Edwards Lifesciences Reports Strong Gains in First Quarter Net Income

Edwards Lifesciences Corporation (NYSE: EW) today reported 56 percent net income growth and 50 percent earnings per share growth for the first quarter ended March 31, 2001 driven by higher sales and gross profit.

Net income for the quarter was $14.2 million, or $0.24 per diluted share, compared to pro forma net income excluding non-recurring expenses of $9.1 million, or $0.16 per diluted share for the same quarter a year earlier. Cash earnings (net income plus goodwill amortization) for the quarter were $19.9 million, or $0.33 per diluted share. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $41.8 million for the quarter. Net income for the quarter excludes the one-time, non-cash impact of adopting a new accounting rule.(1)

“Edwards Lifesciences is off to a very good start for 2001 and our results reflect solid company-wide performance,” said Michael A. Mussallem, chairman and CEO. “Edwards’ results were led by another quarter of strong double-digit Cardiac Surgery sales. Our gross profit margin continues to increase — a benefit of strong growth in our most profitable franchises, as well as the divestiture of lower margin businesses last year. These favorable comparisons are evidence that our transformation efforts are beginning to take effect.”

Edwards’ first quarter net sales were $191.9 million, a 2.6 percent decrease compared to the same period last year. Excluding the impact of foreign exchange and the divestiture of the company’s Novacor and Bentley operations in 2000, net sales increased 6.3 percent. For the quarter, domestic and international sales were $123.3 million and $68.6 million, respectively.

Product Line Results

Cardiac Surgery sales for the quarter were $84.9 million, up 10.8 percent over last year. Excluding the effect of foreign exchange and divestitures, Cardiac Surgery sales increased 15.3 percent. Results in this product line were attributable to an overall increase in heart valve procedures and continued strong sales of the company’s pericardial tissue valve products, including the Carpentier-Edwards mitral PERIMOUNT pericardial tissue heart valve. Based upon the valve’s success to date, the company remains confident that this product will become the leading mitral tissue valve in the U.S. by year-end 2001.

Critical Care sales were $52.2 million for the quarter, a 1.3 percent increase compared to last year. Excluding the effect of foreign exchange, Critical Care sales increased 4.6 percent. Results in this product line continue to be generated primarily by upgrading customers to more advanced technology catheter products from base hemodynamic catheters.

Perfusion Products and Services sales for the quarter were $41.3 million, a 24.8 percent decrease from last year. Excluding the effect of foreign exchange and divestitures, sales in this product line declined 4.6 percent and continue to be impacted by the growth in “beating heart” coronary artery bypass surgeries. However, the U.S. perfusion services business is beginning to benefit from the company’s performance improvement efforts.

Vascular sales for the quarter were $13.1 million, a 4.8 percent decrease compared to last year. Excluding the effect of foreign exchange and sales of the currently suspended Lifepath AAA Endovascular Graft System, sales increased 2.0 percent. The company remains confident that it can reenter the market with its Lifepath AAA product by the end of the year.

Additional Operating Results

Edwards’ gross profit margin for the first quarter was 49.9 percent, up substantially compared to the pro forma 46.1 percent recorded for the same period in 2000. The company’s gross margin continues to benefit from the elimination in 2000 of lower margin product lines, and strong sales this year of higher margin products. Partially offsetting the increase was the impact of foreign exchange.

For the quarter, selling, general and administrative expenses were $53.8 million, or 28.0 percent of sales. Included in the results were a number of one-time costs including expenses associated with the strategic realignment of the organization announced earlier this year.

Research and development (R&D) expenses as a percentage of sales were 6.8 percent in the first quarter compared to 6.6 percent of sales in the year ago period. “There are numerous opportunities to develop and commercialize technologies for treating advanced cardiovascular disease,” said Mussallem. “Edwards remains committed to pursuing these opportunities by ramping up its R&D spending through the remainder of this year and beyond.”

As a result of strong current and forecasted sales growth from products manufactured and sold in the United States, the company’s effective tax rate increased to 29 percent.

Recent Highlights

During the quarter, Edwards announced several key developments. In March, the company received U.S. FDA approval of the Edwards Prima Plus stentless heart valve, a next-generation treatment available to cardiac surgeons who prefer a stentless alternative for replacing a patient’s aortic heart valve. Edwards now offers the most comprehensive portfolio of tissue heart valve products in the U.S.

Earlier in the quarter, Edwards entered into an agreement with PLC Medical Systems to distribute in the U.S. the company’s newest carbon dioxide TMR Heart Laser system, an innovative therapeutic option for treating severe angina.

Also during the quarter, Edwards announced the creation of a new organizational design that aligns the company more closely with its strategy to increase growth, and better focuses its resources to more effectively pursue opportunities to enhance its product pipeline.

Outlook for 2001

“Our earnings outlook for the balance of the year remains positive and unchanged,” Mussallem concluded. “We are well positioned to achieve our previously stated financial goals for 2001, which include accelerated sales growth, growing net income by 20 percent and generating EBITDA above $170 million. And, we continue to be comfortable with analysts’ consensus estimates for 2001.”

About Edwards Lifesciences

Edwards Lifesciences is the leading provider of products and services used in the treatment of late-stage cardiovascular disease. Headquartered in Irvine, Calif., Edwards focuses on cardiac surgery, critical care, vascular systems and perfusion products and services, and is the leader in tissue replacement heart valves and heart valve repair products. The company’s global brands, which are sold in over 80 countries, include Carpentier-Edwards, Cosgrove-Edwards, Swan-Ganz and Fogarty. Additional company information can be found at www.edwards.com