Edwards Lifesciences Corp 10-Q for FY2020 Q1

Edwards Lifesciences Corp (EW)

10-Q 2020-04-28 For: 2020-03-31

Added on April 09, 2026

About this 10-Q

Edwards Lifesciences Corp filed this 10-Q on April 28, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.13B; up 13.7% from $993M a year earlier
Diluted EPS: $1.47; up 24.6% from $1.18 a year earlier

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Delaware			36-4316614
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	EW	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐



		Page Number
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Condensed Balance Sheets	1
	Consolidated Condensed Statements of Operations	2
	Consolidated Condensed Statements of Comprehensive Income	3
	Consolidated Condensed Statements of Cash Flows	4
	Consolidated Condensed Statements of Stockholders' Equity	5
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	35
Signature		36



	March 31, 2020			December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	662.9		$	1,179.1
Short-term investments (Note 4)	368.2			337.8
Accounts and other receivables, net of allowances of $9.0 and $8.7, respectively	585.1			599.1
Inventories (Note 2)	662.2			640.9
Prepaid expenses	65.8			59.1
Other current assets	163.7			168.0
Total current assets	2,507.9			2,984.0
Long-term investments (Note 4)	587.8			585.5
Property, plant, and equipment, net	1,100.6			1,060.3
Operating lease right-of-use assets	75.5			80.1
Goodwill	1,166.2			1,167.7
Other intangible assets, net	334.8			336.5
Deferred income taxes	158.0			172.2
Other assets	145.3			101.8
Total assets	$	6,076.1		$	6,488.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 2)	$	722.0		$	876.9
Operating lease liabilities	24.9			25.5
Total current liabilities	746.9			902.4
Long-term debt	594.6			594.4
Contingent consideration liabilities (Note 5)	170.3			172.5
Taxes payable	239.3			236.6
Operating lease liabilities	55.7			58.9
Uncertain tax positions	175.9			171.7
Other long-term liabilities	192.3			203.3
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock, $.01 par value, authorized 50.0 shares, no shares outstanding	—			—
Common stock, $1.00 par value, 350.0 shares authorized, 218.5 and 218.1 shares issued, and 206.5 and 209.1 shares outstanding, respectively	218.5			218.1
Additional paid-in capital	1,675.9			1,623.3
Retained earnings	4,052.2			3,741.6
Accumulated other comprehensive loss (Note 9)	(152.0		)	(156.0		)
Treasury stock, at cost, 12.0 and 9.0 shares, respectively	(1,893.5		)	(1,278.7		)
Total stockholders' equity	3,901.1			4,148.3
Total liabilities and stockholders' equity	$	6,076.1		$	6,488.1



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended March 31,
	2020			2019
Net sales	$	1,128.7		$	993.0
Cost of sales	265.1			231.8
Gross profit	863.6			761.2
Selling, general, and administrative expenses	307.8			280.3
Research and development expenses	187.4			171.4
Intellectual property litigation expenses	12.5			4.6
Change in fair value of contingent consideration liabilities, net (Note 5)	(2.2		)	6.7
Special charge (Note 3)	—			24.0
Operating income	358.1			274.2
Interest income, net	(4.5		)	(2.0		)
Other income, net	(1.9		)	(1.8		)
Income before provision for income taxes	364.5			278.0
Provision for income taxes	53.9			28.3
Net income	$	310.6		$	249.7
Share information (Note 10)
Earnings per share:
Basic	$	1.49		$	1.20
Diluted	$	1.47		$	1.18
Weighted-average number of common shares outstanding:
Basic	208.2			207.9
Diluted	211.7			212.2



	Common Stock			Treasury Stock
	Shares	Par Value		Shares	Amount			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at December 31, 2019	218.1	$	218.1	9.0	$	(1,278.7	)	$	1,623.3	$	3,741.6	$	(156.0	)	$	4,148.3
Net income										310.6					310.6
Other comprehensive income, net of tax												4.0			4.0
Common stock issued under equity plans	0.4	0.4						28.7							29.1
Stock-based compensation expense								23.9							23.9
Purchases of treasury stock				3.0	(614.8		)								(614.8		)
Balance at March 31, 2020	218.5	$	218.5	12.0	$	(1,893.5	)	$	1,675.9	$	4,052.2	$	(152.0	)	$	3,901.1



	March 31, 2020		December 31, 2019
Inventories
Raw materials	$	120.2	$	118.0
Work in process	133.2		121.7
Finished products	408.8		401.2
	$	662.2	$	640.9



	March 31, 2020		December 31, 2019
	(in millions)
Accounts payable and accrued liabilities
Accounts payable	$	151.5	$	180.4
Employee compensation and withholdings	166.3		295.8
Taxes payable (Note 11)	67.8		52.9
Property, payroll, and other taxes	52.4		51.4
Research and development accruals	51.0		51.4
Accrued rebates	51.6		67.1
Fair value of derivatives	6.6		6.4
Accrued marketing expenses	14.0		17.5
Litigation and insurance reserves	21.2		20.0
Accrued relocation costs	18.1		17.4
Accrued professional services	10.7		10.1
Accrued realignment reserves	13.9		16.7
Other accrued liabilities	96.9		89.8
	$	722.0	$	876.9



	March 31, 2020									December 31, 2019
Held-to-maturity	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Bank time deposits	$	112.0	$	—	$	—		$	112.0	$	100.2	$	—	$	—			$	100.2

Available-for-sale
Bank time deposits	$	13.1	$	—	$	—		$	13.1	$	13.1	$	—	$	—			$	13.1
Commercial paper	49.8		—		—			49.8		34.3		—		—				34.3
U.S. government and agency securities	112.9		2.9		—			115.8		113.2		0.6		—				113.8
Foreign government bonds	1.7		—		—			1.7		1.7		—		—				1.7
Asset-backed securities	157.2		0.2		(1.5		)	155.9		141.2		0.6		(0.1		)		141.7
Corporate debt securities	479.2		1.0		(5.8		)	474.4		487.0		2.3		(0.1		)		489.2
Total	$	813.9	$	4.1	$	(7.3	)	$	810.7	$	790.5	$	3.5	$	(0.2	)		$	793.8



	March 31, 2020
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Asset-backed securities	$	116.3	$	(1.5	)	$	—	$	—	$	116.3	$	(1.5	)
Corporate debt securities	331.0		(5.8		)	—		—		331.0		(5.8		)
	$	447.3	$	(7.3	)	$	—	$	—	$	447.3	$	(7.3	)



March 31, 2020	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	1.1	$	14.5	$	—	$	15.6
Available-for-sale investments:
Bank time deposits	—		13.1		—		13.1
Corporate debt securities	—		474.4		—		474.4
Asset-backed securities	—		155.9		—		155.9
U.S. government and agency securities	59.6		56.2		—		115.8
Foreign government bonds	—		1.7		—		1.7
Commercial paper	—		49.8		—		49.8
Investments held for deferred compensation plans	76.5		—		—		76.5
Derivatives	—		70.7		—		70.7
	$	137.2	$	836.3	$	—	$	973.5
Liabilities
Derivatives	$	—	$	6.6	$	—	$	6.6
Deferred compensation plans	76.5		—		—		76.5
Contingent consideration liabilities	—		—		170.3		170.3
	$	76.5	$	6.6	$	170.3	$	253.4
December 31, 2019
Assets
Cash equivalents	$	0.7	$	31.7	$	—	$	32.4
Available-for-sale investments:
Bank time deposits	—		13.1		—		13.1
Corporate debt securities	—		489.2		—		489.2
Asset-backed securities	—		141.7		—		141.7
U.S. government and agency securities	76.1		37.7		—		113.8
Foreign government bonds	—		1.7		—		1.7
Commercial paper	—		34.3		—		34.3
Investments held for deferred compensation plans	88.9		—		—		88.9
Derivatives	—		30.7		—		30.7
	$	165.7	$	780.1	$	—	$	945.8
Liabilities
Derivatives	$	—	$	6.4	$	—	$	6.4
Deferred compensation plans	88.7		—		—		88.7
Contingent consideration liabilities	—		—		172.5		172.5
	$	88.7	$	6.4	$	172.5	$	267.6



	Notional Amount
	March 31, 2020		December 31, 2019
	(in millions)
Foreign currency forward exchange contracts	$	1,410.4	$	1,336.5
Cross currency swap contracts	300.0		300.0



	Three Months Ended March 31,
	2020		2019
Cash paid during the year for:
Amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7.1	$	6.1
Non-cash investing and financing transactions:
Right-of-use assets obtained in exchange for new lease liabilities	$	4.5	$	16.3
Capital expenditures accruals	$	33.9	$	15.7



	Available-for-Sale
	Cost		Fair Value
	(in millions)
Due in 1 year or less	$	256.7	$	256.2
Due after 1 year through 5 years	395.1		393.0
Due after 5 years through 10 years	3.0		3.1
Instruments not due at a single maturity date	159.1		158.4
	$	813.9	$	810.7



		Fair Value
Derivatives designated as hedging instruments	Balance Sheet Location	March 31, 2020		December 31, 2019
Assets
Foreign currency contracts	Other current assets	$	22.2	$	14.2
Foreign currency contracts	Other assets	$	3.9	$	3.2
Cross currency swap contracts	Other assets	$	44.6	$	13.3
Liabilities
Foreign currency contracts	Accounts payable and accrued liabilities	$	6.6	$	6.4



							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
March 31, 2020	Gross Amounts				Net Amounts Presented in the Consolidated Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Derivative assets
Foreign currency contracts	$	26.1	$	—	$	26.1	$	(6.6	)	$	—	$	19.5
Cross currency swap contracts	$	44.6	$	—	$	44.6	$	—		$	—	$	44.6
Derivative liabilities
Foreign currency contracts	$	6.6	$	—	$	6.6	$	(6.6	)	$	—	$	—
December 31, 2019
Derivative assets
Foreign currency contracts	$	17.4	$	—	$	17.4	$	(5.7	)	$	—	$	11.7
Cross currency swap contracts	$	13.3	$	—	$	13.3	$	—		$	—	$	13.3
Derivative liabilities
Foreign currency contracts	$	6.4	$	—	$	6.4	$	(5.7	)	$	—	$	0.7



	Amount of Gain or (Loss) Recognized in OCI on Derivative					Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended March 31,				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Three Months Ended March 31,
	Three Months Ended March 31,					Three Months Ended March 31,
	2020		2019			2020		2019
Cash flow hedges
Foreign currency contracts	$	17.5	$	12.9	Cost of sales	$	6.1	$	7.6
					Selling, general, and administrative expenses	$	0.8	$	0.3



	Amount of Gain or (Loss) Recognized in OCI on Derivative					Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
	Three Months Ended March 31,				Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)	Three Months Ended March 31,
	Three Months Ended March 31,					Three Months Ended March 31,
	2020		2019			2020		2019
Net investment hedges
Cross currency swap contracts	$	31.3	$	5.3	Interest income, net	$	1.7	$	1.6



		Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended March 31,
	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months Ended March 31,
Fair value hedges		2020		2019
Foreign currency contracts	Other income, net	$	1.7	$	(0.9	)



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2020
	Cost of sales			Selling, general, and administrative expenses			Interest expense (income), net		Other Income, net
	Cost of sales			Selling, general, and administrative expenses			Interest expense (income), net		Other Income, net
Total amounts of income and expense line items presented in the consolidated condensed statements of operations in which the effects of fair value or cash flow hedges are recorded	$	(265.1	)	$	(307.8	)	$	4.5	$	1.9
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships:
Foreign currency contracts:
Hedged items	—			—			—		(0.7		)
Derivatives designated as hedging instruments	—			—			—		0.7
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			—		1.0
Gain (loss) on cash flow hedging relationships:
Foreign currency contracts:
Amount of gain (loss) reclassified from accumulated OCI into income	$	6.1		$	0.8		$	—	$	—



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2019
	Cost of sales			Selling, general, and administrative expenses			Other Income, net
	Cost of sales			Selling, general, and administrative expenses			Other Income, net
Total amounts of income and expense line items presented in the consolidated condensed statements of operations in which the effects of fair value or cash flow hedges are recorded	$	(231.8	)	$	(280.3	)	$	1.8
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships:
Foreign currency contracts:
Hedged items	—			—			1.8
Derivatives designated as hedging instruments	—			—			(1.8		)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			0.9
Gain (loss) on cash flow hedging relationships:
Foreign currency contracts:
Amount of gain (loss) reclassified from accumulated OCI into income	$	7.6		$	0.3		$	—



Option Awards	Three Months Ended March 31,
	2020			2019
Average risk-free interest rate	1.4		%	2.5		%
Expected dividend yield	None			None
Expected volatility	29.7		%	29.2		%
Expected term (years)	5.2			5.2
Fair value, per option	$	68.36		$	54.03



ESPP	Three Months Ended March 31,
	2020			2019
Average risk-free interest rate	1.6		%	2.4		%
Expected dividend yield	None			None
Expected volatility	31.9		%	25.3		%
Expected term (years)	0.6			0.6
Fair value, per share	$	47.14		$	48.83



	Foreign Currency Translation Adjustments			Unrealized Gain on Hedges			Unrealized Gain (Loss) on Available-for-sale Investments			Unrealized Pension Costs			Total Accumulated Other Comprehensive Loss
December 31, 2019	$	(154.8	)	$	12.5		$	1.7		$	(15.4	)	$	(156.0	)
Other comprehensive gain (loss) before reclassifications	11.6			19.0			(6.3		)	(0.2		)	24.1
Amounts reclassified from accumulated other comprehensive loss	(1.7		)	(8.6		)	(0.1		)	—			(10.4		)
Deferred income tax (expense) benefit	(7.6		)	(3.8		)	1.7			—			(9.7		)
March 31, 2020	$	(152.5	)	$	19.1		$	(3.0	)	$	(15.6	)	$	(152.0	)



	Three Months Ended March 31,
	Three Months Ended March 31,						Affected Line on Consolidated Condensed Statements of Operations
Details about Accumulated Other Comprehensive Loss Components	2020			2019
Foreign currency translation adjustments	$	1.7		$	1.6		Other income, net
	(0.4		)	(0.4		)	Provision for income taxes
	$	1.3		$	1.2		Net of tax
Gain on hedges	$	6.1		$	7.6		Cost of sales
	0.8			0.3			Selling, general, and administrative expenses
	1.7			(0.9		)	Other income, net
	8.6			7.0			Total before tax
	(1.9		)	(2.0		)	Provision for income taxes
	$	6.7		$	5.0		Net of tax
Gain (loss) on available-for-sale investments	$	0.1		$	—		Other income, net
	(0.2		)	—			Provision for income taxes
	$	(0.1	)	$	—		Net of tax



	Three Months Ended March 31,
	Three Months Ended March 31,						Percent Change
	2020		2019		Change		Percent Change
United States	$	667.4	$	562.8	$	104.6	18.6	%
Europe	249.3		234.7		14.6		6.1	%
Japan	110.0		98.4		11.6		11.8	%
Rest of World	102.0		97.1		4.9		5.3	%
International	461.3		430.2		31.1		7.2	%
Total net sales	$	1,128.7	$	993.0	$	135.7	13.7	%


•	higher sales of the Edwards SAPIEN 3 Ultra System following its regulatory approval in the United States (December 2018) and in Europe (November 2018); and


•	higher sales of the Edwards SAPIEN 3 valve, particularly in the United States, driven by strong therapy adoption;


•	Significant volatility or reductions in demand for our products;


•	Impact on our clinical trial operations, which can in turn impact our pipeline milestones, regulatory clearances and approvals or expanded indications for use;


•	Delays in obtaining regulatory clearances and approvals to market our products;


•	The failure of third parties on which we rely to meet their obligations to the Company, or significant disruptions in their ability to do so; or


•	The inability to meet our customers’ needs due to disruptions to our operations or the operations of our third-party partners, suppliers, contractors, logistics partners or customers including disruptions to production, development, manufacturing, administrative and supply operations and arrangements.



Period	Total Number of Shares (or Units) Purchased (a)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (b)
January 1, 2020 through January 31, 2020	—	$	—	—	$	1,239.6
February 1, 2020 through February 29, 2020	1,201,161	228.72		1,200,600	965.0
March 1, 2020 through March 31, 2020	1,810,730	187.77		1,810,730	625.0
Total	3,011,891	204.10		3,011,330