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 two years ended December 31, 2020. Also discussed is our financial position as of December 31, 2020. You should read this discussion in conjunction with the historical consolidated financial statements and related notes included elsewhere in this Form 10-K. For a discussion related to the results of operations for 2019 compared to 2018 and a discussion related to our consolidated cash flows for 2019 compared to 2018, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report on Form 10–K filed with the Securities and Exchange Commission on February 14, 2020.

Overview

We are 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 partner with the world's leading clinicians and researchers and invest in research and development to transform care for those impacted by structural heart disease or who require

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hemodynamic monitoring during surgery or in intensive care. We conduct operations worldwide and are managed in the following geographical regions: United States, Europe, Japan, and Rest of World. Our products are categorized into the following main areas: Transcatheter Aortic Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies ("TMTT"), Surgical Structural Heart ("Surgical"), and Critical Care.

On May 7, 2020, our Board of Directors declared a three-for-one stock split of our outstanding shares of common stock effected in the form of a stock dividend, distributed on May 29, 2020 to stockholders of record on May 18, 2020. We distributed two newly issued shares of common stock to holders of record of each share of common stock to effect the stock split. All applicable share and per-share amounts in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” have been retroactively adjusted to give effect to this stock split.

Financial Highlights and COVID-19

In March 2020, the World Health Organization categorized the Coronavirus disease 2019 ("COVID-19") as a pandemic. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. The global pandemic has adversely impacted and is likely to further adversely impact nearly all aspects of our business and markets, including our workforce and the operations of our customers, suppliers, and business partners. Our priority has been to support our clinician partners, protect the well-being of our employees, and maintain continuous access to our life-saving technologies while offering front-line in-hospital support. Our manufacturing operations have continued to respond to impacts related to COVID-19, and we have been able to supply our technologies around the world. Across the organization, we are proactively managing inventory, assessing alternative logistics options, and closely monitoring the supply of components.

TAVR and Surgical procedure volumes varied greatly since the middle of March 2020 by geography, and even by hospital, as patients and their physicians analyzed the trade-off between aortic stenosis and their concern for COVID-19. In the last few weeks of the first quarter of 2020, procedure volumes related to our TAVR and Surgical products dropped significantly. Beginning in the second quarter of 2020, procedure volumes improved. In the second quarter of 2020, we also started to progressively resume patient enrollment in all clinical trials that were voluntarily paused or slowed at the end of the first quarter of 2020. While we saw improvements to pre-COVID levels when we resumed enrollment, procedure volumes and enrollment in our clinical trials have since been negatively impacted due to a resurgence of COVID-19 in late 2020. Even though health systems adapted to the challenge, the resurgence of COVID-19 late in 2020 continued to impact these patients who need care. In Critical Care, there was greater demand in Europe and the United States for our pressure monitoring products, but demand for other Critical Care products began to decrease at the end of the first quarter of 2020 due to COVID-19, and that trend continued through the fourth quarter of 2020.

Despite the challenges associated with COVID-19, our net sales for 2020 were $4.4 billion, representing an increase of $38.3 million over 2019, driven by sales growth of our TAVR products.

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Our gross profit increase in 2020 was driven by a charge of $73.1 million recorded in 2019, primarily comprised of the write off of inventory related to strategic decisions regarding our TAVR portfolio, including the decision to discontinue our CENTERA program.

The decrease in our diluted earnings per share in 2020 was driven by an after-tax charge of $305.1 million to settle certain patent litigation related to transcatheter mitral and tricuspid repair products.

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. While some evidence collection was slowed due to the COVID-19 pandemic, we and the clinical community are committed to continuing our trials and generating robust evidence. In 2020, we invested 17.3% of our net sales in research and development. The following is a summary of important developments during 2020:

•in response to the urgent COVID-19 response around the globe, we temporarily paused new enrollments in our active pivotal clinical trials of transcatheter mitral and tricuspid therapies, which began resuming in the second quarter of 2020;

•we received CE Mark for the Edwards PASCAL transcatheter valve repair system for the treatment of European patients with tricuspid regurgitation;

•we received Chinese regulatory approval for the Edwards SAPIEN 3 transcatheter heart valve for the treatment of severe, symptomatic aortic stenosis patients at high risk for or unable to undergo open-heart surgery;

•we reached an agreement with Abbott to settle all outstanding patent disputes between the companies in cases related to transcatheter mitral and tricuspid repair products;

•we received FDA approval for the KONECT RESILIA aortic valved conduit, the first ready-to-implant solution for bio-Bentall procedures, a complex surgery that involves replacement of a patient's aortic valve, aortic root, and the ascending aorta.

•we treated our first patient in the RESTORE clinical trial, which will evaluate the safety and effectiveness of the investigational HARPOON Beating Heart Mitral Valve Repair System in the United States and Canada.

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

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."

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Net Sales by Product Group

(dollars in millions)

Years Ended December 31, Change

Transcatheter Mitral and Tricuspid Therapies 41.8 28.2 13.6 48.5 %

Transcatheter Aortic Valve Replacement

The increase in net sales of TAVR products was due primarily to higher sales of the Edwards SAPIEN 3 Ultra System following its regulatory approval in the United States (December 2018) and in Europe (November 2018). The adoption of the Edwards SAPIEN 3 Ultra System continued to be very positive in 2020. However, our sales in 2020 were negatively impacted by the COVID-19 pandemic, and these challenges have continued in early 2021. Our procedure volumes dropped significantly beginning in March 2020 due to COVID-19, and began to steadily improve beginning in May 2020. In the first quarter of 2020, to ensure the safety of our employees and clinician partners from the threat of COVID-19, we decided to pause proctoring at centers that were not already trained on the Edwards SAPIEN 3 Ultra System. In the second quarter of 2020, we resumed proctoring.

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Transcatheter Mitral and Tricuspid Therapies

The increase in net sales of TMTT products was due primarily to sales in Europe of theEdwards PASCAL transcatheter valve repair system, which received CE Mark in February 2019. Our sales in 2020 were negatively impacted by the COVID-19 pandemic. Our procedure volumes for PASCAL dropped significantly in March 2020 due to COVID-19, and began to improve beginning in May 2020.

At the end of March 2020, we temporarily paused new enrollments in our active pivotal clinical trials of transcatheter

mitral and tricuspid therapies in response to the COVID-19 response around the globe. In the second quarter of 2020, we began

resuming enrollments. However, due to a resurgence of COVID-19 in late 2020, we are experiencing a negative impact to clinical trial enrollment. In May 2020, we received CE Mark for the PASCAL Ace implant system for mitral and tricuspid repair.

Surgical Structural Heart

The decrease in net sales of Surgical products was due primarily to decreased sales of aortic tissue valves, primarily in the United States and Europe, due to the impact of COVID-19. The ongoing adoption of TAVR also contributed to the decrease in United States surgical aortic valve sales. These decreases were partially offset by increased sales of the INSPIRIS RESILIA

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aortic valve and the KONECT aortic valved conduit, primarily in the United States. Increased and improved management of intensive care unit capacity, as well as prioritization of heart surgery in many hospitals, contributed to rebounding procedure volumes late in the second quarter of 2020. In the fourth quarter of 2020, hospitals experienced an influx of COVID-19 patients, limiting surgical valve procedures.

In Europe, our HARPOON Beating Heart Mitral Valve Repair System became available commercially at the end of 2019, and the first commercial case was successfully completed in Europe in the second quarter of 2020. In addition, we received FDA approval in April 2020 to begin our U.S. pivotal investigational device exemption study. HARPOON offers the potential for earlier treatment of degenerative mitral valve disease, with faster recovery and more consistent outcomes for surgical patients.

Critical Care

The decrease in net sales of Critical Care products was driven by a decline in sales of our enhanced surgical recovery products, primarily in the United States, as many surgical procedures were delayed due to COVID-19 beginning in March 2020. We also experienced a decline in orders of our HemoSphere advanced monitoring platform in the United States as hospitals limited their capital spending due to COVID-19.

These decreases in net sales were partially offset by increased demand for our pressure monitoring products, primarily in Europe and the United States, as COVID-19 hospitalizations increased. In addition, our sales in 2020 and 2019 included $22.6 million and $16.8 million, respectively, related to CAS Medical Systems, Inc. ("CASMED"), which we acquired on April 18, 2019. CASMED is a medical technology company dedicated to non-invasive monitoring of tissue oxygenation in the brain.

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Gross Profit

Our gross profit was higher as a percentage of net sales in 2020 compared to 2019. In 2019, our gross profit was reduced by $73.1 million due to the decision to discontinue our CENTERA program, resulting in a 1.7 percentage point increase in 2020 compared to 2019. This increase was partially offset by a) a 1.0 percentage point decrease in 2020 due to the impact of foreign currency exchange rate fluctuations, net of hedging, and b) incremental costs associated with COVID-19.

Selling, General, and Administrative ("SG&A") Expenses

The decrease in SG&A expenses in 2020 compared to 2019 was due primarily to a) decreased sales, marketing and travel-related expense associated with COVID-19 and b) lower performance-based compensation, partially offset by increased sales and marketing expenses related to transcatheter structural heart field personnel, primarily in the United States.

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Research and Development ("R&D") Expenses

The increase in R&D expenses in 2020 compared to 2019 was due primarily to a) investments in our transcatheter mitral and tricuspid therapies and our aortic valve replacement programs and b) costs associated with discontinuing our SUTRAFIX program. These increases were partially offset by a) decreased spending on transcatheter aortic valve clinical trials and b) decreased performance-based compensation.

Intellectual Property Litigation Expenses, net

We incurred intellectual property litigation expenses, including settlements and external legal costs, of $405.4 million and $33.4 million during 2020 and 2019, respectively. On July 12, 2020, we reached an agreement with Abbott Laboratories and its direct and indirect subsidiaries ("Abbott") to, among other things, settle all outstanding patent disputes between the companies (the “Settlement Agreement”) in cases related to transcatheter mitral and tricuspid repair products. See Note 18 to the "Consolidated Financial Statements" for additional information. The Settlement Agreement resulted in us recording an estimated $367.9 million pre-tax charge and related liability in June 2020 related to past damages. In addition, we will incur royalty expenses through May 2024 totaling an estimated $100 million. We made a one-time $100.0 million payment to Abbott in July 2020, and will make quarterly payments in future years.

Change in Fair Value of Contingent Consideration Liabilities, net

The change in fair value of contingent consideration liabilities resulted in expense of $13.6 million in 2020 and income of $6.1 million in 2019. The expense in 2020 was primarily driven by the accretion of interest due to the passage of time and adjustments to discount rates, partially offset by changes in the projected probability and timing of milestone achievements, and the projected timing of cash inflows. The income in 2019 was due primarily to longer product development timelines, which reduced the probability of milestone achievements, partially offset by the accretion of interest due to the passage of time and discount rate adjustments.

Special Charges (Gain), net

For information on special charges and gains, see Note 4 to the "Consolidated Financial Statements."

Interest Expense

Interest expense was $15.8 million and $20.7 million in 2020 and 2019, respectively. The decrease in interest expense resulted primarily from higher capitalized interest due to facilities construction.

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Interest Income

Interest income was $23.4 million and $32.2 million in 2020 and 2019, respectively. The decrease in interest income resulted primarily from lower average interest rates, partially offset by a higher average investment balance.

Other Income, net

(in millions)

Years Ended December 31,

Foreign exchange gains, net $ (12.3) $ (5.9)

Gain on investments (0.6) (0.5)

Non-service cost components of net periodic pension benefit cost 0.4 0.2

Total other income, net $ (11.5) $ (8.2)

The net foreign exchange gains relate to the foreign currency fluctuations in our global trade and intercompany receivable and payable balances, offset by the gains and losses on derivative instruments intended as an economic hedge of those exposures.

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

The non-service cost components of net periodic pension benefit cost includes the costs of our defined benefit plans that are not attributed to services rendered by eligible employees during the year, such as interest costs, expected return on plan assets, and amortization of actuarial gains or losses.

Provision for Income Taxes

Years Ended December 31, Change

Effective tax rate 10.2 % 10.3 %

Our effective income tax rate in 2020 and 2019 was 10.2% and 10.3%, respectively. Our effective tax rate for 2020 decreased slightly in comparison to 2019 primarily due to the tax benefit from the Settlement Agreement with Abbott (see Notes 3 and 18 to the "Consolidated Financial Statements"), partially offset by the increase in the U.S. tax on global intangible low-taxed income and the decrease in the tax benefit from employee share-based compensation.

In 2020, the difference between our 10.2% effective tax rate and the Federal statutory rate of 21% was primarily due to a) foreign earnings taxed at lower rates, b) Federal and California research and development credits, and c) the tax benefit from employee share-based compensation.

As of December 31, 2020, we have $145.1 million of California research expenditure tax credits that we expect to use in future periods. The credits may be carried forward indefinitely. Based upon anticipated future taxable income, we expect 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.

As of December 31, 2020, gross uncertain tax positions were $281.8 million. We estimate that these liabilities would be reduced by $95.1 million from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, and timing adjustments. The net amount of $186.7 million, if not required, would favorably affect our effective tax rate.

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

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uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations, or case law. We believe 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, 2020, all material state, local, and foreign income tax matters have been concluded for years through 2015. While not material, we continue to address matters in Wisconsin and India for years from 2010.

During 2018, we executed an Advance Pricing Agreement (“APA”) between the United States and Switzerland governments for tax years 2009 through 2020 covering various, but not all, transfer pricing matters.The unagreed transfer pricing matters, namely Surgical Structural Heart and Transcatheter Aortic Valve Replacement intercompany royalty transactions, then reverted to Internal Revenue Service ("IRS") Examination for further consideration as part of the respective years' regular tax audit.In addition, we signed agreements during 2018 with the IRS to settle open tax years 2009 through 2014, including all transfer pricing matters for those years and the tax treatment of a portion of a litigation settlement payment received in 2014.

The IRS began its examination of the 2015 and 2016 tax years during the fourth quarter of 2018 and later added the 2017 tax year to this audit cycle during the first quarter of 2019. The IRS audit field work for the 2015 through 2017 tax years was substantially completed during the fourth quarter of 2020, except for transfer pricing matters.

As a result, certain intercompany transactions covering tax years 2015 through 2020 that were not resolved under the APA program remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of December 31, 2020.The IRS has signaled that it may be preparing proposed audit adjustments related to these intercompany transactions for the 2015 through 2017 tax years which, if issued, could be provided to us during 2021. We have considered this information in our evaluation of our reserves for uncertain tax positions.

These unresolved transfer pricing matters, net of any correlative repatriation tax adjustment, may be significant to our consolidated financial statements.Based on the information currently available and numerous possible outcomes, we cannot reasonably estimate what, if any, changes to our existing uncertain tax positions may occur in the next 12 months and, therefore, have continued to record the gross uncertain tax positions as a long-term liability.

We intend to file to renew the APA between the United States and Switzerland for the years 2021 and forward. In addition, we executed other APAs as follows: during 2017, an APA between the United States and Japan covering tax years 2015 through 2019; and during 2018, APAs between Japan and Singapore and between Switzerland and Japan covering tax years 2015 through 2019. We have filed to renew these APAs related to Japan for the years 2020 and forward. The execution of some or all of these APAs depends on a number of variables outside of our control.

We have received tax incentives in certain non-U.S. tax jurisdictions, the primary benefit for which will expire in 2029. The tax reductions as compared to the local statutory rates were $189.2 million ($0.30 per diluted share) and $157.6 million ($0.25 per diluted share) for the years ended December 31, 2020 and 2019, respectively.

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 from the financial statement issuance date. 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.

The Tax Cuts and Jobs Act of 2017 (the "2017 Act"), which was signed into law on December 22, 2017, included extensive changes to the international tax regime. The 2017 Act required a deemed repatriation of post-1986 undistributed foreign earnings and profits. The one-time transition tax liability, as adjusted, is payable in five remaining annual installments, as outlined in the contractual obligations table below. As of December 31, 2020, we had a remaining tax obligation of $238.7 million related to the deemed repatriation. See Note 17 to the "Consolidated Financial Statements" for additional information about the one-time transition tax.

As of December 31, 2020, cash and cash equivalents and short-term investments held in the United States and outside the United States were $618.8 million and $783.8 million, respectively. During 2020, we repatriated cash of $600.0 million. We

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assert that $1.1 billion of our foreign earnings continue to be permanently reinvested and our intent is to repatriate $599.8 million of our foreign earnings as of December 31, 2020.

On July 12, 2020, we reached the Settlement Agreement with Abbott to settle all outstanding patent disputes between the companies in cases related to transcatheter mitral and tricuspid repair products. The Settlement Agreement resulted in us recording an estimated $367.9 million pretax charge in June 2020 related to past damages. In addition, we will incur royalty expenses through May 2024 totaling an estimated $100 million. We made a one-time $100.0 million payment to Abbott in July 2020, and will make quarterly payments in future years. For further information, see Notes 3 and 18 to the "Consolidated Financial Statements."

On April 18, 2019, we acquired CASMED for an aggregate cash purchase price of $2.45 per share of common stock, or $100.8 million. For more information, see Note 8 to the "Consolidated Financial Statements."

Certain of our business acquisitions involve contingent consideration arrangements. Payment of additional consideration in the future may be required, contingent upon the acquired company reaching certain performance milestones, such as attaining specified revenue levels or obtaining regulatory approvals. For further information, see Note 8 to the "Consolidated Financial Statements."

We have a Five-Year Credit Agreement ("the Credit Agreement") which matures on April 28, 2023. The Credit Agreement provides up to an aggregate of $750.0 million in borrowings in multiple currencies. Subject to certain terms and conditions, we may increase the amount available under the Credit Agreement by up to an additional $250.0 million in the aggregate. As of December 31, 2020, there were no borrowings outstanding under the Credit Agreement. The Credit Agreement is unsecured and contains various financial and other covenants, including a maximum leverage ratio, as defined in the Credit Agreement. The Company was in compliance with all covenants at December 31, 2020.

In June 2018, we issued $600.0 million of 4.3% fixed-rate unsecured senior notes (the "2018 Notes") due June 15, 2028. We may redeem the 2018 Notes, in whole or in part, at any time and from time to time at specified redemption prices. As of December 31, 2020, we have not elected to redeem any of the 2018 Notes. As of December 31, 2020, the total carrying value of our 2018 Notes was $595.0 million. For further information on our debt, see Note 10 to the "Consolidated Financial Statements."

From time to time, we repurchase shares of our common stock under share repurchase programs authorized by the Board of Directors. We consider several factors in determining when to execute share repurchases, including, among other things, expected dilution from stock plans, cash capacity, and the market price of our common stock. During 2020, under the Board authorized repurchase programs, we repurchased a total of 3.0 million shares at an aggregate cost of $614.7 million, and as of December 31, 2020, we had remaining authority to purchase $625.0 million of our common stock. For further information, see Note 14 to the "Consolidated Financial Statements." In February 2021, we entered into an accelerated share repurchase agreement to repurchase $250.0 million of our common stock. For further information, see Note 22 to the "Consolidated Financial Statements."

Consolidated Cash Flows - For the twelve months ended December 31, 2020 and 2019

Net cash flows provided by operating activities of $1.1 billion for 2020 decreased $128.6 million from 2019 due primarily to lower operating profits in 2020 and a payment of $100.0 million for a litigation settlement, partially offset by a payment of $180.0 million in 2019 for a litigation settlement.

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Net cash used in investing activities of $531.1 million in 2020 consisted primarily of capital expenditures of $407.0 million and net purchases of investments of $87.6 million.

Net cash used in investing activities of $595.8 million in 2019 consisted primarily of a) capital expenditures of $254.4 million, b) net purchases of investments of $174.9 million, c) a $100.2 million net cash payment associated with the acquisition of CASMED, d) a $35.0 million payment for an option to acquire a company, and e) a $24.0 million payment to acquire certain early-stage transcatheter intellectual property and associated clinical and regulatory experience.

We currently anticipate making capital expenditures of approximately $350 million in 2021 as we continue to invest in our operations.

Net cash used in financing activities of $486.9 million in 2020 consisted primarily of purchases of treasury stock of $625.4 million, partially offset by proceeds from stock plans of $140.5 million.

Net cash used in financing activities of $115.6 million in 2019 consisted primarily of purchases of treasury stock of $263.3 million, partially offset by proceeds from stock plans of $160.5 million.

Contractual Obligations

A summary of all of our contractual obligations and commercial commitments as of December 31, 2020 is as follows (in millions):

Payments Due by Period

Contractual Obligations Total Year 1 Years 2-3 Years 4-5 After 5Years

Litigation settlement obligation (minimum payments) 250.0 50.0 100.0 100.0 —

Pension obligations (b) 2.5 2.5 — — —

_______________________________________________________________________________

(a) As of December 31, 2020, we had recorded $238.7 million of income tax liabilities related to the one-time transition tax that resulted from the enactment of the 2017 Act. The transition tax is due in eight annual installments, with the first annual installment paid in 2018, the second annual installment paid in 2019 and the third annual installment paid in 2020. The remaining installment amounts will be equal to 8% of the total liability, payable in fiscal years 2021 through 2022, 15% in fiscal year 2023, 20% in fiscal year 2024, and 25% in fiscal year 2025. See Note 17 to the "Consolidated Financial Statements" for additional information about the one-time transition tax.

(b) 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, 2020 was $52.9 million. This amount is impacted 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 13 to the "Consolidated Financial Statements" for further information.

(c) Purchase and other commitments consists primarily of open purchase orders for the acquisition of goods and services in the normal course of business. We have excluded open purchase orders with a remaining term of less than one year. For certain purchase and other commitments, such as commitments to fund equity method or other investments, the timing of the payment is not certain. In these cases, the maturity dates in the table reflect our best estimates.

(d) As of December 31, 2020, the gross liability for uncertain tax positions, including interest, was $301.2 million and relates primarily to transfer pricing matters. During 2018, we executed an APA between the United States and Switzerland governments for tax years 2009 through 2020 covering various but not all transfer pricing matters. As a result, certain

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intercompany transactions covering tax years 2015 through 2020 that were not resolved under the APA program remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of the balance sheet date. These unresolved transfer pricing matters may be 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.

(e) 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 $810.0 million if all milestones or other contingent obligations are met. This amount includes certain milestone-based contingent obligations that may be paid through a combination of cash and issuance of common stock, and certain sales-based royalties in excess of minimum payment thresholds related to litigation settlements.

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 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.

Revenue Recognition

When we recognize revenue from the sale of our products, the amount of consideration we ultimately receive varies depending upon the return terms, sales rebates, discounts, and other incentives that we may offer, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The estimate of variable consideration requires significant judgment. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely upon an assessment of historical payment experience, historical relationship to revenues, estimated customer inventory levels, and current contract sales terms with direct and indirect customers. Product returns are typically 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 the variable consideration do not approximate future activity, our financial position, results of operations, and cash flows could be impacted.

In addition, in limited circumstances, we may allow customers to return previously purchased products, such as 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 of product 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 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

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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.

In-process research and development assets 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.

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:

•discount rates used to present value the projected cash flows;

•the probability of success of clinical events and regulatory approvals, and/or meeting commercial milestones;

•projected payment dates; and

•volatility of future revenue.

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.

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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 tax credits, 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 have made an accounting policy election to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.

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 17 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 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.

Legal Contingencies

We are or may be a party to, or may otherwise be responsible for, pending or threatened lawsuits including those related to products and services currently or formerly manufactured or performed, as applicable, by us, workplace and employment matters, matters involving real estate, our operations or health care regulations, or governmental investigations. We accrue for loss contingencies to the extent that we conclude that it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated. These matters 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. As such, significant judgment is required in determining our legal accruals. We describe our legal proceedings in Note 18 to the "Consolidated Financial Statements."

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.

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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 debt securities, primarily time deposits, commercial paper, U.S. and foreign 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, 2020, we had $985.9 million of investments in debt securities which had an average remaining term to maturity of approximately 1.56 years. Taking into consideration the average maturity of our debt securities, a hypothetical 0.5% to 1.0% absolute increase in interest rates at December 31, 2020 would have resulted in a $7.8 million to $15.6 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.

For more information related to investments, see Note 7 to the "Consolidated Financial Statements."

We are also exposed to interest rate risk on our debt obligations. As of December 31, 2020, 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, 2020, there were no borrowings outstanding under the Credit Agreement. Based on our December 31, 2020 variable debt levels, a hypothetical 1.0% absolute increase in floating market interest rates would not have impacted our interest expense since we had no variable debt outstanding during the year. As of December 31, 2020, a hypothetical 1.0% absolute increase in market interest rates would decrease the fair value of the fixed-rate debt by approximately $43.2 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 10 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 currencies other than a subsidiary'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 cross currency swap contracts. The total notional amount of our derivative financial instruments entered into for foreign currency management purposes at December 31, 2020 was $1.8 billion. 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 $141.5 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 12 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, 2020, 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 debt securities, and diversify the investments between financial institutions. Our investment policy limits the amount of credit exposure to any one issuer.

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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 2020, 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, 2020, we had $985.9 million of investments in debt securities of various companies, of which $766.5 million were long-term. In addition, we had $35.1 million of investments in equity instruments of public and private companies. Should these companies experience a decline in financial performance, financial condition or credit capacity, or fail to meet certain development milestones, including as a result of the impact from COVID-19 on their business or operations or otherwise, a decline in the investments' value may occur, resulting in unrealized or realized losses.

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Report of Independent Registered Public Accounting Firm 39

Financial Statements:

Consolidated Balance Sheets as of December 31, 2020 and 2019 42

Consolidated Statements of Operations 43

Consolidated Statements of Comprehensive Income 44

Consolidated Statements of Cash Flows 45

Consolidated Statements of Stockholders' Equity 46

Notes to Consolidated Financial Statements 47

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Edwards Lifesciences Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Edwards Lifesciences Corporationand its subsidiaries(the “Company”) as of December 31, 2020and 2019,and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020and 2019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2020in 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, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated 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 appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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

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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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Uncertain Tax Positions Related to Intercompany Transfer Pricing

As described in Notes 2 and 17 to the consolidated financial statements, the Company had a gross uncertain tax position liability balance of $281.8 million as of December 31, 2020, primarily related to transfer pricing. The Company is subject to income taxes in the United States and numerous foreign jurisdictions. As disclosed by management, the Company’s income tax returns in these jurisdictions are periodically audited by domestic and foreign tax authorities. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income amongst various tax jurisdictions. Significant judgment is required by management in evaluating uncertain tax positions, including estimating the ultimate resolution to intercompany pricing controversies between countries when there are numerous possible outcomes.

The principal considerations for our determination that performing procedures relating to uncertain tax positions related to intercompany transfer pricing is a critical audit matter are the significant judgment by management when determining uncertain tax positions related to intercompany transfer pricing, including a high degree of estimation uncertainty in evaluating whether certain tax filing positions taken by management will be upheld by the related local tax authority. This in turn led to a high degree of auditor judgment, effort, and subjectivity in performing procedures to evaluate the accurate measurement of uncertain tax positions related to intercompany transfer pricing. Also, the evaluation of audit evidence available to support the tax liabilities for uncertain tax positions related to intercompany transfer pricing is complex and required significant auditor judgment as the nature of the evidence is highly subjective and the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to recognition of the liability for uncertain tax positions related to intercompany transfer pricing and controls over measurement of the liability. These procedures also included, among others, (i) testing the information used in the calculation of the liability for uncertain tax positions, including U.S. federal filing positions and the related final tax returns; (ii) testing the calculation of the liability for uncertain tax positions related to intercompany transfer pricing, by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing of management’s assessment of possible outcomes of uncertain tax positions related to intercompany transfer pricing; and (iv) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions related to intercompany transfer pricing, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not to be sustained and the amount of potential benefit to be realized, and the application of relevant tax laws.

Fair Value of Contingent Consideration Liabilities

As described in Note 11 to the consolidated financial statements, certain of the Company’s acquisitions involve contingent consideration arrangements. As of December 31, 2020, the Company had a contingent consideration liability of $186.1 million. As disclosed by management, payment of additional consideration is contingent upon the acquired company reaching certain performance milestones, such as attaining specified revenue levels or obtaining regulatory approvals. These contingent consideration liabilities are measured by management at estimated fair value using either a probability weighted discounted cash flow analysis or a Monte Carlo simulation model, both of which consider significant unobservable inputs. These inputs

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include (1) the discount rate used to present value the projected cash flows, (2) the probability of milestone achievement, (3) the projected payment dates, and (4) the volatility of future revenue.

The principal considerations for our determination that performing procedures relating to the fair value of contingent consideration liabilities is a critical audit matter are the significant judgment by management when estimating the fair value of these contingent consideration liabilities, including a high degree of estimation uncertainty in evaluating the discount rate, the probability of milestone achievement, the projected payment dates, and the volatility of future revenue. This in turn led to a high degree of auditor judgment, effort, and subjectivity in performing procedures to evaluate the fair value of contingent consideration liabilities. Also, the evaluation of audit evidence available to support the fair value of the contingent consideration liabilities is complex and resulted in significant auditor judgment as the nature of the evidence is highly subjective and the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s process for estimating the fair value of contingent consideration liabilities, including controls over the determination of the significant unobservable inputs selected by management. These procedures also included, among others, (i) testing management’s process for estimating the fair value of contingent consideration liabilities and (ii) testing management’s probability weighted discounted cash flow analysis or a Monte Carlo simulation used to estimate the fair value of the contingent consideration liabilities. Testing management’s process included evaluating the appropriateness of the valuation methods used and the reasonableness of the significant assumptions related to the discount rate, the probability of milestone achievement, the projected payment dates, and the volatility of future revenue. Evaluating the reasonableness of the probability of milestone achievement and projected payment date of each milestone involved consideration of information obtained from the Company’s product engineers, clinical trial data, and third-party industry data. The discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of certain significant assumptions, including the discount rate and volatility of future revenue.

/s/ PricewaterhouseCoopers LLP

Irvine, California

February 12, 2021

We have served as the Company’s auditor since 1999

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

December 31,

ASSETS

Current assets

Property, plant, and equipment, net (Note 5) 1,395.2 1,060.3

Operating lease right-of-use assets (Note 6) 94.2 80.1

Other intangible assets, net (Note 9) 331.4 336.5

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accrued and other liabilities (Note 5) 670.2 696.5

Operating lease liabilities (Note 6) 27.2 25.5

Contingent consideration liabilities (Notes 8 and 11) 186.1 172.5

Operating lease liabilities (Note 6) 72.7 58.9

Litigation settlement accrual (Notes 3 and 18) 233.0 —

Commitments and contingencies (Notes 6, 10 and 18)

Stockholders' equity (Note 14)

Accumulated other comprehensive loss (161.1) (156.0)

Treasury stock, at cost, 12.1 and 9.0 shares, respectively (1,904.1) (1,278.7)

Total liabilities and stockholders' equity $ 7,237.1 $ 6,488.1

The accompanying notes are an integral part of these consolidated financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share information)

Years Ended December 31,

Intellectual property litigation expenses, net (Note 3) 405.4 33.4 214.0

Change in fair value of contingent consideration liabilities 13.6 (6.1) (5.7)

Special gain (Note 4) — — (7.1)

Other income, net (Note 16) (11.5) (8.2) (4.0)

Share information (Note 2):

Earnings per share:

Weighted-average number of common shares outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Years Ended December 31,

Other comprehensive (loss) income, net of tax (Note 15):

Foreign currency translation adjustments 32.4 (11.2) (38.6)

Unrealized (loss) gain on hedges (40.2) (11.1) 40.4

Unrealized pension costs (4.2) (1.9) 0.6

Unrealized gain (loss) on available-for-sale investments 6.6 6.3 (3.3)

Reclassification of net realized investment loss to earnings 0.3 0.4 2.9

Other comprehensive (loss) income, net of tax (5.1) (17.5) 2.0

The accompanying notes are an integral part of these consolidated financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Years Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net income to cash provided by operating activities:

Non-cash operating lease cost 28.2 25.3 —

Inventory write off — 73.1 —

Purchased in-process research and development — 24.0 —

Changes in operating assets and liabilities:

Accounts and other receivables, net 41.9 (88.0) (28.7)

Prepaid expenses and other current assets (28.5) (6.8) 15.6

Accounts payable and accrued liabilities (84.5) 116.5 12.5

Cash flows from investing activities

Purchases of held-to-maturity investments (Note 7) (162.0) (130.2) (210.0)

Purchases of available-for-sale investments (Note 7) (689.7) (437.9) (249.3)

Acquisition (Notes 8 and 9) — (100.2) —

Payment for acquisition option (10.0) (35.0) —

Issuances of notes receivable (27.0) (12.9) (0.6)

Net cash (used in) provided by investing activities (531.1) (595.8) 76.7

Cash flows from financing activities

Payments on debt and finance lease obligations (17.0) (28.9) (1,125.3)

Payment of contingent consideration — — (15.1)

The accompanying notes are an integral part of these consolidated financial statements.

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EDWARDS LIFESCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions)

Common Stock Treasury Stock

Other comprehensive income, net of tax 2.0 2.0

Stock-based compensation expense 71.0 71.0

Other comprehensive loss, net of tax (17.5) (17.5)

Stock-based compensation expense 81.3 81.3

Other comprehensive loss, net of tax (5.1) (5.1)

Stock-based compensation expense 92.6 92.6

The accompanying notes are an integral part of these consolidated financial statements.

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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 Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, Surgical Structural Heart, 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.

Certain reclassifications of previously reported amounts have been made to conform to classifications used in the current year.

Stock Split

On May 7, 2020, the Company’s Board of Directors declared a three-for-one stock split of its outstanding shares of common stock effected in the form of a stock dividend, distributed on May 29, 2020 to stockholders of record on May 18, 2020. The Company distributed two newly issued shares of common stock to holders of record of each share of common stock to effect the stock split. All applicable share and per-share amounts in the consolidated financial statements and the notes to consolidated financial statements have been retroactively adjusted to reflect this stock split. The consolidated balance sheet as of December 31, 2019 and the consolidated statements of stockholders’ equity for the twelve months ended December 31, 2019 have not been retroactively adjusted to reflect the stock split.

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. In particular, the novel Coronavirus ("COVID-19") pandemic has adversely impacted and is likely to further adversely impact nearly all aspects of our business and markets, including our workforce and the operations of our customers, suppliers, and business partners. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses, manufacturing, clinical trials, research and development costs, reserves and allowances, fair value measurements, asset impairment charges, contingent consideration obligations, and the effectiveness of the Company's hedging instruments, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak (including new variants of COVID-19), its severity, the actions to contain the virus or address its impact, the timing, distribution, and efficacy of vaccines and other treatments, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

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EDWARDS LIFESCIENCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 Income, net."

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those products or services.

The Company generates nearly all of its revenue from direct product sales and sales of products under consignment arrangements. Revenue from direct product sales is recognized at a point in time when the performance obligation is satisfied upon delivery of the product. Revenue from sales of consigned inventory is recognized at a point in time when the performance obligation is satisfied once the product has been implanted or used by the customer. The Company periodically reviews consignment inventories to confirm the accuracy of customer reporting. The Company also generates a small portion of its revenue from service contracts, and recognizes revenue from service contracts ratably over the term of the contracts. Sales taxes and other similar taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company does not typically have any significant unusual payment terms beyond 90 days in its contracts with customers. In addition, the Company receives royalty payments for the licensing of certain intellectual property and recognizes the royalty when the subsequent sale of product using the intellectual property occurs.

The amount of consideration the Company ultimately receives varies depending upon the return terms, sales rebates, discounts, and other incentives that the Company may offer, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely upon an assessment of historical payment experience, historical relationship to revenues, estimated customer inventory levels, and current contract sales terms with direct and indirect customers.

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 and the negotiated price to be paid by the end-customer. This distributor rebate is recorded as a reduction to sales and a reduction to the distributor's accounts receivable at the time of sale to a distributor. The Company periodically monitors current pricing trends and distributor inventory levels to ensure the credit for future distributor rebates is fairly stated.

The Company offers volume rebates to certain group purchasing organizations ("GPOs") and customers based upon targeted sales levels. Volume rebates offered to GPOs are recorded as a reduction to sales and an obligation to the GPOs, as the Company expects to pay in cash. Volume rebates offered to customers are recorded as a reduction to sales and either accounts receivable if the Company expects a net payment from the customer, or as an obligation to the customer if the Company expects to pay in cash. The provision for volume rebates is estimated based upon customers' contracted rebate programs, projected sales levels, 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.

Product returns are typically not significant because returns are generally not allowed unless the product is damaged at time of receipt. In limited circumstances, the Company may allow customers to return previously purchased products, such as 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.

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EDWARDS LIFESCIENCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company sells separately priced service contracts, which range from 12 to 36 months, to owners of its hemodynamic monitors. The Company invoices the customer the total amount of consideration at the inception of the contract and recognizes revenue ratably over the term of the contract. As of December 31, 2020 and December 31, 2019, $6.3 million and $8.4 million, respectively, of deferred revenue associated with outstanding service contracts was recorded in “Accrued and Other Liabilities” and "Other Long-term Liabilities." During 2020, the Company recognized as revenue $6.3 million that was included in the balance of deferred revenue as of December 31, 2019, and during 2019, the Company recognized as revenue $5.5 million that was included in the balance of deferred revenue as of December 31, 2018.

A limited number of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the transaction price is allocated to each performance obligation based on its relative standalone selling price charged to other customers.

The Company applies the optional exemption of not disclosing the amount of the transaction price allocated to unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Shipping and Handling Costs

Shipping costs, which are costs incurred to physically move product from the Company's premises or third party distribution centers, including storage, to the customer's premises, are included in "Selling, General, and Administrative Expenses." Handling costs, which are costs incurred to store at the Company's premises, move, and prepare products for shipment, are included in "Cost of Sales." For the years ended December 31, 2020, 2019, and 2018, shipping costs of $74.0 million, $71.5 million, and $70.6 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 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 ability and intent to hold until maturity are classified as held-to-maturity and carried at amortized cost. Investments in debt securities 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 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 reported at fair value or under the equity method of accounting, as appropriate. Equity investments that do not have readily determinable fair values are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The Company accounts for investments in limited partnerships and 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.

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 Income, net." Income relating to investments in debt securities is recorded to "Interest Income."

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Equity investments without readily determinable fair value are considered impaired when there is an indication that the fair value of the Company's interest is less than the carrying amount. Equity method investments are considered impaired when there is an indication of an other-than-temporary decline in value below the carrying amount. Impairments of equity investments are recorded in "Other Income, net."

Debt securities in an unrealized loss position are written down to fair value through “Other Income, net” if the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. For debt securities in an unrealized loss position that do not meet the aforementioned criteria, the Company assesses whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. When a credit loss exists, the Company compares the present value of cash flows expected to be collected from the debt security to the amortized cost basis of the security to determine the allowance amount that should be recorded, if any. For available-to-sale debt securities, any additional impairment not recorded through an allowance for credit losses is recognized in “Accumulated Other Comprehensive Loss.”

Accounts Receivable

The majority of the Company’s accounts receivable arise from direct product sales and sales of products under consignment arrangements, and have payment terms that generally require payment within 30 to 90 days. The Company does not adjust its receivables for the effects of a significant financing component at contract exception if collection of the receivable is expected within one year or less from the time of sale. In countries where the Company has experienced a pattern of payments extending beyond the stated terms and collection of the receivable is expected beyond one year from the time of sale, the Company assesses whether the customer has a significant financing component and discounts the receivable and reduces the related revenues over the period of time that the Company estimates those amounts will be paid using the country’s market-based borrowing rate for such period.

The Company provides reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay based on customer-specific analysis and general matters such as current assessments of past due balances, economic conditions and forecasts, and historical credit loss activity. Amounts determined to be uncollectible are charged or written-off against the reserve.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable 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, damaged, nearing its expiration date (generally triggered at six months prior to expiration), or slow moving (generally defined as quantities in excess of a two-year supply).

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, 2020, 2019, and 2018, the Company allocated $63.1 million, $56.6 million, and $45.0 million, respectively, of general and administrative costs to inventory. General and administrative costs included in inventory at December 31, 2020 and 2019 were $30.7 million and $22.8 million, respectively.

At December 31, 2020 and 2019, $130.0 million and $117.8 million, respectively, of the Company's finished goods inventories were held on consignment.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 5 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. Construction in progress is not depreciated until the asset is ready for its intended use.

Depreciation expense for property, plant, and equipment was $101.8 million, $84.7 million, and $74.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Leases

On January 1, 2019, the Company adopted an amendment to the guidance on leases using a modified retrospective transition approach. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. The Company's incremental borrowing rate is determined based on the estimated rate of interest for collateralized borrowing over a similar term as the associated lease. Right-of-use assets also include any lease payments made at or before lease commencement and any initial direct costs incurred, and exclude any lease incentives received.

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

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

Operating leases are included in “Operating Lease Right-of-Use Assets” and “Operating Lease Liabilities” on the Company’s consolidated balance sheets. See Note 6 for further information.

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. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the Company performs a quantitative impairment test. The Company determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each of its reporting units substantially exceeds the respective carrying amounts. Accordingly, in 2020, 2019, and 2018, the Company did not record any impairment loss.

Indefinite-lived intangible assets relate to in-process research and development acquired in business combinations. The estimated fair values of in-process research and development 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 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 in the fourth quarter of each fiscal year, or whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

loss is recognized when the asset's carrying value exceeds its fair value. In-process research and development projects acquired in an asset acquisition are expensed unless the project has an alternative future use.

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.

In 2020, the Company did not record any impairment loss related to its in-process research and development assets. In 2019, the Company recorded a $40.6 million charge related to the impairment of certain in-process research and development assets. In 2018, the Company recorded a $116.2 million charge related to the impairment of certain developed technology and in-process research and development assets. See Note 4 for further information.

Income Taxes

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. The Company has made an accounting policy election to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.

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.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Years Ended December 31,

Basic:

Diluted:

Dilutive effect of stock plans 9.3 11.9 13.3

Dilutive weighted-average shares outstanding 631.9 636.7 640.9

Diluted earnings per share $ 1.30 $ 1.64 $ 1.13

Stock options, restricted stock units, and market-based restricted stock units to purchase approximately 2.0 million, 1.5 million, and 3.2 million shares were outstanding for the years ended December 31, 2020, 2019, and 2018, respectively, 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 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,

Selling, general, and administrative expenses 56.6 51.2 46.3

Research and development expenses 18.8 15.4 13.3

Total stock-based compensation expense 92.6 81.3 71.0

Total stock-based compensation expense, net of tax $ 77.2 $ 66.5 $ 57.6

Upon a participant's 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

The Company uses foreign currency forward exchange contracts, cross currency swap contracts, and foreign currency denominated debt to manage its exposure to changes in currency exchange rates from (1) future cash flows associated with intercompany transactions and certain local currency expenses expected to occur within the next 13 months (designated as cash flow hedges), (2) its net investment in certain foreign subsidiaries (designated as net investment hedges) and (3) foreign currency denominated assets or liabilities (designated as fair value hedges). The Company also uses foreign currency forward exchange contracts that are not designated as hedging instruments to offset the transaction gains and losses associated with certain assets and liabilities denominated in currencies other than their functional currencies resulting principally from intercompany and local currency transactions.

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

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting guidance on cloud computing service arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued an amendment to the accounting guidance on fair value measurements. The guidance modifies the disclosure requirements on fair value measurements, including the removal of disclosures of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The guidance also adds certain disclosure requirements related to Level 3 fair value measurements. The guidance was effective for fiscal years, and interim periods within those fiscal years,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

beginning after December 15, 2019. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued an amendment to the guidance on the measurement of credit losses on financial instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.

3. INTELLECTUAL PROPERTY LITIGATION EXPENSES, NET

The Company incurred intellectual property litigation expenses, including settlements and external legal costs, of $405.4 million, $33.4 million and $214.0 million during 2020, 2019 and 2018, respectively.

On July 12, 2020, the Company reached an agreement with Abbott Laboratories and its direct and indirect subsidiaries ("Abbott") to, among other things, settle all outstanding patent disputes between the companies (the “Settlement Agreement”) in cases related to transcatheter mitral and tricuspid repair products. See Note 18 for additional information. The Settlement Agreement resulted in the Company recording an estimated $367.9 million pre-tax charge and related liability in June 2020 related to past damages. In addition, the Company will incur royalty expenses through May 2024 totaling an estimated $100 million. The Company made a one-time $100.0 million payment to Abbott in July 2020, and will make quarterly payments in future years.

In January 2019, the Company reached an agreement with Boston Scientific Corporation ("Boston Scientific") to settle all outstanding patent disputes for a one-time payment to Boston Scientific of $180.0 million, which was included as an expense in 2018. The settlement covered alleged past damages and no further royalties will be owed by either party.

4. SPECIAL CHARGES (GAIN)

Impairment of Long-lived Assets

In December 2019, the Company recorded a charge of $40.6 million related to the impairment of certain in-process research and development assets, and in December 2018, the Company recorded a charge of $116.2 million related to the impairment of certain developed technology and in-process research and development assets. These assets were acquired as part of the acquisition of Valtech Cardio Ltd. ("Valtech"). The Company measured the amount of the impairments by calculating the amount by which the carrying values exceeded the estimated fair values, which were based on projected discounted future net cash flows. Based on market and clinical trial developments at the time of the impairments, the Company re-evaluated the clinical development plans for the technologies acquired from Valtech, which resulted in a reduction to the projected near-term discounted future net cash flows related to the acquired mitral technology for the 2018 charge, and related to the acquired mitral and tricuspid technology for the 2019 charge. The impairments were recorded to the Company’s Rest of World segment.

Acquisition of Intellectual Property

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

Pension Gain

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAILS

Composition of Certain Financial Statement Captions

Components of selected captions in the consolidated balance sheets are as follows:

As of December 31,

(in millions)

Inventories

Property, plant, and equipment, net

Buildings and leasehold improvements 881.5 619.8

Equipment with customers 42.2 35.6

Accrued and other liabilities

Employee compensation and withholdings $ 236.7 $ 295.8

Property, payroll, and other taxes 49.7 51.4

Research and development accruals 52.3 51.4

Litigation settlement (Notes 3 and 18) 37.5 —

Litigation and insurance reserves (Note 18) 23.3 20.0

Fair value of derivatives 39.3 6.4

Accrued marketing expenses 14.3 17.5

Accrued professional services 7.6 10.1

Accrued realignment reserves 14.5 16.7

Accrued relocation related costs 21.0 17.4

Other accrued liabilities 88.2 89.8

In 2019, the Company recorded a $73.1 million charge to "Cost of Sales," primarily comprised of the write off of inventory related to strategic decisions regarding its transcatheter aortic valve portfolio, including the decision to discontinue its CENTERA program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAILS (Continued)

Supplemental Cash Flow Information

(in millions)

Years Ended December 31,

Cash paid during the year for:

Amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 29.7 $ 28.6 $ —

Non-cash investing and financing transactions:

Capital expenditures accruals $ 80.4 $ 50.8 $ 18.7

Cash, Cash Equivalents, and Restricted Cash

(in millions)

Years Ended December 31,

Restricted cash included in other current assets 16.6 1.6 1.5

Restricted cash included in other assets 0.4 3.7 0.3

Total cash, cash equivalents, and restricted cash $ 1,200.2 $ 1,184.4 $ 715.9

Amounts included in restricted cash primarily represent funds placed in escrow related to litigation and real estate purchases, and funds restricted for construction.

6. LEASES

The Company leases certain office space, manufacturing facilities, land, apartments, warehouses, vehicles, and equipment with remaining lease terms ranging from less than 1 year to 20 years, some of which include options to extend or terminate the leases.

Operating lease costs for the years ended December 31, 2020, 2019, and 2018 were $30.5 million, $27.9 million, and $27.0 million, respectively. Short-term and variable lease costs were not material for the years ended December 31, 2020 and 2019.

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

As of December 31,

Operating lease right-of-use assets $ 94.2 $ 80.1

Operating lease liabilities, current portion $ 27.2 $ 25.5

Operating lease liabilities, long-term portion 72.7 58.9

Total operating lease liabilities $ 99.9 $ 84.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. LEASES (Continued)

Maturities of operating lease liabilities at December 31, 2020 were as follows (in millions):

Total lease payments 108.1

Less: imputed interest (8.2)

Total lease liabilities $ 99.9

The following table provides information on the lease terms and discount rates:

Years Ended December 31,

Weighted-average remaining lease term (in years) 6.6 5.3

Weighted-average discount rate 2.7 % 2.8 %

As of December 31, 2020, the Company had no additional operating lease commitments for office space that have not yet commenced.

7. INVESTMENTS

Debt Securities

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

Available-for-sale

Bank time deposits $ 24.1 $ — $ — $ 24.1 $ 13.1 $ — $ — $ 13.1

Commercial paper — — — — 34.3 — — 34.3

Foreign government bonds — — — — 1.7 — — 1.7

Municipal securities 2.8 — — 2.8 — — — —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. INVESTMENTS (Continued)

The cost and fair value of investments in debt securities, by contractual maturity, as of December 31, 2020 were as follows:

Held-to-Maturity Available-for-Sale

Amortized Cost Fair Value Amortized Cost Fair Value

(in millions)

Instruments not due at a single maturity date — — 177.7 180.0

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

There were no investments that were in an unrealized loss position as of December 31, 2020. The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):

Less than 12 Months 12 Months or Greater Total

Asset-backed securities $ 73.4 $ (0.1) $ — $ — $ 73.4 $ (0.1)

Corporate debt securities 81.4 (0.1) — — 81.4 (0.1)

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,

(in millions)

Equity method investments

Carrying value of equity method investments $ 5.7 $ 6.2

Equity securities

Carrying value of non-marketable equity securities 29.4 23.1

Total investments in unconsolidated affiliates $ 35.1 $ 29.3

Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values, and are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The Company recorded an upward adjustment of $1.8 million based on observable price changes and a downward adjustment of $0.7 million due to an impairment during 2020, and an upward adjustment of $0.3 million based on observable price changes during 2019. As of December 31, 2020 and 2019, the Company had recorded accumulated upward adjustments of $3.8 million and $2.0 million, respectively, based on observable price changes, and accumulated downward adjustments of $2.6 million and $1.9 million, respectively, due to impairment and observable price changes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. INVESTMENTS (Continued)

During 2020, 2019, and 2018, the gross realized gains or losses from sales of available-for-sale investments were not material.

8. ACQUISITIONS

CAS Medical Systems, Inc.

On February 11, 2019, the Company entered into an agreement and plan of merger to acquire all the outstanding shares of CAS Medical Systems, Inc. ("CASMED") for an aggregate cash purchase price of $2.45 per share of common stock, or an equity value of approximately $100 million. The transaction closed on April 18, 2019, and the cash purchase price was $100.8 million. Acquisition-related costs of $2.0 million were recorded in “Selling, General, and Administrative Expenses” during the year ended December 31, 2019.

CASMED is a medical technology company dedicated to noninvasive monitoring of tissue oxygenation in the brain. The Company integrated the acquired technology platform into its hemodynamic monitoring platform. 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 was recorded to goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed (in millions):

Current assets $ 6.1

Property and equipment, net 1.3

Developed technology 35.9

Customer relationships 8.8

Deferred tax assets 2.2

EW US Equity

EW · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

EW US Equity☆

EW · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

EW US Equity