What was the primary driver for the decrease in net sales?

The primary driver for the decrease in net sales was the sale of the Company's perfusion services business in the United States, which was completed on June 30, 2001. Additionally, unfavorable foreign currency exchange rate fluctuations impacted international sales.

How did the adoption of SFAS No. 142 affect the financial results?

The adoption of SFAS No. 142, 'Goodwill and Other Intangible Assets,' on January 1, 2002, eliminated the amortization of goodwill. This resulted in a significant increase in reported net income and earnings per share for the period compared to the prior year, as goodwill amortization expense was no longer recognized.

What is the significance of the settlement with Medtronic?

The settlement with Medtronic resolved patent infringement claims and resulted in Edwards Lifesciences receiving a one-time cash payment of $20.0 million. It also granted Medtronic a royalty-bearing license, effectively removing a significant legal contingency and providing a cash infusion.

How is the company managing its liquidity?

The company has access to two unsecured revolving credit agreements totaling $530.0 million. As of March 31, 2002, borrowings of $290.8 million were outstanding under one agreement. Management believes these sources, along with cash from operations, are sufficient to meet current working capital, capital expenditures, and other financial commitments.

EW 10-Q Quarterly Report Q1 FY2002 — Revenue, Net Income, EPS

Summary

Edwards Lifesciences Corporation (EW) reported a decrease in net sales for the first quarter of 2002 compared to the prior year, primarily driven by the sale of its US perfusion services business and foreign currency exchange rate impacts. However, excluding these factors, the company demonstrated underlying sales growth, particularly in its core Cardiac Surgery and Critical Care segments. The adoption of SFAS No. 142 significantly impacted the income statement by eliminating goodwill amortization, leading to higher reported net income and earnings per share compared to the prior year when goodwill amortization was still a factor. Financially, the company shows a solid gross profit margin, which improved year-over-year on an adjusted basis. While operating expenses increased as a percentage of net sales, this was partly due to increased R&D investment. The company also resolved a significant patent infringement lawsuit with Medtronic, receiving a $20 million payment and a royalty-bearing license. Management believes the company has sufficient liquidity to meet its obligations and fund growth initiatives.

Key Highlights

1Net sales decreased by 15.4% to $162.3 million for the three months ended March 31, 2002, primarily due to the sale of the US perfusion services business and unfavorable foreign currency impacts.
2Adjusted net sales (excluding the perfusion business sale and currency fluctuations) increased by 3.0%, indicating underlying business growth.
3Cardiac Surgery and Critical Care segments showed positive adjusted sales growth of 5.6% and 4.0%, respectively, driven by strong performance in tissue valves and pressure monitoring/access products.
4Adoption of SFAS No. 142 eliminated goodwill amortization starting January 1, 2002, leading to an increase in net income from $12.7 million to $20.8 million and a significant improvement in EPS compared to the prior year.
5Gross profit margin improved to 57.4% from 49.9% (adjusted to 55.9% for prior year), driven by a shift to higher-margin products.
6The company settled a patent infringement lawsuit with Medtronic for $20 million and a royalty-bearing license, resolving a significant legal contingency.
7Cash used in operating activities improved significantly to $(0.9) million from $(5.6) million in the prior year period, though still negative.

Edwards Lifesciences Corp Quarterly Report for Q1 Ended Mar 31, 2002

Summary

Key Highlights

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