10-QPeriod: Q3 FY2003

Edwards Lifesciences Corp Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 13, 2003For Securities:EW

Summary

Edwards Lifesciences Corporation's (EW) third-quarter 2003 filing shows a significant rebound in financial performance compared to the prior year. For the nine months ended September 30, 2003, the company reported net income of $60.1 million, a substantial increase from $34.0 million in the same period of 2002. This growth was driven by a 27.1% increase in net sales, reaching $636.4 million, fueled by strong performance in Cardiac Surgery and Critical Care segments, alongside a favorable impact from accounting changes related to the Japan business and currency exchange rates. The company also managed its expenses effectively, with gross profit margins remaining strong at 58.3% for the nine-month period. While SG&A expenses increased as a percentage of sales due to consolidation of the Japan business, R&D expenses as a percentage of sales decreased, indicating improved operational efficiency. The balance sheet shows an increase in total assets to $1,070.8 million from $1,008.2 million at year-end 2002. Notably, the company raised significant capital through the issuance of $150 million in convertible senior debentures, bolstering its liquidity.

Key Highlights

  • 1Net sales increased by 24.3% to $206.1 million for the three months ended September 30, 2003, and by 27.1% to $636.4 million for the nine months ended September 30, 2003, compared to the prior year periods.
  • 2Net income for the nine months ended September 30, 2003, was $60.1 million, a significant improvement from $34.0 million in the same period of 2002.
  • 3Gross profit margin remained strong at 57.8% for the three months and 58.3% for the nine months ended September 30, 2003.
  • 4The company raised $150 million in proceeds from the issuance of convertible senior debentures in May 2003, strengthening its cash position.
  • 5Special charges included a $13.0 million severance charge in the third quarter of 2003 for workforce streamlining and $11.8 million in purchased in-process R&D expenses related to the Jomed N.V. acquisition.
  • 6Significant legal proceedings are ongoing, including patent infringement lawsuits against St. Jude Medical, Inc. and Medtronic/Cook/Gore, though management believes these will not materially adversely affect the company's financial position.
  • 7The company completed the sale of its German perfusion services subsidiary effective July 4, 2003.

Frequently Asked Questions

The primary drivers for the increase in net sales were the consolidation of the Japan business into the company's financial statements (effective October 1, 2002), favorable foreign currency exchange rate movements (primarily the strengthening of the Euro and Japanese Yen against the US dollar), and strong sales growth in key product lines such as Cardiac Surgery and Critical Care.

Profitability significantly improved. For the nine months ended September 30, 2003, net income was $60.1 million, compared to $34.0 million for the same period in 2002. This improvement was driven by higher sales and stable gross margins, despite some special charges.

The company's liquidity appears sound. As of September 30, 2003, cash and cash equivalents were $38.3 million. The company raised $150 million from the issuance of convertible senior debentures in May 2003, which, along with revolving credit facilities, provides substantial financial flexibility to fund operations and growth objectives.

The company recorded a $13.0 million severance charge in the third quarter of 2003 related to workforce reductions. Additionally, the acquisition of an endovascular mitral valve repair program resulted in an $11.8 million charge for purchased in-process R&D. The sale of the German perfusion services subsidiary also resulted in a $3.3 million impairment charge.