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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
            For the transition period from                                    to            
Commission file number 1-15525
EDWARDS LIFESCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
36-4316614
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

One Edwards Way
Irvine, California 92614
(Address of principal executive offices and zip code)

(949) 250-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareEWNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒
The number of shares outstanding of the registrant's common stock, $1.00 par value, as of July 25, 2023 was 607,916,300.


Table of Contents
EDWARDS LIFESCIENCES CORPORATION
FORM 10-Q
For the quarterly period ended June 30, 2023

TABLE OF CONTENTS
  
Page
Number
 
 
 
 
 
 
 
Item 6.


Table of Contents
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements contained in this report to be covered by the safe harbor provisions of such Acts. Statements other than statements of historical or current fact in this report or referred to or incorporated by reference into this report are "forward-looking statements" for purposes of these sections. These statements include, among other things, the expected impact of COVID-19 on our business, the expected impact of macroeconomic conditions on our business, any predictions, opinions, expectations, plans, strategies, objectives and any statements of assumptions underlying any of the foregoing relating to our current and future business and operations, including, but not limited to, financial matters, development activities, clinical trials and regulatory matters, manufacturing and supply operations, and product sales and demand. These statements can sometimes be identified by the use of the forward-looking words such as "may," "believe," "will," "expect," "project," "estimate," "should," "anticipate," "plan," "goal," "continue," "seek," "pro forma," "forecast," "intend," "guidance," "optimistic," "aspire," "confident," other forms of these words or similar words or expressions or the negative thereof. Statements regarding past performance, efforts, or results about which inferences or assumptions may be made can also be forward-looking statements and are not indicative of future performance or results; these statements can be identified by the use of words such as "preliminary," "initial," diligence," "industry-leading," "compliant," "indications," or "early feedback" or other forms of these words or similar words or expressions or the negative thereof. These forward-looking statements are subject to substantial risks and uncertainties that could cause our results or future business, financial condition, results of operations or performance to differ materially from our historical results or experiences or those expressed or implied in any forward-looking statements contained in this report. These risks and uncertainties include, but are not limited to: our success in developing new products and avoiding manufacturing and quality issues; clinical trial or commercial results or new product approvals and therapy adoption; the impact of public health crises, including the COVID-19 pandemic; the impact of domestic and global conditions; competitive dynamics in the markets in which we operate; our reliance on vendors, suppliers, and other third parties; damage, failure or interruption of our information technology systems; consolidation in the healthcare industry; our ability to protect our intellectual property; our compliance with applicable regulations; our exposure to product liability claims; use of our products in unapproved circumstances; changes to reimbursement for our products; the impact of currency exchange rates; unanticipated actions by the United States Food and Drug Administration and other regulatory agencies; changes to tax laws; unexpected impacts or expenses of litigation or internal or government investigations; and other risks detailed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2022, as such risks and uncertainties may be amended, supplemented or superseded from time to time by our subsequent reports on Forms 10-Q and 8-K we file with the United States Securities and Exchange Commission. These forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement. If we do update or correct one or more of these statements, investors and others should not conclude that we will make additional updates or corrections.

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


Table of Contents
Part I. Financial Information
Item 1.    Financial Statements
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions, except par value; unaudited)
 June 30,
2023		December 31,
2022
ASSETS  
Current assets  
Cash and cash equivalents$1,042.6 $769.0 
Short-term investments (Note 4)466.7 446.3 
Accounts receivable, net of allowances of $8.1 and $7.9, respectively
754.4 643.0 
Other receivables62.5 56.1 
Inventories (Note 2)980.2 875.5 
Prepaid expenses123.2 110.0 
Other current assets217.4 195.9 
Total current assets3,647.0 3,095.8 
Long-term investments (Note 4)856.2 1,239.0 
Property, plant, and equipment, net1,662.2 1,632.8 
Operating lease right-of-use assets 84.9 92.3 
Goodwill 1,299.5 1,164.3 
Other intangible assets, net (Note 6) 431.4 285.2 
Deferred income taxes610.7 484.0 
Other assets (Note 5)412.1 299.1 
Total assets$9,004.0 $8,292.5 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities  
Accounts payable$193.0 $201.9 
Accrued and other liabilities (Note 2)939.9 795.0 
Operating lease liabilities24.3 25.5 
Total current liabilities1,157.2 1,022.4 
Long-term debt 596.7 596.3 
Contingent consideration liabilities (Note 7)— 26.2 
Taxes payable81.2 143.4 
Operating lease liabilities 63.5 69.5 
Uncertain tax positions303.7 267.5 
Litigation settlement accrual (Note 2)112.5 143.0 
Other liabilities242.7 217.5 
Total liabilities2,557.5 2,485.8 
Commitments and contingencies (Note 11)
Stockholders' equity  
Preferred stock, $0.01 par value, authorized 50.0 shares, no shares outstanding          
— — 
Common stock, $1.00 par value, 1,050.0 shares authorized, 649.1 and 646.3 shares issued, and 607.9 and 608.3 shares outstanding, respectively
649.1 646.3 
Additional paid-in capital2,145.5 1,969.3 
Retained earnings8,237.6 7,590.0 
Accumulated other comprehensive loss (Note 12)(255.5)(254.9)
Treasury stock, at cost, 41.2 and 38.0 shares, respectively
(4,401.0)(4,144.0)
Total Edwards Lifesciences Corporation stockholders' equity6,375.7 5,806.7 
Noncontrolling interest (Note 6)70.8 — 
Total stockholders' equity6,446.5 5,806.7 
Total liabilities and equity$9,004.0 $8,292.5 
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in millions, except per share information; unaudited)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2023202220232022
Net sales$1,530.2 $1,373.9 $2,989.8 $2,715.1 
Cost of sales343.0 269.4 672.5 568.7 
Gross profit1,187.2 1,104.5 2,317.3 2,146.4 
Selling, general, and administrative expenses468.7 409.0 905.0 779.3 
Research and development expenses270.3 250.8 531.5 479.4 
Intellectual property agreement and litigation expense (Note 3)
147.9 6.1 191.4 13.2 
Change in fair value of contingent consideration liabilities (Note 7)(26.9)(20.9)(26.2)(23.8)
Operating income, net327.2 459.5 715.6 898.3 
Interest income, net(9.1)(0.9)(17.7)(1.5)
Other income, net(2.2)(4.3)(3.8)(1.0)
Income before provision for income taxes338.5 464.7 737.1 900.8 
Provision for income taxes33.0 58.3 91.1 120.8 
Net income305.5 406.4 646.0 780.0 
Net loss attributable to noncontrolling interest (Note 6)(1.6)— (1.6)— 
Net income attributable to Edwards Lifesciences Corporation$307.1 $406.4 $647.6 $780.0 
Share information (Note 13)
    
Earnings per share:    
Basic$0.51 $0.65 $1.07 $1.26 
Diluted$0.50 $0.65 $1.06 $1.24 
Weighted-average number of common shares outstanding:    
Basic606.9 620.9 607.2 621.5 
Diluted610.3 626.7 610.6 628.1 
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2023202220232022
Net income$305.5 $406.4 $646.0 $780.0 
Other comprehensive loss, net of tax (Note 12):
Foreign currency translation adjustments(11.5)(43.2)(7.7)(53.2)
Unrealized gain (loss) on hedges5.3 31.3 (11.9)44.7 
Unrealized pension credits (costs)0.2 (0.1)0.1 (0.1)
Unrealized gain (loss) on available-for-sale investments2.1 (30.9)11.1 (68.0)
Reclassification of realized investment losses to earnings3.8 5.1 7.8 9.9 
Other comprehensive loss(0.1)(37.8)(0.6)(66.7)
Comprehensive income305.4 368.6 645.4 713.3 
Comprehensive loss attributable to noncontrolling interest(1.6)— (1.6)— 
Comprehensive income attributable to Edwards Lifesciences Corporation$307.0 $368.6 $647.0 $713.3 
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
 Six Months Ended
June 30,
 20232022
Cash flows from operating activities  
Net income$646.0 $780.0 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization71.3 68.8 
Non-cash operating lease cost13.7 13.9 
Stock-based compensation (Note 9)76.3 68.6 
Change in fair value of contingent consideration liabilities (Note 7)(26.2)(23.8)
Loss (gain) on investments, net(3.5)38.2 
Deferred income taxes(134.7)(102.4)
Other2.8 4.2 
Changes in operating assets and liabilities:  
Accounts and other receivables, net(124.3)(77.7)
Inventories(113.7)(85.8)
Accounts payable and accrued liabilities76.2 (81.7)
Income taxes31.0 49.7 
Prepaid expenses and other current assets(43.4)25.7 
Intellectual property agreement accrual(14.5)(19.7)
Long-term prepaid royalties (Note 3)(114.0)— 
Other4.7 (32.5)
Net cash provided by operating activities347.7 625.5 
Cash flows from investing activities  
Capital expenditures(109.4)(115.8)
Purchases of held-to-maturity investments (Note 4)(15.5)(180.7)
Proceeds from held-to-maturity investments (Note 4)83.5 277.5 
Purchases of available-for-sale investments (Note 4)(6.8)(114.3)
Proceeds from available-for-sale investments (Note 4)314.5 584.1 
Business combination, net of cash (Note 6)(141.2)— 
Payment for acquisition options (Note 5)(15.0)(55.5)
Issuances of notes receivable(22.5)(45.5)
Collections of notes receivable— 18.0 
Other(16.9)(8.7)
Net cash provided by investing activities70.7 359.1 
Cash flows from financing activities  
Purchases of treasury stock(256.8)(760.7)
Proceeds from stock plans102.7 86.5 
Other(0.4)(2.0)
Net cash used in financing activities(154.5)(676.2)
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash11.0 27.1 
Net increase in cash, cash equivalents, and restricted cash274.9 335.5 
Cash, cash equivalents, and restricted cash at beginning of period772.6 867.4 
Cash, cash equivalents, and restricted cash at end of period$1,047.5 $1,202.9 
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions; unaudited)
 Common StockTreasury Stock
 SharesPar ValueSharesAmountAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Edwards Lifesciences Corporation Stockholders' EquityNoncontrolling InterestTotal Stockholders' Equity
Balance at December 31, 2022646.3 $646.3 38.0 $(4,144.0)$1,969.3 $7,590.0 $(254.9)$5,806.7 $— $5,806.7 
Net income     340.5  340.5 — 340.5 
Other comprehensive loss, net of tax      (0.5)(0.5)(0.5)
Common stock issued under stock plans0.8 0.8   41.1   41.9 41.9 
Stock-based compensation expense    38.9   38.9 38.9 
Purchases of treasury stock  3.1 (249.5)  (249.5)(249.5)
Changes to noncontrolling interest  — 84.0 84.0 
Balance at March 31, 2023
647.1 647.1 41.1 (4,393.5)2,049.3 7,930.5 (255.4)5,978.0 84.0 6,062.0 
Net income307.1 307.1 (1.6)305.5 
Other comprehensive loss, net of tax(0.1)(0.1)(0.1)
Common stock issued under equity plans
2.0 2.0 58.8 60.8 60.8 
Stock-based compensation expense37.4 37.4 37.4 
Purchases of treasury stock0.1 (7.5)(7.5)(7.5)
Changes to noncontrolling interest— (11.6)(11.6)
Balance at June 30, 2023
649.1 $649.1 41.2 $(4,401.0)$2,145.5 $8,237.6 $(255.5)$6,375.7 $70.8 $6,446.5 
The accompanying notes are an integral part of these
consolidated condensed financial statements.

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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions; unaudited)
 Common StockTreasury Stock
 SharesPar ValueSharesAmountAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at December 31, 2021642.0 $642.0 17.9 $(2,416.9)$1,700.4 $6,068.1 $(157.7)$5,835.9 
Net income     373.6  373.6 
Other comprehensive loss, net of tax      (28.9)(28.9)
Common stock issued under stock plans0.9 0.9   36.6   37.5 
Stock-based compensation expense    32.4   32.4 
Purchases of treasury stock  3.6 (405.6)  (405.6)
Balance at March 31, 2022
642.9 642.9 21.5 (2,822.5)1,769.4 6,441.7 (186.6)5,844.9 
Net income406.4 406.4 
Other comprehensive income, net of tax(37.8)(37.8)
Common stock issued under equity plans
2.1 2.1 46.9 49.0 
Stock-based compensation expense36.2 36.2 
Purchases of treasury stock3.7 (355.1)(355.1)
Balance at June 30, 2022
645.0 $645.0 25.2 $(3,177.6)$1,852.5 $6,848.1 $(224.4)$5,943.6 
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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1.     BASIS OF PRESENTATION

The accompanying interim consolidated condensed financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the consolidated financial statements and notes included in Edwards Lifesciences' Annual Report on Form 10-K for the year ended December 31, 2022. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

The consolidated condensed financial statements include the accounts of all wholly-owned subsidiaries and variable interest entities for which the Company is the primary beneficiary. The Company attributes the net income or losses of its consolidated variable interest entities to controlling and noncontrolling interests using the hypothetical liquidation at book value method. All intercompany accounts and transactions have been eliminated in consolidation.

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 the opinion of management, the interim consolidated condensed financial statements reflect all adjustments necessary for a fair statement of the results for the interim periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

There have been no material changes to the Company's significant accounting policies from those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

New Accounting Standards Not Yet Adopted

In March 2023, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting guidance on investments in tax credit structures to allow entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial results.

2.     OTHER CONSOLIDATED FINANCIAL STATEMENT DETAILS

Composition of Certain Financial Statement Captions
(in millions)

Components of selected captions in the consolidated condensed balance sheets consisted of the following:
June 30, 2023December 31, 2022
Inventories
Raw materials$181.2 $156.4 
Work in process223.0 177.4 
Finished products576.0 541.7 
$980.2 $875.5 

At June 30, 2023 and December 31, 2022, $149.7 million and $128.6 million, respectively, of the Company's finished products inventories were held on consignment.

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June 30, 2023December 31, 2022
Accrued and other liabilities 
Employee compensation and withholdings$312.7 $268.7 
Taxes payable106.6 50.6 
Property, payroll, and other taxes56.1 45.6 
Research and development accruals70.7 66.9 
Accrued rebates130.1 116.1 
Fair value of derivatives17.8 20.7 
Accrued marketing expenses16.9 17.0 
Legal and insurance30.4 28.1 
Litigation settlement (a)
69.2 53.3 
Accrued relocation costs23.3 25.2 
Accrued professional services10.2 6.6 
Accrued realignment reserves14.4 15.6 
Other accrued liabilities81.5 80.6 
$939.9 $795.0 
_______________________________________
(a)     As of June 30, 2023, $69.2 million was accrued in "Accrued and Other Liabilities" and $112.5 million was accrued in "Litigation Settlement Accrual" on the consolidated condensed balance sheet related to a settlement agreement with Abbott Laboratories and its direct and indirect subsidiaries.

Supplemental Cash Flow Information
(in millions)
Six Months Ended
June 30,
20232022
Cash paid during the year for:
Income taxes$193.5 $173.0 
Amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$14.3 $14.5 
Non-cash investing and financing transactions:  
Right-of-use assets obtained in exchange for new lease liabilities$6.0 $10.6 
Capital expenditures accruals$26.9 $24.6 

Cash, Cash Equivalents, and Restricted Cash
(in millions)
June 30, 2023December 31, 2022
Cash and cash equivalents$1,042.6 $769.0 
Restricted cash included in other current assets1.4 0.5 
Restricted cash included in other assets3.5 3.1 
Total cash, cash equivalents, and restricted cash$1,047.5 $772.6 

Amounts included in restricted cash primarily represent funds placed in escrow related to litigation.

3.    INTELLECTUAL PROPERTY AGREEMENT AND LITIGATION EXPENSE

On April 12, 2023, Edwards entered into an Intellectual Property Agreement (the "Intellectual Property Agreement") with Medtronic, Inc. ("Medtronic") pursuant to which the parties agreed to a 15-year global covenant not to sue ("CNS") for infringement of certain patents in the structural heart space owned or controlled by each other. In consideration for the global CNS and related mutual access to certain intellectual property rights, Edwards paid to Medtronic a one-time, lump sum payment of $300.0 million and will pay annual royalty payments that are tied to net sales of certain Edwards products. Based upon the terms of the Intellectual Property Agreement, the Company identified the relevant elements for accounting purposes and allocated the $300.0 million upfront payment based on their respective fair values. The Company recorded a $37.0 million
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pre-tax charge in "Intellectual Property Agreement and Litigation Expense" in March 2023 related primarily to prior commercial sales incurred through March 31, 2023. The Company recorded a prepaid royalty asset of $124.0 million in April 2023 related to future commercial sales, which will be amortized to expense during the term of the Intellectual Property Agreement. Separately, the Company recorded a $139.0 million pre-tax charge in "Intellectual Property Agreement and Litigation Expense" in April 2023 related to products currently in development.

4.     INVESTMENTS

Debt Securities

Investments in debt securities at the end of each period were as follows (in millions):
 June 30, 2023December 31, 2022
Held-to-maturityAmortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Bank time deposits$28.1 $— $— $28.1 $96.0 $— $— $96.0 
Available-for-sale
U.S. government and agency securities103.4 — (5.0)98.4 137.7 — (6.1)131.6 
Asset-backed securities262.5 — (10.0)252.5 380.6 — (14.0)366.6 
Corporate debt securities864.9 — (34.0)830.9 1,028.1 — (47.8)980.3 
Municipal securities2.8 — (0.2)2.6 2.7 — (0.2)2.5 
Total$1,233.6 $— $(49.2)$1,184.4 $1,549.1 $— $(68.1)$1,481.0 
The cost and fair value of investments in debt securities, by contractual maturity, as of June 30, 2023, were as follows:
Held-to-MaturityAvailable-for-Sale
 Amortized CostFair ValueAmortized CostFair Value
 (in millions)
Due in 1 year or less$26.3 $26.3 $450.9 $440.4 
Due after 1 year through 5 years1.8 1.8 472.0 446.7 
Due after 5 years through 10 years— — 4.6 4.4 
Instruments not due at a single maturity date (a)
— — 306.1 292.9 
$28.1 $28.1 $1,233.6 $1,184.4 
_______________________________________
(a)     Consists of mortgage- and asset-backed securities.
Actual maturities may differ from the contractual maturities due to call or prepayment rights.
The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2023 and December 31, 2022, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):

June 30, 2023
Less than 12 Months12 Months or GreaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
U.S. government and agency securities$10.9 $(0.1)$86.2 $(4.9)$97.1 $(5.0)
Asset-backed securities50.9 (0.8)199.9 (9.2)250.8 (10.0)
Corporate debt securities23.3 (0.1)793.3 (33.9)816.6 (34.0)
Municipal securities— — 2.6 (0.2)2.6 (0.2)
$85.1 $(1.0)$1,082.0 $(48.2)$1,167.1 $(49.2)
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December 31, 2022
Less than 12 Months12 Months or GreaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
U.S. government and agency securities$61.6 $(1.5)$69.5 $(4.6)$131.1 $(6.1)
Asset-backed securities103.3 (1.3)254.6 (12.7)357.9 (14.0)
Corporate debt securities189.0 (5.3)784.8 (42.5)973.8 (47.8)
Municipal securities— — 2.5 (0.2)2.5 (0.2)
$353.9 $(8.1)$1,111.4 $(60.0)$1,465.3 $(68.1)

The Company reviews its investments in debt securities to determine if there has been an other-than-temporary decline in fair value. Consideration is given to 1) the financial condition and near-term prospects of the issuer, including the credit quality of the security's issuer, 2) the Company's intent to sell the security, and 3) whether it is more likely than not the Company will have to sell the security before recovery of its amortized cost. The decline in fair value of the debt securities was largely due to changes in interest rates, not credit quality, and as of June 30, 2023, the Company did not intend to sell the securities, and it was not more likely than not that it will be required to sell the securities before recovery of the unrealized losses, and, therefore, the unrealized losses are considered temporary.

Investments in Unconsolidated Entities

The Company has a number of equity investments in unconsolidated entities. These investments are recorded in "Long-term Investments" on the consolidated condensed balance sheets, and are as follows:
 June 30,
2023		December 31,
2022
 (in millions)
Equity method investments  
Carrying value of equity method investments$23.5 $21.4 
Equity securities  
Carrying value of non-marketable equity securities86.9 86.9 
Total investments in unconsolidated entities$110.4 $108.3 

During the six months ended June 30, 2023, the Company made $1.7 million of equity investments in limited liability companies that invest in qualified community development entities ("CDEs") through the New Markets Tax Credit ("NMTC") program. The NMTC program provides federal tax incentives to investors to make investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTC is equal to 39% of the qualified investment and is taken over seven years. These limited liability companies are variable interest entities ("VIEs"). The Company determined that it is not the primary beneficiary of the VIEs because it does not have the power to direct the activities that most significantly impact the economic performance of the VIEs and, therefore, the Company does not consolidate these entities. Instead, the NMTC investments are accounted for as equity method investments.

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. As of June 30, 2023, the Company had recorded cumulative upward adjustments of $8.8 million based on observable price changes, and cumulative downward adjustments of $3.1 million due to impairments and observable price changes.

During the three and six months ended June 30, 2023, the gross realized gains or losses from sales of available-for-sale investments were not material.

5.     INVESTMENTS IN VARIABLE INTEREST ENTITIES

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
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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. The Company's maximum loss exposure to variable interest entities, prior to the exercise of options to acquire the entities, is limited to its investment in the variable interest entities, which include equity investments, options to acquire, and promissory notes.

Consolidated VIEs

In February 2023, the Company acquired a majority equity interest in a medical technology company pursuant to a preferred stock purchase agreement, and amended and restated a previous option agreement to acquire the remaining equity interest. Edwards concluded that it is the primary beneficiary and consolidated the VIE. See Note 6 for additional information.

Unconsolidated VIEs

Edwards has relationships with various VIEs that it does not consolidate as Edwards lacks the power to direct the activities that significantly impact the economic success of these entities.

In March 2023, the Company agreed to pay a medical device company up to $45.0 million as consideration for an option to acquire the medical device company, of which $15.0 million has been paid as of June 30, 2023. Also, in March 2023, Edwards advanced $5.0 million to the medical device company under a convertible promissory note. The option and the note are included in "Other Assets" on the consolidated condensed balance sheet.
In January 2023, the Company loaned a privately-held medical device company (the "Investee") $10.0 million under a $45.0 million secured promissory note agreement. In April 2023, the Investee drew an additional $7.5 million under the promissory note. Previously, in 2021, the Company invested $39.3 million, included in "Long-term Investments," in the Investee's preferred equity securities and paid $13.1 million, included in "Other Assets," for an option to acquire the Investee. Per the agreement, the Company may be required to invest up to an additional $6.5 million in the Investee's preferred equity securities and up to an additional $14.4 million for the option to acquire the Investee.

In August 2022, the Company entered into an option agreement with a medical device company. Under the option agreement, Edwards paid $47.1 million for an option to acquire the medical device company. The $47.1 million option is included in "Other Assets" on the consolidated condensed balance sheet.

In June 2022, the Company entered into a convertible promissory note and amended its existing warrant agreement with a medical device company. Under the convertible promissory note agreement, the Company agreed to loan the medical device company up to $47.5 million, of which $32.5 million has been advanced as of June 30, 2023. In addition, in 2019 the Company paid $35.0 million for an option to acquire the medical device company. The $35.0 million option and the $32.5 million note receivable are included in "Other Assets" on the consolidated condensed balance sheet.

In May 2022, the Company entered into an option agreement with a medical technology company. Under the option agreement, Edwards paid $60.0 million for an option to acquire the medical technology company, of which $10.0 million was paid in 2021. The $60.0 million option is included in "Other Assets" on the consolidated condensed balance sheet.

In addition, Edwards has made equity investments through the NMTC program in limited liability companies that are considered VIEs. For more information, see Note 4.

6.     BUSINESS COMBINATION

On February 28, 2023, the Company acquired 61% of the then outstanding shares of a medical technology company in an all cash transaction. The Company determined it was the primary beneficiary of this VIE, and the VIE has been consolidated in the Company's consolidated condensed financial statements. In addition, the Company amended and restated its previous option agreement with the medical technology company. The option agreement gives Edwards the option to acquire the remaining equity interest in the medical technology company.

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The medical technology company is dedicated to developing technologies for detecting and managing patients with cardiovascular disease. The transaction was accounted for as a business combination. Tangible and intangible assets and liabilities 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):

Assets$8.1 
Goodwill133.2 
In-process research and development136.6 
Liabilities assumed(1.7)
Deferred tax liabilities(28.0)
Fair value of net assets acquired248.2 
Less: Noncontrolling interest (a)
(72.4)
Total purchase price
175.8 
Less: cash acquired(6.8)
Total purchase price, net of cash acquired (b)
$169.0 
_______________________________________
(a) Includes the fair value of the noncontrolling interest of $94.4 million, offset by the purchase consideration allocated to the option of $22.0 million, which was ascribed to the noncontrolling interest.
(b)     Includes $22.5 million paid in a previous year under option agreements and $5.3 million for the settlement of a pre-existing note.

Goodwill includes expected synergies and other benefits the Company believes will result from the acquisition. Goodwill was assigned to the Company’s Rest of World segment and is not deductible for tax purposes.

Pro forma results have not been presented as the results of the medical technology company are not material in relation to the consolidated financial statements of Edwards Lifesciences.

7.     FAIR VALUE MEASUREMENTS

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

Level 1—Quoted market prices in active markets for identical assets or liabilities.
Level 2—Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.
Level 3—Unobservable inputs that are not corroborated by market data.

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

The consolidated condensed financial statements include financial instruments for which the fair market value of such instruments may differ from amounts reflected on a historical cost basis. Financial instruments of the Company consist of cash deposits, accounts and other receivables, investments, accounts payable, certain accrued liabilities, and borrowings under a revolving credit agreement. The carrying value of these financial instruments generally approximates fair value due to their short-term nature. Financial instruments also include notes payable. As of June 30, 2023, the fair value of the notes payable, based on Level 2 inputs, was $580.5 million.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company's financial instruments which are measured at fair value on a recurring basis (in millions):
June 30, 2023Level 1Level 2Level 3Total
Assets    
Cash equivalents$635.0 $— $— $635.0 
Available-for-sale investments:
Corporate debt securities
— 830.9 — 830.9 
Asset-backed securities
— 252.5 — 252.5 
United States government and agency securities— 98.4 — 98.4 
Municipal securities
— 2.6 — 2.6 
Investments held for deferred compensation plans125.3 — — 125.3 
Derivatives— 63.9 — 63.9 
$760.3 $1,248.3 $— $2,008.6 
Liabilities    
Derivatives$— $17.8 $— $17.8 
Other liability— — 14.0 14.0 
$— $17.8 $14.0 $31.8 
December 31, 2022    
Assets    
Cash equivalents$280.4 $— $— $280.4 
Available-for-sale investments:
Corporate debt securities
— 980.3 — 980.3 
Asset-backed securities
— 366.6 — 366.6 
United States government and agency securities37.1 94.5 — 131.6 
Municipal securities
— 2.5 — 2.5 
Investments held for deferred compensation plans112.1 — — 112.1 
Derivatives— 65.5 — 65.5 
$429.6 $1,509.4 $— $1,939.0 
Liabilities    
Derivatives$— $27.2 $— $27.2 
Contingent consideration liabilities— — 26.2 26.2 
Other liability— — 14.0 14.0 
$— $27.2 $40.2 $67.4 

Cash Equivalents and Available-for-sale Investments

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

Deferred Compensation Plans

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

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Derivative Instruments

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

Contingent Consideration Liabilities

Certain of the Company's acquisitions involve contingent consideration arrangements. Payment of additional consideration is contingent upon the acquired company reaching certain performance milestones, such as attaining specified sales levels or obtaining regulatory approvals. These contingent consideration liabilities are measured at estimated fair value using either a probability weighted discounted cash flow analysis or a Monte Carlo simulation model, both of which consider significant unobservable inputs. As of June 30, 2023 the probability of milestone achievement was determined to be 0% and, accordingly, the contingent consideration liability was reduced to zero.

The following tables summarize the changes in fair value of the contingent consideration and the other liability (in millions):
 Contingent ConsiderationOther liabilityTotal
Balance at December 31, 2022
$26.2 $14.0 $40.2 
Changes in fair value(26.2)— (26.2)
Balance at June 30, 2023$— $14.0 $14.0 
Contingent ConsiderationOther liabilityTotal
Balance at December 31, 2021
$62.0 $14.0 $76.0 
Changes in fair value(23.8)— (23.8)
Balance at June 30, 2022$38.2 $14.0 $52.2 


8.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivative financial instruments to manage its currency exchange rate risk and its interest rate risk as summarized below. Notional amounts are stated in United States dollar equivalents at spot exchange rates at the respective dates. The Company does not enter into these arrangements for trading or speculation purposes.
 Notional Amount
 June 30, 2023December 31, 2022
 (in millions)
Foreign currency forward exchange contracts$1,763.7 $1,678.4 
Cross currency swap contracts300.0 300.0 

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

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

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

The following table presents the location and fair value amounts of derivative instruments reported in the consolidated condensed balance sheets (in millions):
  Fair Value
Derivatives designated as hedging instrumentsBalance Sheet
Location		June 30, 2023December 31, 2022
Assets   
Foreign currency contractsOther current assets$32.2 $24.9 
Cross currency swap contractsOther assets$31.7 $40.6 
Liabilities   
Foreign currency contractsAccrued and other liabilities$17.8 $20.7 
Foreign currency contractsOther liabilities$— $6.5 

The following table presents the effect of master-netting agreements and rights of offset on the consolidated condensed balance sheets (in millions):
    Gross Amounts
Not Offset in
the Consolidated
Balance Sheet		 
  Gross Amounts
Offset in the
Consolidated
Balance Sheet		 
  Net Amounts
Presented in the
Consolidated
Balance Sheet
June 30, 2023Gross
Amounts		Financial
Instruments		Cash
Collateral
Received		Net
Amount
Derivative assets      
Foreign currency contracts$32.2 $— $32.2 $(8.6)$— $23.6 
Cross currency swap contracts$31.7 $— $31.7 $— $— $31.7 
Derivative liabilities      
Foreign currency contracts$17.8 $— $17.8 $(8.6)$— $9.2 
December 31, 2022      
Derivative assets      
Foreign currency contracts$24.9 $— $24.9 $(12.0)$— $12.9 
Cross currency swap contracts$40.6 $—