0% 3.1%
1.6% 1.6% 1.8%
2.0% 2.0% 2.0%
Plan Assets
The Company’s investment strategy for plan assets is to seek a competitive rate of return relative to an
appropriate level of risk and to earn performance rates of return in accordance with the benchmarks adopted
for each asset class. Risk management practices include diversification across asset classes and investment
styles, and periodic rebalancing toward asset allocation targets.
The Administrative and Investment Committee decides on the defined benefit plan provider in each
location and that provider decides the target allocation for the Company’s defined benefit plan at that
location. The target asset allocation selected reflects a risk/return profile the Company feels is appropriate
relative to the plans’ liability structure and return goals. In certain plans, asset allocations may be governed by
local requirements. Target weighted-average asset allocations at December 31, 2016, by asset category, are as
follows:
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities
77.9%
10.9%
11.2%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
78
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE BENEFIT PLANS (Continued)
The fair values of the Company’s defined benefit plan assets at December 31, 2016 and 2015, by asset
category, are as follows (in millions):
December 31, 2016
Level 1
Level 2
Level 3
Total
Asset Category
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities:
United States equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities:
United States government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
International government bonds
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015
Asset Category
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities:
United States equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities:
United States government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
International government bonds
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4.3
$— $ — $ 4.3
3.5
6.9
0.9
4.5
—
—
—
—
—
—
—
—
—
—
58.5
3.5
6.9
0.9
4.5
58.5
$20.1
$— $58.5
$78.6
$ 2.7
$— $ — $ 2.7
3.5
7.3
0.7
4.1
—
—
—
—
—
—
—
—
—
—
56.8
3.5
7.3
0.7
4.1
56.8
$18.3
$— $56.8
$75.1
The following table summarizes the changes in fair value of the Company’s defined benefit plan assets
that have been classified as Level 3 for the years ended December 31, 2016 and 2015 (in millions):
Insurance
Contracts
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58.4
Actual return on plan assets:
Relating to assets still held at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets:
Relating to assets still held at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange rate impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)
0.7
(2.0)
56.8
1.7
1.8
(1.8)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58.5
79
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE BENEFIT PLANS (Continued)
Equity and debt securities are valued at fair value based on quoted market prices reported on the active
markets on which the individual securities are traded. The insurance contracts are valued at the cash surrender
value of the contracts, which is deemed to approximate its fair value.
The following benefit payments, which reflect expected future service, as appropriate, at December 31,
2016, are expected to be paid (in millions):
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021-2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4.5
4.0
4.0
4.6
4.5
44.6
As of December 31, 2016, expected employer contributions for 2017 are $6.1 million.
Defined Contribution Plans
The Company’s employees in the United States and Puerto Rico are eligible to participate in a qualified
defined contribution plan. In the United States, participants may contribute up to 25% of their eligible
compensation (subject to tax code limitation) to the plan. Edwards Lifesciences matches the first 3% of the
participant’s annual eligible compensation contributed to the plan on a dollar-for-dollar basis. Edwards
Lifesciences matches the next 2% of the participant’s annual eligible compensation to the plan on a 50%
basis. In Puerto Rico, participants may contribute up to 25% of their annual compensation (subject to tax
code limitation) to the plan. Edwards Lifesciences matches the first 4% of participant’s annual eligible
compensation contributed to the plan on a 50% basis. The Company also provides a 2% profit sharing
contribution calculated on eligible earnings for each employee. Matching contributions relating to Edwards
Lifesciences employees were $17.3 million, $15.3 million, and $12.8 million in 2016, 2015, and 2014,
respectively.
The Company also has nonqualified deferred compensation plans for a select group of employees. The
plans provide eligible participants the opportunity to defer eligible compensation to future dates specified by
the participant with a return based on investment alternatives selected by the participant. The amount accrued
under these nonqualified plans was $46.7 million and $35.5 million at December 31, 2016 and 2015,
respectively.
13. COMMON STOCK
Treasury Stock
In July 2014, the Board of Directors approved a stock repurchase program authorizing the Company to
purchase up to $750.0 million of the Company’s common stock. In November 2016, the Board of Directors
approved a new stock repurchase program providing for an additional $1.0 billion of repurchases of our
common stock. The repurchase programs do not have an expiration date. Stock repurchased under these
programs may be used to offset obligations under the Company’s employee stock-based benefit programs and
stock-based business acquisitions, and will reduce the total shares outstanding.
During 2016, 2015, and 2014, the Company repurchased 7.3 million, 2.6 million, and 4.4 million shares,
respectively, at an aggregate cost of $662.3 million, $280.1 million, and $300.9 million, respectively, including
80
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMON STOCK (Continued)
shares purchased under the accelerated share repurchase (‘‘ASR’’) agreements described below and shares
acquired to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued
to employees. The timing and size of any future stock repurchases are subject to a variety of factors, including
expected dilution from stock plans, cash capacity, and the market price of our common stock.
Accelerated Share Repurchase
In February 2016, Edwards entered into ASR agreements to repurchase $325.0 million of the Company’s
common stock based on the volume-weighted average price (‘‘VWAP’’) of the Company’s common stock
during the term of the agreements, less a discount. Upon entering into the agreements, Edwards received an
initial delivery of 3.2 million shares. The initial shares were valued at $83.60 per share based on the closing
price of the Company’s common stock on the date of the agreements, and represented approximately 82% of
the total contract value. In April 2016, one of the ASR agreements concluded at a VWAP less discount per
share price of $84.39, and the Company received an additional 0.3 million shares under that agreement. In
October 2016, the remaining ASR agreement concluded at a VWAP less discount per share price of $101.82,
and the Company received an additional 44 thousand shares under that agreement.
The ASR agreements were accounted for as two separate transactions: (a) the value of the initial delivery
of shares was recorded as shares of common stock acquired in a treasury stock transaction on the acquisition
date and (b) the remaining amount of the purchase price paid was recorded as a forward contract indexed to
the Company’s own common stock and was recorded in ‘‘Additional Paid-in Capital’’ on the consolidated
balance sheets. The initial delivery of shares resulted in an immediate reduction of the outstanding shares
used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.
The Company determined that the forward contract indexed to the Company’s common stock met all the
applicable criteria for equity classification and, therefore, was not accounted for as a derivative instrument.
Employee and Director Stock Plans
The Edwards Lifesciences Corporation Long-term Stock Incentive Compensation Program (the
‘‘Program’’) provides for the grant of incentive and non-qualified stock options, restricted stock, and restricted
stock units for eligible employees and contractors of the Company. Under the Program, these grants are
awarded at a price equal to the fair market value at the date of grant based upon the closing price on that
date. Options to purchase shares of the Company’s common stock granted under the Program generally vest
over predetermined periods of between three to four years and expire seven years after the date of grant.
Service-based restricted stock units of the Company’s common stock granted under the Program generally
vest over predetermined periods ranging from three to five years after the date of grant. Market-based
restricted stock units of the Company’s common stock granted under the Program vest over three years based
on a combination of certain service and market conditions. The actual number of shares issued will be
determined based on the Company’s total stockholder return relative to a selected industry peer group.
Performance-based restricted stock units vest based on a combination of certain service conditions and upon
achievement of specified milestones. On May 12, 2016, an amendment and restatement of the Program was
approved by the Company’s stockholders. Under the amended Program, the number of shares of common
stock available for issuance under the Program was 107.8 million shares. No more than 11.2 million shares
reserved for issuance may be granted in the form of restricted stock or restricted stock units.
81
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMON STOCK (Continued)
The Company also maintains the Nonemployee Directors Stock Incentive Compensation Program (the
‘‘Nonemployee Directors Program’’). Under the Nonemployee Directors Program, upon a director’s initial
election to the Board, the director receives an initial grant of stock options or restricted stock units equal to a
fair market value on grant date of $0.2 million, not to exceed 20,000 shares. These grants vest over three
years from the date of grant, subject to the director’s continued service. In addition, annually each
nonemployee director may receive up to 40,000 stock options or 16,000 restricted stock units of the
Company’s common stock, or a combination thereof, provided that in no event may the total value of the
combined annual award exceed $0.2 million. These grants generally vest over one year from the date of grant.
Under the Nonemployee Directors Program, an aggregate of 2.8 million shares of the Company’s common
stock has been authorized for issuance.
The Company has an employee stock purchase plan for United States employees and a plan for
international employees (collectively ‘‘ESPP’’). Under the ESPP, eligible employees may purchase shares of the
Company’s common stock at 85% of the lower of the fair market value of Edwards Lifesciences common
stock on the effective date of subscription or the date of purchase. Under the ESPP, employees can authorize
the Company to withhold up to 12% of their compensation for common stock purchases, subject to certain
limitations. The ESPP is available to all active employees of the Company paid from the United States
payroll and to eligible employees of the Company outside the United States, to the extent permitted by local
law. The ESPP for United States employees is qualified under Section 423 of the Internal Revenue Code.
The number of shares of common stock authorized for issuance under the ESPP was 13.8 million shares.
The fair value of each option award and employee stock purchase subscription is estimated on the date
of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following
tables. The risk-free interest rate is estimated using the U.S. Treasury yield curve and is based on the
expected term of the award. Expected volatility is estimated based on a blend of the weighted-average of the
historical volatility of Edwards Lifesciences’ stock and the implied volatility from traded options on Edwards
Lifesciences’ stock. The expected term of awards granted is estimated from the vesting period of the award,
as well as historical exercise behavior, and represents the period of time that awards granted are expected to
be outstanding. The Company uses historical data to estimate forfeitures and has estimated an annual
forfeiture rate of 6.0%.
The Black-Scholes option pricing model was used with the following weighted-average assumptions for
options granted during the following periods:
Option Awards
Average risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value, per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1%
1.4%
1.5%
None
None
None
33%
4.5
$31.00
30%
4.6
$18.13
31%
4.6
$11.75
2016
2015
2014
82
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMON STOCK (Continued)
The Black-Scholes option pricing model was used with the following weighted-average assumptions for
ESPP subscriptions granted during the following periods:
ESPP
2016
2015
2014
Average risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value, per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3%
0.2%
0.1%
None
None
None
29%
0.6
$22.09
28%
0.6
$15.59
30%
0.6
$ 8.59
The fair value of market-based restricted stock units was determined using a Monte Carlo simulation
model, which uses multiple input variables to determine the probability of satisfying the market condition
requirements. The weighted-average assumptions used to determine the fair value of the market-based
restricted stock units during the years ended December 31, 2016, 2015, and 2014 included a risk-free interest
rate of 1.0%, 1.0%, and 0.9%, respectively, and an expected volatility rate of 30.0%, 31.0%, and 31.7%,
respectively.
Stock option activity during the year ended December 31, 2016 under the Program and the
Nonemployee Directors Program was as follows (in millions, except years and per-share amounts):
Outstanding as of December 31, 2015 . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
Weighted-
Average
Exercise
Price
$ 41.14
105.30
30.49
54.95
Shares
11.6
1.0
(2.4)
(0.2)
Outstanding as of December 31, 2016 . . . . . . . . . . . . . . .
10.0
49.85
3.6 years
$450.4
Exercisable as of December 31, 2016 . . . . . . . . . . . . . . . .
Vested and expected to vest as of December 31, 2016 . . . .
6.5
9.6
40.99
2.8 years
49.08
3.5 years
345.3
437.1
83
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMON STOCK (Continued)
The following table summarizes nonvested restricted stock unit activity during the year ended
December 31, 2016 under the Program and the Nonemployee Directors Program (in millions, except
per-share amounts):
Nonvested as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Grant-Date
Fair Value
$47.99
84.67
35.06
51.97
63.59
Shares
1.6
0.4
(0.5)
(0.1)
1.4
(a)
Includes 46,200 shares of market-based restricted stock units granted during 2016, which represents the
targeted number of shares to be issued, and 107,755 shares related to a previous year’s grant of market-
based restricted stock units since the payout percentage achieved at the end of the performance period
was in excess of target. As described above, the actual number of shares ultimately issued is determined
based on the Company’s total stockholder return relative to a selected industry peer group.
The intrinsic value of stock options exercised and restricted stock units vested during the years ended
December 31, 2016, 2015, and 2014 were $237.6 million, $164.4 million, and $158.8 million, respectively.
The intrinsic value of stock options is calculated as the amount by which the market price of the Company’s
common stock exceeds the exercise price of the option. During the years ended December 31, 2016, 2015,
and 2014, the Company received cash from exercises of stock options of $73.1 million, $63.6 million, and
$93.2 million, respectively, and realized tax benefits from exercises of stock options and vesting of restricted
stock units of $78.5 million, $53.7 million, and $51.9 million, respectively. The total grant-date fair value of
stock options vested during the years ended December 31, 2016, 2015, and 2014 were $24.1 million,
$23.1 million, and $22.6 million, respectively.
As of December 31, 2016, the total remaining unrecognized compensation expense related to nonvested
stock options, restricted stock units, and employee stock purchase subscriptions amounted to $96.8 million,
which will be amortized over the weighted-average remaining requisite service period of 30 months.
84
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Presented below is a summary of activity for each component of ‘‘Accumulated Other Comprehensive Loss’’
for the years ended December 31, 2016, 2015, and 2014.
Foreign
Currency
Translation
Adjustments
Unrealized Gain
on Cash
Flow Hedges
Unrealized Gain
(Loss) on
Available-for-sale
Investments
Unrealized
Pension
Costs(a)
Total
Accumulated
Other
Comprehensive
Loss
December 31, 2013 . . . . . . . . . . . . . . .
$ (20.2)
$ 3.5
Other comprehensive (loss) income
before reclassifications . . . . . . . . . . .
(96.2)
Amounts reclassified from accumulated
other comprehensive loss . . . . . . . . .
Deferred income tax (expense) benefit . .
—
—
December 31, 2014 . . . . . . . . . . . . . . .
(116.4)
Other comprehensive (loss) income
before reclassifications . . . . . . . . . . .
(64.0)
Amounts reclassified from accumulated
other comprehensive loss . . . . . . . . .
Deferred income tax (expense) benefit . .
—
(1.1)
December 31, 2015 . . . . . . . . . . . . . . .
(181.5)
Other comprehensive (loss) income
before reclassifications . . . . . . . . . . .
(17.6)
Amounts reclassified from accumulated
other comprehensive loss . . . . . . . . .
Deferred income tax benefit (expense) . .
—
1.5
54.3
(7.6)
(17.9)
32.3
35.3
(68.0)
12.2
11.8
16.1
(8.0)
(3.2)
December 31, 2016 . . . . . . . . . . . . . . .
$(197.6)
$ 16.7
(in millions)
$ 0.3
$(11.2)
$ (27.6)
(0.8)
(7.1)
(49.8)
0.4
0.1
—
(2.6)
1.1
—
(1.5)
0.7
1.1
(0.2)
$ 0.1
0.2
1.3
(16.8)
(7.0)
(16.5)
(100.9)
5.4
(25.9)
1.2
(1.2)
(11.4)
(7.7)
—
1.5
(65.7)
9.9
(182.6)
(8.5)
(6.9)
(0.4)
$(17.6)
$(198.4)
(a) For the years ended December 31, 2016, 2015, and 2014, the change in unrealized pension costs consisted of the
following (in millions):
2016
Pre-Tax
Amount
Tax Benefit Net of Tax
(Expense)
Amount
Prior service credit arising during period . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service cost arising during period . . . . . . . . . . . . . . . . . . .
Net actuarial gain arising during period . . . . . . . . . . . . . . . . . . . . .
$(9.0)
(0.7)
(9.7)
2.0
$ 1.0
—
1.0
0.5
Unrealized pension credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(7.7)
$ 1.5
2015
Prior service credit arising during period . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.9
(0.4)
Net prior service credit arising during period . . . . . . . . . . . . . . . . . .
Net actuarial gain arising during period . . . . . . . . . . . . . . . . . . . . .
2.5
4.1
Unrealized pension costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6.6
$(0.3)
0.1
(0.2)
(1.0)
$(1.2)
$(8.0)
(0.7)
(8.7)
2.5
$(6.2)
$ 2.6
(0.3)
2.3
3.1
$ 5.4
85
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)
Pre-Tax
Amount
Tax Benefit Net of Tax
(Expense)
Amount
2014
Prior service cost arising during period . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service credit arising during period . . . . . . . . . . . . . . . . . .
Net actuarial loss arising during period . . . . . . . . . . . . . . . . . . . . . .
$ 0.8
(0.3)
0.5
(7.4)
$ —
—
—
1.3
Unrealized pension credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(6.9)
$ 1.3
$ 0.8
(0.3)
0.5
(6.1)
$(5.6)
The following table provides information about amounts reclassified from ‘‘Accumulated Other
Comprehensive Loss’’ (in millions):
Details about Accumulated Other Comprehensive Loss
Components
Gain on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31,
2016
2015
Affected Line on Consolidated
Statements of Operations
$ 8.0
(3.4)
$ 68.0 Cost of sales
(25.0) Provision for income taxes
$ 4.6
$ 43.0 Net of tax
Gain (loss) on available-for-sale investments . . . . . . . . . . . . . .
$(1.1) $ (1.1) Other expense, net
—
— Provision for income taxes
$(1.1) $ (1.1) Net of tax
Amortization of pension adjustments
. . . . . . . . . . . . . . . . . .
$ — $ (1.2)
(a)
—
0.2 Provision for income taxes
$ — $ (1.0) Net of tax
(a) This item is included in the components of net periodic benefit costs. See Note 12 for additional
information.
15. OTHER EXPENSE, NET
Charitable foundation contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease contract termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31,
2016
2015
2014
(in millions)
$ 5.0
0.5
(0.2)
—
—
—
(0.4)
$ — $ —
2.0
4.8
4.5
(0.1)
4.0
—
— (3.7)
1.0
—
(0.1)
(0.7)
Total other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4.9
$ 4.0
$ 7.7
86
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES
The Company’s income before provision for income taxes was generated from United States and
international operations as follows (in millions):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International, including Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$378.2
359.7
$182.8
439.6
$ 791.1
352.9
Years Ended December 31,
2016
2015
2014
The provision for income taxes consists of the following (in millions):
$737.9
$622.4
$1,144.0
Years Ended December 31,
2016
2015
2014
Current
United States:
Federal
State and local
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International, including Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$153.4
12.1
27.4
$102.4
7.4
33.5
$341.5
23.3
34.8
Current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$192.9
$143.3
$399.6
Deferred
United States:
Federal
State and local
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International, including Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (19.6) $ (12.5) $ (46.4)
(8.1)
(12.2)
(2.6)
(0.7)
(4.3)
(0.6)
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24.5)
(15.8)
(66.7)
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168.4
$127.5
$332.9
87
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
The components of deferred tax assets and liabilities are as follows (in millions):
December 31,
2016
2015
Deferred tax assets
Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits from uncertain tax positions
Net tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$100.8
56.7
45.6
30.2
29.4
11.5
2.4
2.6
4.2
3.1
$ 94.0
50.0
39.3
27.0
24.2
11.9
0.5
2.6
3.8
4.5
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286.5
257.8
Deferred tax liabilities
Property, plant, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax on foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28.2)
(1.2)
(6.0)
(4.1)
(4.2)
(0.2)
(43.9)
(47.7)
(25.1)
(0.4)
(10.9)
(0.9)
(4.1)
(0.5)
(41.9)
(45.2)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$194.9
$170.7
During 2016, net deferred tax assets increased $24.2 million, including items that were recorded to
stockholders’ equity and which did not impact the Company’s income tax provision.
The valuation allowance of $47.7 million as of December 31, 2016 reduces certain deferred tax assets to
amounts that are more likely than not to be realized. This allowance primarily relates to the net operating
loss carryforwards of certain United States and non-United States subsidiaries, and to the deferred tax assets
established for impairment losses on certain investments and for certain non-United States credit
carryforwards.
A valuation allowance of $2.6 million has been provided for other-than-temporary impairments and
unrealized losses related to certain investments that may not be recognized due to the uncertainty of the ready
marketability of certain impaired investments.
88
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
Net operating loss carryforwards and the related carryforward periods at December 31, 2016 are
summarized as follows (in millions):
Carryforward
Amount
Tax Benefit
Amount
Valuation
Allowance
Net Tax Carryforward
Period Ends
Benefit
United States state net operating losses . . . . . .
Non-United States net operating losses . . . . . .
Non-United States net operating losses . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10.6
57.2
46.4
$114.2
$ 0.6
14.3
15.6
$30.5
$ (0.3)
(13.9)
(15.6)
$(29.8)
$0.3
0.4
—
$0.7
2017-2034
2017-2025
Indefinite
Tax credit carryforwards and the related carryforward periods at December 31, 2016 are summarized as
follows (in millions):
Carryforward
Amount
Valuation
Allowance
Net Tax Carryforward
Period Ends
Benefit
California research expenditure tax credits . . . . . . . . . . . . .
Puerto Rico purchases credit . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$76.6
14.4
$91.0
$ — $76.6
(14.4)
Indefinite
— Indefinite
$(14.4)
$76.6
The Company has $76.6 million of California research expenditure tax credits it expects to use in future
periods. The credits may be carried forward indefinitely. Based upon anticipated future taxable income, the
Company expects that it is more likely than not that all California research expenditure tax credits will be
utilized, although the utilization of the full benefit is expected to occur over a number of years and into the
distant future. Accordingly, no valuation allowance has been provided.
The United States state net operating loss carryforwards include $6.0 million of losses attributable to
windfall stock option deductions. A net benefit of $0.3 million will be recorded to ‘‘Additional Paid-in
Capital’’ when realized as a reduction to income taxes payable.
Approximately $9.0 million of the California research expenditure tax credit carryforwards are
attributable to windfall stock option deductions and will be recorded as a benefit to ‘‘Additional Paid-in
Capital’’ when realized as a reduction to income taxes payable.
Deferred income taxes have not been provided on the undistributed earnings of certain of the Company’s
foreign subsidiaries of approximately $2,187.1 million as of December 31, 2016 since these amounts are
intended to be indefinitely reinvested in foreign operations. It is not practicable to calculate the deferred taxes
associated with these earnings because of the variability of multiple factors that would need to be assessed at
the time of any assumed repatriation; however, foreign tax credits would likely be available to reduce federal
income taxes in the event of distribution. In making this assertion, the Company evaluates, among other
factors, the profitability of its United States and foreign operations and the need for cash within and outside
the United States, including cash requirements for capital improvement, acquisitions, market expansion, and
stock repurchase programs. The Company does not expect any earnings for certain of its other foreign
subsidiaries to be indefinitely reinvested and records the tax impact in net income currently.
The Company has received tax incentives in certain non-U.S. tax jurisdictions, the primary benefit of
which will expire in 2024. The tax reductions as compared to the local statutory rates were $77.4 million
89
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
($0.32 per diluted share), $59.1 million ($0.25 per diluted share), and $68.3 million ($0.31 per diluted share)
for the years ended December 31, 2016, 2015, and 2014, respectively.
A reconciliation of the United States federal statutory income tax rate to the Company’s effective income
tax rate is as follows (in millions):
Income tax expense at U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . .
Foreign income taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of federal tax benefit
. . . . . . . . . . . . . . . . . . . . . . .
Tax credits, federal and state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Build (release) of reserve for uncertain tax positions for prior years . . . . . . . . . .
U.S. tax on foreign earnings, net of credits . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2016
2015
2014
$258.3
(88.6)
9.7
(21.3)
4.6
5.1
3.6
(3.0)
$ 217.8
(105.8)
3.1
(15.7)
3.3
20.5
2.3
2.0
$400.4
(67.1)
19.3
(13.5)
(4.8)
(3.1)
2.1
(0.4)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168.4
$ 127.5
$332.9
The effective income tax rate for the year ended December 31, 2016 was higher than the rate for the
year ended December 31, 2015 primarily because of fluctuations in the relative contribution of the Company’s
foreign operations and United States operations to worldwide pre-tax income, offset by an increase in benefits
from the federal and California research credits.
The effective income tax rate for December 31, 2014 included (1) $262.1 million of tax expense
associated with a $750.0 million litigation settlement payment received in May 2014 (see Note 3) and
(2) $4.8 million of tax benefits from the remeasurement of uncertain tax positions.
Uncertain Tax Positions
As of December 31, 2016 and 2015, the gross uncertain tax positions were $245.5 million and $216.1
million, respectively. The Company estimates that these liabilities would be reduced by $44.9 million and
$40.6 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 $200.6 million
and $175.5 million, respectively, if not required, would favorably affect the Company’s effective tax rate.
90
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
A reconciliation of the beginning and ending amount of uncertain tax positions, excluding interest,
penalties, and foreign exchange, is as follows (in millions):
December 31,
2016
2015
2014
Uncertain gross tax positions, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease prior year tax positions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$216.1
29.0
2.7
(0.9)
(0.3)
(1.1)
$192.3
29.6
2.2
(7.4)
(0.4)
(0.2)
$127.7
75.9
0.6
(10.5)
(1.0)
(0.4)
Uncertain gross tax positions, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . .
$245.5
$216.1
$192.3
The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision
for income taxes. As of December 31, 2016, the Company had accrued $14.7 million (net of $10.8 million
tax benefit) of interest related to uncertain tax positions, and as of December 31, 2015, the Company had
accrued $10.7 million (net of $7.6 million tax benefit) of interest related to uncertain tax positions. During
2016, 2015, and 2014, the Company recognized interest expense, net of tax benefit, of $4.0 million, $3.9
million, and $2.3 million, respectively, in ‘‘Provision for Income Taxes’’ on the consolidated statements of
operations.
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 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. Management believes that adequate amounts of tax and related penalty and interest have been
provided in income tax expense for any adjustments that may result from these uncertain tax positions.
At December 31, 2016, all material state, local, and foreign income tax matters have been concluded for
years through 2008. The Internal Revenue Service (‘‘IRS’’) has substantially completed its fieldwork for the
2009 through 2012 tax years. However, the audits are currently in suspense pending a final determination
with respect to a pending application for an Advance Pricing Agreement (‘‘APA’’). The IRS began its
examination of the 2014 tax year during the fourth quarter of 2016.
The Company has been pursuing an APA between the Switzerland and United States governments for
the years 2009 through 2013 covering transfer pricing matters with the possibility of a roll-forward of the
results to subsequent years. These discussions remain ongoing as of December 31, 2016. These transfer
pricing matters are significant to the Company’s consolidated financial statements as the disputed amounts are
material, and the final outcome is uncertain. The Company continues to believe its positions are supportable.
During 2014, the Company filed with the IRS a request for a pre-filing agreement associated with a tax
return filing position on a portion of the litigation settlement payment received in May 2014 (see Note 3).
During the first quarter of 2015, the IRS accepted the Company’s request into the pre-filing agreement
91
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
program. The closing agreement for this matter was finalized during the fourth quarter of 2016. There
remains a disputed issue and the Company expects to enter the Fast-Track Appeals process during 2017. The
Company made an advance payment of tax in December 2015 to prevent the further accrual of interest on
any potential deficiency only and not to signify any potential agreement to a contrary position that may be
taken by the IRS.
The Company believes that adequate amounts of tax and related penalty and interest have been provided
in income tax expense for any adjustments that may result from its uncertain tax positions. Based upon the
information currently available and numerous possible outcomes, the Company cannot reasonably estimate
what, if any, changes in its existing uncertain tax positions may occur in the next 12 months and thus have
recorded the gross uncertain tax positions as a long-term liability. However, if the APA and/or the appeals
process related to the pre-filing agreement is finalized in the next 12 months, it is reasonably possible that
these events could result in a significant change in the Company’s uncertain tax positions within the next
12 months.
17. LEGAL PROCEEDINGS
On October 30, 2015, Boston Scientific Scimed, Inc., a subsidiary of Boston Scientific Corporation
(‘‘Boston Scientific’’), filed a lawsuit in the district court in D ¨usseldorf, Germany against Edwards
Lifesciences and its German subsidiary, Edwards Lifesciences Services GmbH, alleging that Edwards
Lifesciences’ SAPIEN 3 heart valve infringes certain claims of a Boston Scientific German national patent
arising from EP 2 749 254 B1 (the ‘‘‘254 patent’’) related to paravalvular sealing technology. On February 26,
2016, Boston Scientific added the German national patent arising from EP 2 926 766 (the ‘‘‘766 Patent’’) to
the infringement allegations. On April 8, 2016, Boston Scientific filed a similar patent infringement action in
district court in Paris, France relating to these patents. The complaints seek unspecified money damages and
injunctive relief. The Company intends to defend itself vigorously in these matters. Trial in the German
matter was held in February 2017 and the German district court’s decision is expected in the first quarter of
2017. The French suit has been stayed pending the outcome of validity proceedings on the ‘766 and
‘254 patents.
On November 2, 2015, Edwards Lifesciences LLC, a U.S. subsidiary of Edwards Lifesciences, filed a
lawsuit against Sadra Medical, Inc. and Boston Scientific Scimed, Inc., two subsidiaries of Boston Scientific,
in the United Kingdom in the High Court of Justice, Chancery Division, Patents Court to declare invalid
and revoke the U.K. national patent corresponding to the ‘254 patent. Edwards Lifesciences later added
Boston Scientific’s UK national patent corresponding to the ‘766 patent to this invalidity lawsuit. The Boston
Scientific subsidiaries filed counterclaims against Edwards Lifesciences and three of its European subsidiaries
alleging that the SAPIEN 3 heart valve infringes certain claims of the same patents and seeking unspecified
monetary damages and injunctive relief. Trial on the U.K. matter was held in January 2017 and a decision is
expected in the first half of 2017.
On November 23, 2015, Edwards Lifesciences PVT, Inc., a U.S. subsidiary of Edwards Lifesciences,
filed a lawsuit in the district court in D ¨usseldorf, Germany for patent infringement against Boston Scientific
and a German subsidiary, Boston Scientific Medizintechnik GmbH, alleging that the Lotus heart valve
infringes certain claims of Edwards Lifesciences’ German national patents EP 1 441 672 B1 and
2 255 753 B1 related to prosthetic valve and delivery system technology. Edwards Lifesciences later added its
German national patent EP 2 399 550 to this suit. The complaint seeks unspecified monetary damages and
92
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. LEGAL PROCEEDINGS (Continued)
injunctive relief. Trial in the German matter was held in February 2017 and the German district court’s
decision is expected in the first quarter of 2017.
On April 19, 2016, Boston Scientific filed a lawsuit against Edwards Lifesciences in the Federal District
Court in the District of Delaware alleging that the SAPIEN 3 heart valve infringes certain claims of Boston
Scientific’s U.S. Patent 8,992,608 (the ‘‘‘608 patent’’) related to paravalvular sealing technology and seeking
unspecified monetary damages and injunctive relief. On June 9, 2016, Edwards Lifesciences LLC and
Edwards Lifesciences PVT, Inc. filed counterclaims alleging that Boston Scientific’s Lotus heart valve
infringes Edwards Lifesciences’ U.S. Patents 9,168,133; 9,339,383; and 7,510,575 related to prosthetic valve
technology. Trial is scheduled for July 2018. On October 12, 2016, Edwards Lifesciences filed an Inter Partes
Review (‘‘IPR’’) request with the U.S. Patent and Trademark Office challenging the validity of Boston
Scientific’s ‘608 patent.
Also on April 19, 2016, Boston Scientific filed a lawsuit against Edwards Lifesciences in the Federal
District Court in the Central District of California alleging that five of its transcatheter heart valve delivery
systems and a valve crimper infringe certain claims of eight Boston Scientific U.S. patents. The complaints
seek unspecified monetary damages and injunctive relief. Trial is scheduled for May 2018. The Company
intends to defend itself vigorously in these matters and has filed an IPR request related to the crimping
device patent.
Because the ultimate outcome of the above matters involve judgments, estimates and inherent
uncertainties, and cannot be predicted with certainty, charges related to such matters could have a material
adverse impact on Edwards Lifesciences’ financial position, results of operations, and liquidity.
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.
93
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. 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. 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):
Years Ended December 31,
2016
2015
2014
Segment Net Sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,615.7
745.9
279.6
303.6
$1,262.8
842.9
297.2
315.1
$1,047.3
741.4
270.8
285.1
Total segment net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,944.8
$2,718.0
$2,344.6
Segment Pre-tax Income
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,050.2
360.9
139.6
73.0
$ 747.8
409.1
139.4
82.2
$ 605.6
328.1
125.2
78.6
Total segment pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,623.7
$1,378.5
$1,137.5
94
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. SEGMENT INFORMATION (Continued)
The table below presents reconciliations of segment net sales to consolidated net sales and segment
pre-tax income to consolidated pre-tax income (in millions):
Years Ended December 31,
2016
2015
2014
Net Sales Reconciliation
Segment net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,944.8
18.9
$2,718.0
(224.3)
$2,344.6
(21.7)
Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,963.7
$2,493.7
$2,322.9
Pre-tax Income Reconciliation
Segment pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated amounts:
Corporate items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property (expenses) income, net . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,623.7
$1,378.5
$1,137.5
(826.1)
(34.5)
(32.6)
(8.4)
15.8
(711.3)
—
(7.0)
(9.3)
(28.5)
(659.2)
(70.7)
740.4
(10.8)
6.8
Consolidated pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 737.9
$ 622.4
$1,144.0
Enterprise-Wide Information
Enterprise-wide information is based on actual foreign exchange rates used in the Company’s
consolidated financial statements.
As of or for the Years Ended
December 31,
2016
2015
2014
(in millions)
Net Sales by Geographic Area
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,615.7
749.0
309.3
289.7
$1,262.9
717.3
246.2
267.3
$1,047.3
744.5
257.9
273.2
$2,963.7
$2,493.7
$2,322.9
Net Sales by Major Product Area
Transcatheter Heart Valve Therapy . . . . . . . . . . . . . . . . . . . . . . . . . .
Surgical Heart Valve Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,628.5
774.9
560.3
$1,180.3
785.0
528.4
$ 943.6
826.1
553.2
$2,963.7
$2,493.7
$2,322.9
Long-lived Tangible Assets by Geographic Area
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 555.5
27.9
8.0
108.6
$ 473.6
36.0
8.1
96.0
$ 347.6
42.1
8.5
93.9
$ 700.0
$ 613.7
$ 492.1
95
EDWARDS LIFESCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. QUARTERLY FINANCIAL RESULTS AND MARKET FOR THE COMPANY’S STOCK
(UNAUDITED)
Years Ended December 31,
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
(in millions, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:
$697.3
517.0
143.0
$ 759.3
556.8
126.6
$ 739.4
538.0
141.4
$ 767.7
554.5
158.5
$2,963.7
2,166.3
569.5
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.67
0.66
0.60
0.58
0.66
0.65
0.74
0.73
2.67
2.61
Market price:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$89.93
72.20
$112.00
86.73
$121.73
98.02
$121.75
81.12
$ 121.75
72.20
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:
$590.3
454.3
123.4
$ 616.8
458.2
112.7
$ 615.5
468.8
118.1
$ 671.1
495.2
140.7
$2,493.7
1,876.5
494.9
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.57
0.56
0.52
0.51
0.55
0.54
0.65
0.64
2.30
2.25
Market price:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$75.21
61.99
$ 73.65
61.38
$ 79.50
62.53
$ 83.43
70.32
$ 83.43
61.38
20. VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Charged to Deductions
Beginning
of Period
Costs and
Expenses
Other
Accounts
From
Reserves
Year ended December 31, 2016
Allowance for doubtful accounts(a) . . . . . . . . .
. . . . . . . . . . . . . .
Tax valuation allowance(b)
Year ended December 31, 2015
Allowance for doubtful accounts(a) . . . . . . . . .
Tax valuation allowance(b)
. . . . . . . . . . . . . .
Year ended December 31, 2014
Allowance for doubtful accounts(a) . . . . . . . . .
. . . . . . . . . . . . . .
Tax valuation allowance(b)
$13.1
45.2
$11.3
47.7
$12.2
46.4
(in millions)
$ —
1.3
$ —
—
$ —
—
$(1.8)
—
$(2.0)
(7.3)
$(1.7)
(0.7)
$1.5
1.2
$3.8
4.8
$0.8
2.0
Balance at
End of
Period
$12.8
47.7
$13.1
45.2
$11.3
47.7
(a) The deductions related to allowances for doubtful accounts represent accounts receivable which are
written off.
(b) The tax valuation allowances are provided for other-than-temporary impairments and unrealized losses
related to certain investments that may not be recognized due to the uncertainty of the ready
marketability of certain impaired investments, and net operating loss and credit carryforwards that may
not be recognized due to insufficient taxable income.
96
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company’s management, including the
Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2016.
Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded as of
December 31, 2016 that the Company’s disclosure controls and procedures are designed at a reasonable
assurance level and are effective in providing reasonable assurance that the information required to be
disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting. The Company’s
management, including the Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f ) and 15d-15(f ) under the Securities Exchange Act of 1934, as amended. Under the
supervision and with the participation of the Company’s management, including the Chief Executive Officer
and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control
over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, the Company’s management concluded that its internal control over financial reporting was
effective as of December 31, 2016. The effectiveness of the Company’s internal control over financial
reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting. There have been no changes in the
Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter
of 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Item 9B. Other Information
None.
97
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Certain information required by this Item is set forth under the headings ‘‘Corporate Governance,’’
‘‘Executive Compensation and Other Information—Executive Officers,’’ and ‘‘Other Matters and Business—
Additional Information’’ and ‘‘—Section 16(a) Beneficial Ownership Reporting Compliance’’ in the definitive
proxy materials to be filed in connection with its 2017 Annual Meeting of Stockholders (the ‘‘Proxy
Statement’’) (which Proxy Statement will be filed with the SEC within 120 days of December 31, 2016).
The information required by this Item to be contained in the Proxy Statement is incorporated herein by
reference. The Company has adopted a code of ethics that applies to all directors and employees, including
the Company’s principal executive officer, principal financial officer and controller or persons performing
similar functions. The code of ethics (business practice standards) is posted on the Company’s website, which
is found at www.edwards.com under ‘‘Investors.’’ To the extent required by applicable rules of the SEC and
the New York Stock Exchange, the Company intends to disclose on its website any amendments to, or
waivers from, any provision of its code of ethics that apply to the Company’s directors and executive officers,
including the principal executive officer, principal financial officer or controller or persons performing similar
functions.
Item 11. Executive Compensation
The information contained under the heading ‘‘Executive Compensation and Other Information’’ in the
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information contained under the headings ‘‘Security Ownership of Certain Beneficial Owners and
Management’’ and ‘‘Equity Compensation Plan Information’’ in the Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information contained under the heading ‘‘Other Matters and Business—Related Party Transactions’’
and under the heading ‘‘Corporate Governance—Director Independence’’ in the Proxy Statement is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information contained under the heading ‘‘Audit Matters—Fees Paid to Principal Accountants’’ in
the Proxy Statement is incorporated herein by reference.
98
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
PART IV
1. Consolidated Financial Statements. See ‘‘Index to Consolidated Financial Statements’’ in Part II,
Item 8 herein
2.
Financial Statement Schedules. Other schedules are not applicable and have not been included
herein.
3. Exhibits. The exhibits listed in the Exhibit Index (following the signature page of this report) are
filed, furnished, or incorporated by reference as part of this report on Form 10-K.
Item 16. Form 10-K Summary
None.
99
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
EDWARDS LIFESCIENCES CORPORATION
February 17, 2017
By:
/s/ MICHAEL A. MUSSALLEM
Michael A. Mussallem
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MICHAEL A. MUSSALLEM
Michael A. Mussallem
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
February 17, 2017
/s/ SCOTT B. ULLEM
Scott B. Ullem
Corporate Vice President, Chief
Financial Officer
(Principal Financial Officer)
February 17, 2017
/s/ ROBERT W.A. SELLERS
Robert W.A. Sellers
Vice President, Corporate Controller
(Principal Accounting Officer)
February 17, 2017
/s/ JOHN T. CARDIS
John T. Cardis
/s/ KIERAN T. GALLAHUE
Kieran T. Gallahue
/s/ LESLIE S. HEISZ
Leslie S. Heisz
/s/ WILLIAM J. LINK, PH.D.
William J. Link, Ph.D.
Director
February 17, 2017
Director
February 17, 2017
Director
February 17, 2017
Director
February 17, 2017
100
Signature
Title
Date
/s/ STEVEN R. LORANGER
Steven R. Loranger
/s/ MARTHA H. MARSH
Martha H. Marsh
/s/ WESLEY W. VON SCHACK
Wesley W. von Schack
/s/ NICHOLAS J. VALERIANI
Nicholas J. Valeriani
Director
February 17, 2017
Director
February 17, 2017
Director
February 17, 2017
Director
February 17, 2017
101
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Exhibit No.
Exhibit No.
3.1
3.2
4.1
4.2
4.3
4.4
10.1
#10.2
*10.3
*10.4
*10.5
Amended and Restated Certificate of Incorporation of Edwards Lifesciences Corporation dated
May 16, 2013 (incorporated by reference to Exhibit 3.1 in Edwards Lifesciences’ report on
Form 8-K dated May 17, 2013)
Bylaws of Edwards Lifesciences Corporation amended and restated as of February 25, 2016
(incorporated by reference to Exhibit 3.1 in Edwards Lifesciences’ report on Form 8-K dated
March 2, 2016)
Specimen form of certificate representing Edwards Lifesciences Corporation common stock
(incorporated by reference to Exhibit 4.1 in Edwards Lifesciences’ Registration Statement on
Form 10 (File No. 001-15525) filed on March 15, 2000)
Indenture, dated as of September 6, 2013, between Edwards Lifesciences Corporation and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.5 in
Edwards Lifesciences’ Registration Statement on Form S-3 (File No. 333-191022) filed on
September 6, 2013) (the ‘‘Indenture’’)
First Supplemental Indenture, dated as of October 3, 2013, to the Indenture (incorporated by
reference to Exhibit 4.1 in Edwards Lifesciences’ report on Form 8-K, filed on October 3, 2013)
(‘‘First Supplemental Indenture’’)
Form of Global Note for the 2.875% Senior Notes due 2018 (incorporated by reference to
Exhibit A in the First Supplemental Indenture filed as Exhibit 4.1 in Edwards Lifesciences’
report on Form 8-K, filed on October 3, 2013)
Five-Year Credit Agreement, dated as of July 18, 2014, among Edwards Lifesciences
Corporation and certain of its subsidiaries, as Borrowers; the lenders signatory thereto, Bank of
America, N.A., as Administrative Agent, Swing Line Lender and Issuing Bank; JPMorgan
Chase Bank, N.A. and Wells Fargo Bank, National Association, as Co-Syndication Agents; and
Deutsche Bank Securities Inc., HSBC Bank USA, National Association, PNC Bank, National
Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd., and U.S. Bank National Association, as
Co-Documentation Agents (incorporated by reference to Exhibit 10.1 in Edwards Lifesciences’
report on Form 8-K, filed on July 24, 2014)
Settlement Agreement, dated May 19, 2014, between Edwards Lifesciences Corporation and
Medtronic, Inc. (incorporated by reference to Exhibit 10.2 in Edwards Lifesciences’ report on
Form 10-Q for the quarterly period ended June 30, 2014)
Edwards Lifesciences Corporation Form of Employment Agreement (incorporated by reference
to Exhibit 10.8 in Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended
March 31, 2003)
Edwards Lifesciences Corporation Amended and Restated Employment Agreement for
Michael A. Mussallem dated March 30, 2009 (incorporated by reference to Exhibit 10.2 in
Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended March 31, 2009)
Edwards Lifesciences Corporation Amended and Restated Chief Executive Officer
Change-in-Control Severance Agreement, dated October 9, 2012 (incorporated by reference to
Exhibit 10.1 in Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended
September 30, 2012)
102
Exhibit No.
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
*10.14
*10.15
*10.16
*10.17
Exhibit No.
Edwards Lifesciences Corporation Form of Change-in-Control Severance Agreement
(incorporated by reference to Exhibit 10.2 in Edward Lifesciences’ report on Form 10-Q for the
quarterly period ended September 30, 2012)
Edwards Lifesciences Corporation 2015 Edwards Incentive Plan (incorporated by reference to
Appendix A in Edwards Lifesciences’ Definitive Proxy Statement filed on March 30, 2015)
Edwards Lifesciences Corporation Long-Term Stock Incentive Compensation Program, as
amended and restated as of February 19, 2015 (the ‘‘Long-Term Stock Program’’) (incorporated
by reference to Appendix A in Edwards Lifesciences’ Definitive Proxy Statement filed on
March 31, 2016)
Edwards Lifesciences Corporation Form of Participant Stock Option Statement and related
Long-Term Stock Program Global Nonqualified Stock Option Award Agreement for awards
granted prior to May 2015 (incorporated by reference to Exhibit 10.1 in Edwards Lifesciences’
report on Form 10-Q for the quarterly period ended March 31, 2011)
Edwards Lifesciences Corporation Form of Participant Restricted Stock Unit Statement and
related Long-Term Stock Program Global Restricted Stock Unit Award Agreement for awards
granted prior to May 2015 (incorporated by reference to Exhibit 10.4 in Edwards Lifesciences’
report on Form 10-Q for the quarterly period ended March 31, 2011)
Edwards Lifesciences Corporation Form of Performance-Based Restricted Stock Unit Statement
and related Long-Term Stock Program Global Performance-Based Restricted Stock Unit Award
Agreement for awards granted prior to May 2015 (incorporated by reference to Exhibit 10.4 in
Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended June 30, 2012)
Edwards Lifesciences Corporation Long-Term Stock Program Global Nonqualified Stock Option
Award Agreement for awards granted beginning May 2015 (incorporated by reference to
Exhibit 10.3 in Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended
June 30, 2015)
Edwards Lifesciences Corporation Long-Term Stock Program Global Restricted Stock Unit
Award Agreement for awards granted beginning May 2015 (incorporated by reference to
Exhibit 10.4 in Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended
June 30, 2015)
Edwards Lifesciences Corporation Form of Performance-Based Restricted Stock Unit Statement
and related Long-Term Stock Program Global Performance-Based Restricted Stock Unit Award
Agreement for awards granted beginning May 2015 (incorporated by reference to Exhibit 10.4 in
Edwards Lifesciences’ report on Form 10-Q for the quarterly period ended June 30, 2015)
Edwards Lifesciences Corporation Nonemployee Directors Stock Incentive Program, as amended
and restated as of February 25, 2016 (incorporated by reference to Exhibit 10.1 in Edwards
Lifesciences’ report on Form 10-Q for the quarterly period ended March 31, 2016)
Edwards Lifesciences Corporation Form of Participant Stock Option Statement and related
Nonemployee Directors Stock Incentive Program Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 10.2 in Edwards Lifesciences’ report on Form 10-Q for the
quarterly period ended June 30, 2013)
Edwards Lifesciences Corporation Form of Nonemployee Directors Stock Incentive Program
Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.4 in Edwards
Lifesciences’ report on Form 10-Q for the quarterly period ended March 31, 2011)
103
Exhibit No.
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
*10.24
*10.25
*10.26
*10.27
*10.28
*10.29
12.1
21.1
Exhibit No.
Edwards Lifesciences Corporation Form of Nonemployee Directors Stock Incentive Program
Restricted Stock Agreement (incorporated by reference to Exhibit 10.5 in Edwards Lifesciences’
report on Form 10-Q for the quarterly period ended March 31, 2011)
Edwards Lifesciences Corporation Severance Pay Plan, restated effective January 1, 2013
(incorporated by reference to Exhibit 10.1 in Edwards Lifesciences’ report on Form 10-Q for the
quarterly period ended March 31, 2013)
Edwards Lifesciences Corporation Executive Deferred Compensation Plan, as amended and
restated effective November 9, 2011 (incorporated by reference to Exhibit 10.7 in Edwards
Lifesciences’ report on Form 10-K for the fiscal year ended December 31, 2011)
Edwards Lifesciences Corporation of Puerto Rico Savings and Investment Plan, as amended and
restated January 1, 2011 (incorporated by reference to Exhibit 10.17 in Edwards Lifesciences’
report on Form 10-K for the fiscal year ended December 31, 2012)
Edwards Lifesciences Corporation 401(k) Savings and Investment Plan, restated effective
January 1, 2016 (incorporated by reference to Exhibit 10.2 in Edwards Lifesciences’ report on
Form 10-Q for the quarterly period ended March 31, 2016)
Amendment #1 to the Edwards Lifesciences Corporation 401(k) Savings and Investment Plan,
dated May 2, 2016 (incorporated by reference to Exhibit 10.1 in Edwards Lifesciences’ report on
Form 10-Q for the quarterly period ended June 30, 2016)
Amendment #2 to the Edwards Lifesciences Corporation 401(k) Savings and Investment Plan,
dated December 19, 2016
Edwards Lifesciences Corporation 2001 Employee Stock Purchase Plan for United States
Employees, as amended and restated November 10, 2009 (incorporated by reference to
Appendix B in Edwards Lifesciences’ Definitive Proxy Statement filed on March 29, 2013)
Edwards Lifesciences Corporation 2001 Employee Stock Purchase Plan for International
Employees, as amended and restated February 20, 2014 (incorporated by reference to
Appendix B in Edwards Lifesciences’ Definitive Proxy Statement filed on March 28, 2014)
Edwards Lifesciences Corporation 2015 Edwards Incentive Plan (incorporated by reference to
Appendix A in Edwards Lifesciences’ Definitive Proxy Statement filed on March 30, 2015)
Edwards Lifesciences Corporation Officer Perquisite Program Guidelines, as of February 20,
2013 (incorporated by reference to Exhibit 10.25 in Edwards Lifesciences’ report on Form 10-K
for the fiscal year ended December 31, 2012)
Edwards Lifesciences Corporation Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.20 in Edwards Lifesciences’ report on Form 10-K for the fiscal year
ended December 31, 2011)
Ratio of Earnings to Fixed Charges
Subsidiaries of Edwards Lifesciences Corporation
23
Consent of Independent Registered Public Accounting Firm
31.1
31.2
32
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
104
Exhibit No.
101
Exhibit No.
The following financial statements from Edwards Lifesciences’ Annual Report on Form 10-K for
the year ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of
Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity and (vi) Notes to
Consolidated Financial Statements.
#
*
Pursuant to a request for confidential treatment, confidential portions of this exhibit have been redacted
and have been filed separately with the Securities and Exchange Commission
Represents management contract or compensatory plan
105
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8
(Nos. 333-33054, 333-33056, 333-40434, 333-52332, 333-52334, 333-52346, 333-60670, 333-98219,
333-105961, 333-127260, 333-150810, 333-154242, 333-168462, 333-183106, 333-192229, 333-195853,
333-204180, and 333-211333) and the Registration Statement on Form S-3 (No. 333-213358) of Edwards
Lifesciences Corporation of our report dated February 17, 2017 relating to the consolidated financial
statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
Irvine, California
February 17, 2017
EDWARDS LIFESCIENCES CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
Exhibit 31.1
I, Michael A. Mussallem, certify that:
1.
I have reviewed this annual report on Form 10-K of Edwards Lifesciences Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f ) and 15d-15(f )) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ MICHAEL A. MUSSALLEM
Michael A. Mussallem
Chairman of the Board and Chief Executive Officer
February 17, 2017
EDWARDS LIFESCIENCES CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
Exhibit 31.2
I, Scott B. Ullem, certify that:
1.
I have reviewed this annual report on Form 10-K of Edwards Lifesciences Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f ) and 15d-15(f )) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ SCOTT B. ULLEM
Scott B. Ullem
Corporate Vice President,
Chief Financial Officer
February 17, 2017
EDWARDS LIFESCIENCES CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Edwards Lifesciences Corporation (the ‘‘Company’’) on
Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on
the date hereof (the ‘‘Report’’), we, Michael A. Mussallem, Chairman of the Board and Chief Executive
Officer of the Company, and Scott B. Ullem, Corporate Vice President, Chief Financial Officer, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
February 17, 2017
February 17, 2017
/s/ MICHAEL A. MUSSALLEM
Michael A. Mussallem
Chairman of the Board and Chief Executive Officer
/s/ SCOTT B. ULLEM
Scott B. Ullem
Corporate Vice President,
Chief Financial Officer
Edwards Lifesciences is the global leader in patient-
focused medical innovations for structural heart
disease, as well as critical care and surgical monitoring.
Driven by a passion to help patients, we collaborate
with the world’s leading clinicians and researchers to
address unmet healthcare needs, working to improve
patient outcomes and enhance lives.
On the Cover:
“Hard work helps you live longer!” Even as he’s gotten older and well after retirement,
Mario has remained ‘on the go.’ He stays very active as a consultant in the oil industry, enjoys
playing golf, and most of all spending more time with his family and grandchildren. However,
as his heart disease symptoms progressed, he had no choice but to slow down. After an
echocardiogram, he was diagnosed by his cardiologist with severe aortic stenosis and referred
for a TAVR evaluation by a specialized Heart Team. Based on his previous bypass surgery and
other risk factors, transcatheter aortic valve replacement (TAVR) was recommended as the
best treatment option, given he was at intermediate risk for another open heart surgery.
Mario was treated at Memorial Hermann Heart & Vascular Institute in Houston, Texas under
conscious sedation and received an Edwards SAPIEN 3 valve. The procedure lasted one hour
and after a short stay, he was discharged. “I started walking around and I knew I was a different
person. It was amazing.”
Since his procedure, Mario is back to being busy, which is just the way he and his family like
it – whether keeping up with his grandchildren, remaining involved in the family business, or
meeting his friends on the golf course. “I have all the energy I need, and I’m back to being me.
After the procedure I was out playing golf and sharing my experience.” To read more about
Mario’s story and other TAVR patient journeys, please visit newheartvalve.com, or scan the QR
code below.
Scan this QR code to experience more online.
To install a QR Code app, 1) go to your device’s
app store, 2) search for QR code reader, 3) down-
load the free app, 3) launch the app, 4) click scan,
5) center your camera on the coded image and
6) click to launch the content.
Corporate Information
Executive Management
Board of Directors
Michael A. Mussallem
Chairman & Chief Executive Officer,
Edwards Lifesciences Corporation
John T. Cardis
Former Senior Partner,
Deloitte & Touche
Kieran T. Gallahue
Former Chairman &
Chief Executive Officer,
CareFusion Corporation
Leslie S. Heisz
Former Managing Director,
Lazard Frères & Co.
William J. Link, Ph.D.
Managing Director & Co-Founder,
Versant Ventures
Steven R. Loranger
Former President &
Chief Executive Officer,
Xylem Inc.
Martha H. Marsh
Former President &
Chief Executive Officer,
Stanford Hospital & Clinics
Wesley W. von Schack
Former Chairman,
President & Chief Executive Officer,
Energy East Corporation
Nicholas J. Valeriani
Former Chief Executive Officer
Gary and Mary West Health Institute
Corporate Headquarters
Edwards Lifesciences Corporation
One Edwards Way, Irvine, California 92614
(800) 4-A-HEART or (949) 250-2500
Annual Meeting
The Annual Meeting of Stockholders will be
held on May 11, 2017 at 10:00 a.m. (Pacific) at
the offices of Edwards Lifesciences Corporation.
Stock Symbol
Michael A. Mussallem
Chairman & Chief Executive Officer
Donald E. Bobo, Jr.
Corporate Vice President,
Strategy & Corporate Development
Dirksen J. Lehman
Corporate Vice President,
Public Affairs
Edwards Lifesciences’ stock is traded
on The New York Stock Exchange
(NYSE) under the symbol EW.
Christine Z. McCauley
Corporate Vice President,
Human Resources
Information on the Internet
Edwards Lifesciences’ web site at ir.edwards.com
provides access to a wide range of information
for our stakeholders who are encouraged to
visit the “Investor Relations” section of our web
site to access our press releases, SEC filings and
other company information.
Investor Information
Members of the investing public should
contact Investor Relations at (949) 250-2806 or
investor_relations@edwards.com.
Corporate Public Relations
Members of the news media should call
(949) 250-5070.
Transfer Agent
Correspondence about shares, stock certificates
and account information may be directed to:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
(800) 446-2617
(781) 575-3120/outside U.S.
computershare.com/investor
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Orange County, CA
John P. McGrath, Ph.D.
Corporate Vice President,
Quality, Regulatory, Clinical
Joseph Nuzzolese
Corporate Vice President,
Global Supply Chain
Stanton J. Rowe
Corporate Vice President,
Advanced Technology &
Chief Scientific Officer
Katie M. Szyman
Corporate Vice President,
Critical Care
Scott B. Ullem
Corporate Vice President,
Chief Financial Officer
Patrick B. Verguet
Corporate Vice President,
EMEA, Canada & Latin America
Huimin Wang, M.D.
Corporate Vice President,
Japan, Asia & Pacific
Aimee S. Weisner
Corporate Vice President,
General Counsel
Larry L. Wood
Corporate Vice President,
Transcatheter Heart Valves
Bernard J. Zovighian
Corporate Vice President,
Surgical Heart Valve Therapy
Edwards Lifesciences is an affirmative action, equal opportunity employer.
Edwards Lifesciences 2016 Annual Report
Our Credo
At Edwards Lifesciences, we are dedicated to providing innovative
solutions for people fighting cardiovascular disease.
Through our actions, we will become trusted partners with
customers, colleagues and patients creating a community unified in its mission
to improve the quality of life around the world. Our results
will benefit customers, patients, employees and shareholders.
We will celebrate our successes, thrive on discovery and continually
expand our boundaries. We will act boldly, decisively and with
determination on behalf of people fighting cardiovascular disease.
E
d
w
a
r
d
s
L
i
f
e
s
c
i
e
n
c
e
s
2
0
1
6
A
n
n
u
a
l
R
e
p
o
r
t
Trademarks
Edwards, Edwards Lifesciences, the stylized E logo, 1-800-4-A-HEART, Acumen, CENTERA, EDWARDS INTUITY, EDWARDS INTUITY Elite, Edwards
SAPIEN, Edwards SAPIEN XT, Edwards SAPIEN 3, Edwards Ultra, Every Heartbeat Matters, HemoSphere, HPI, Hypotension Probability Indicator,
INSPIRIS, INSPIRIS RESILIA, Life is Now, newheartvalve.com, PARTNER, PARTNER II, PERIMOUNT, RESILIA, SAPIEN, SAPIEN XT, and SAPIEN 3 are all
trademarks of Edwards Lifesciences Corporation. All other trademarks are the property of their respective owners.
© 2017 Edwards Lifesciences Corporation. All rights reservedz
Edwards Lifesciences • One Edwards Way, Irvine CA 92614 USA • edwards.com