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What changed in Edwards Lifesciences's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Edwards Lifesciences's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+258 added−225 removedSource: 10-K (2024-02-12) vs 10-K (2023-02-13)

Top changes in Edwards Lifesciences's 2023 10-K

258 paragraphs added · 225 removed · 173 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+20 added−7 removed79 unchanged
Biggest changeA diverse workforce results in a broader range of perspectives, helping drive our commitment to innovation. We have established a Diversity, Inclusion, and Belonging strategy that includes our four focus areas of Business, People, Communication, and Community, and whose overriding priority is "The Patient." As a practice, all employees receive unconscious bias training as a foundational aspect of our culture.
Biggest changeWe have established a Diversity, Inclusion, and Belonging strategy that includes our four focus areas of Business, People, Communication, and Community, and whose overriding priority is "The Patient." As a practice, all employees receive unconscious bias training as a foundational aspect of our culture, and we include a non-discrimination clause in our Global Business Practice Standards and Third Party Code of Conduct. 10 Table of Contents Employee Listening We believe in empowering our employees and providing avenues that enable their voices to be heard.
Our manufacturing and sterilization processes are designed to render tissue biologically safe from all known infectious agents and viruses. Quality Assurance We are committed to providing quality products to our patients and have implemented modern quality systems and concepts throughout the organization.
Our manufacturing and sterilization processes are designed to render tissue biologically safe from all known infectious agents and viruses. Quality Assurance We are committed to providing quality products to patients and have implemented modern quality systems and concepts throughout the organization.
We are also subject to additional laws and regulations that govern our business operations, products, and technologies, including: • federal, state, and foreign anti-kickback laws and regulations, which generally prohibit payments to anyone, including physicians as an inducement to purchase or recommend a product; • the Stark law, which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated health services if the physician (or a member of the physician's immediate family) has a financial relationship with that provider; • federal and state laws and regulations that protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of such information, in particular, the Health Insurance Portability and Accountability Act of 1996; 7 Table of Contents • the Physician Payments Sunshine Act, which requires public disclosure of the financial relationships of United States physicians and teaching hospitals with applicable manufacturers, including medical device, pharmaceutical, and biologics companies; • the False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to a federally funded health care program, and health care fraud statutes that prohibit false statements and improper claims to any third-party payor; and • the United States Foreign Corrupt Practices Act, which can be used to prosecute United States companies for arrangements with foreign government officials or other parties, or for not keeping accurate financial records or maintaining adequate internal controls to prevent and detect arrangements with foreign government officials or other parties.
We are also subject to additional laws and regulations that govern our business operations, products, and technologies, including: • federal, state, and foreign anti-kickback laws and regulations, which generally prohibit payments to anyone, including physicians as an inducement to purchase or recommend a product; 7 Table of Contents • the Stark law, which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated health services if the physician (or a member of the physician's immediate family) has a financial relationship with that provider; • federal and state laws and regulations that protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of such information, in particular, the Health Insurance Portability and Accountability Act of 1996; • the Physician Payments Sunshine Act, which requires public disclosure of the financial relationships of United States physicians and teaching hospitals with applicable manufacturers, including medical device, pharmaceutical, and biologics companies; • the False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to a federally funded health care program, and health care fraud statutes that prohibit false statements and improper claims to any third-party payor; and • the United States Foreign Corrupt Practices Act, which can be used to prosecute United States companies for arrangements with foreign government officials or other parties, or for not keeping accurate financial records or maintaining adequate internal controls to prevent and detect arrangements with foreign government officials or other parties.
Our HCM governance includes a global talent development review ("TDR") process to align our business strategy with talent strategies, assess talent against future organizational needs, evaluate critical talent populations, and enhance the strength of our succession planning. We track our performance regularly.
Our HCM governance includes a global talent development review ("TDR") process to align our talent strategies with our business strategy, assess talent against future organizational needs, evaluate critical talent populations, and enhance the strength of our succession planning. We track our performance regularly.
As we scale to reach more patients around the world, we have integrated our Talent & Organization (“T&O”) Strategy with our Edwards Strategic Planning process. The purpose of our T&O Strategy is to anticipate dynamic global trends related to our workforce, develop our talent to meet future organizational needs, and enable us to be well-poised to meet these needs.
As we scale to reach more patients around the world, we have integrated our Talent & Organization (“T&O”) Strategy with our Edwards Strategic Planning process. The purpose of our T&O Strategy is to anticipate global trends related to our workforce, develop our talent to meet future organizational needs, and enable us to be well-poised to meet these needs.
For more information on net sales from these four main areas, see "Net Sales by Product Group " in Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations ." Transcatheter Aortic Valve Replacement We are the global leader in transcatheter heart valve replacement technologies designed for the minimally-invasive replacement of aortic heart valves.
For more information on net sales from these four main groups, see "Net Sales by Product Group " in Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations ." Transcatheter Aortic Valve Replacement We are the global leader in transcatheter heart valve replacement technologies designed for the minimally-invasive replacement of aortic heart valves.
Because of the diverse global needs of the population that we serve, our distribution system consists of several direct sales forces as well as independent distributors. We are not dependent on any single customer and no single customer accounted for 10% or more of our net sales in 2022.
Because of the diverse global needs of the population that we serve, our distribution system consists of several direct sales forces as well as independent distributors. We are not dependent on any single customer and no single customer accounted for 10% or more of our net sales in 2023.
To ensure optimal outcomes for patients, we conduct educational symposia and best practices training for our physician, hospital executive, service line leadership, nursing, and clinical-based customers. We rely extensively on our sales and field clinical specialist personnel who work closely with our customers in hospitals.
To achieve optimal outcomes for patients, we conduct educational symposia and best practices training for our physician, hospital executive, service line leadership, nursing, and clinical-based customers. We rely extensively on our sales and field clinical specialist personnel who work closely with our customers in hospitals.
Additional details regarding diversity, talent development, compensation, and employee health and safety can be found in our Sustainability Report posted on our website at www.edwards.com under "About Us — Corporate Responsibility." References to our website in this Annual Report on Form 10-K are provided for convenience only and the content on our website does not constitute a part of this Report.
Additional details regarding diversity, talent development, compensation, and employee health and safety can be found in our Sustainability Report posted on our website at www.edwards.com under "About Us — Corporate Responsibility." References to our website in this Annual Report on Form 10-K are provided for convenience only and the content on our website does not constitute a part of this Report. 11 Table of Contents
The contents of our website are not incorporated by reference into this report. Edwards Lifesciences' Product and Technology Offerings The following discussion summarizes the main areas of products and technologies we offer to treat advanced cardiovascular disease.
The contents of our website are not incorporated by reference into this report. Edwards Lifesciences' Product and Technology Offerings The following discussion summarizes the main groups of products and technologies we offer to treat advanced cardiovascular disease.
These standards require, among other items, quality system controls that are applied to product design, component material, suppliers, and manufacturing operations. These regulatory approvals and ISO certifications can be obtained only after a successful audit of a company's quality system has been conducted by regulatory or independent outside auditors.
These standards require, among other items, quality system controls that are applied to product design, component material, suppliers, and manufacturing operations. These regulatory approvals and ISO certifications can be obtained only after a successful audit of a company's quality system has been conducted by regulatory 5 Table of Contents or independent outside auditors.
Approval time frames from the Japanese Ministry of Health, Labour and Welfare vary from simple notifications to review periods of one or more years, depending on the complexity and risk level of the device. In addition, importation of medical devices into Japan is subject to the "Good Import Practices" regulations.
Approval time frames from the Japanese Ministry of Health, Labour and Welfare vary from simple notifications to review periods of one or more years, depending on the complexity and risk level of the device. In addition, importation of medical devices into Japan is subject to the "Good 8 Table of Contents Import Practices" regulations.
In the United States, we sell substantially all of our products through our direct sales forces. In 2022, 58% of our net sales were derived from sales to customers in the United States. Outside of the United States. In 2022, 42% of our net sales were derived outside of the United States through our direct sales forces and independent distributors.
In the United States, we sell substantially all of our products through our direct sales forces. In 2023, 58% of our net sales were derived from sales to customers in the United States. Outside of the United States. In 2023, 42% of our net sales were derived outside of the United States through our direct sales forces and independent distributors.
In many of the other foreign countries in which we market our products, we may be subject to regulations affecting, among other things: • product standards and specifications; • packaging requirements; 8 Table of Contents • labeling requirements; • product collection and disposal requirements; • quality system requirements; • import restrictions; • tariffs; • duties; and • tax requirements.
In many of the other foreign countries in which we market our products, we may be subject to regulations affecting, among other things: • product standards and specifications; • packaging requirements; • labeling requirements; • product collection and disposal requirements; • quality system requirements; • import restrictions; • tariffs; • duties; and • tax requirements.
Answers to questions that are not covered in the townhall meeting are posted online internally. 10 Table of Contents Total Well-being We understand that good health leads to better performance. We offer competitive employee well-being packages that include, among other things, health and wellness insurance, health savings accounts, family support services, and a variety of site-specific programs.
Answers to questions that are not covered in the townhall meeting are posted online internally. Total Benefits and Well-being We understand that good health leads to better performance. We offer competitive employee benefits and well-being packages that include, among other things, health and wellness insurance, health savings accounts, family support services, and a variety of site-specific programs.
While many of these technologies are in development and clinical phases, the PASCAL PRECISION and Cardioband transcatheter valve repair systems are commercially available in Europe for mitral and tricuspid valve repair. As of 2022, the PASCAL PRECISION system is also commercially available in the U.S. for degenerative mitral regurgitation patients.
While many of these technologies are in development and clinical phases, the PASCAL PRECISION and Cardioband transcatheter valve repair systems are commercially available in Europe for mitral and tricuspid valve repair. As of 2023, the PASCAL PRECISION system is also commercially available in the U.S. and Japan for degenerative mitral regurgitation patients.
A majority of the sales and marketing approach outside of the United States is direct sales, although it varies depending on each country's size and state of development. 4 Table of Contents Raw Materials and Manufacturing We operate manufacturing facilities in various geographies around the world.
A majority of the sales and marketing approach outside of the United States is direct sales, although it varies depending on each country's size and state of development. Raw Materials and Manufacturing We operate manufacturing facilities in various geographies around the world.
We are also governed by federal, state, local, and international laws of general applicability, including, but not limited to, those regulating employee health and safety, labor, competition, trade secret, and the protection of the environment. Overall, the amount and scope of domestic and foreign laws and regulations applicable to our business has increased over time.
We are also governed by federal, state, local, and international laws of general applicability, including, but not limited to, those regulating employee health and safety, labor, competition, securities, privacy, anti-corruption, trade secret, and the protection of the environment. Overall, the amount and scope of domestic and foreign laws and regulations applicable to our business has increased over time.
Our products and technologies are categorized into four main areas: Transcatheter Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, Surgical Structural Heart, and Critical Care.
Our products and technologies are categorized into four main groups: Transcatheter Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, Surgical Structural Heart, and Critical Care.
Our first predictive algorithm, Acumen Hypotension Prediction Index software, alerts clinicians in advance of a patient developing dangerously low blood pressure. Our latest algorithm, Acumen Assisted Fluid Management software, provides patient-specific fluid suggestions to help keep patients in an optimal range during surgery. 1 Bavaria, et al.
Our first predictive algorithm, Acumen Hypotension Prediction Index software, alerts clinicians in advance of a patient developing dangerously low blood pressure. Our latest algorithm, Acumen Assisted Fluid Management software, provides patient-specific fluid suggestions to help keep patients in an optimal range during surgery.
These laws or any future legislation, including deficit reduction legislation, could impact medical procedure volumes, reimbursement for our products, and demand for our products or the prices at which we sell our products. Seasonality Our quarterly net sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals, patient and physician holiday schedules, and other factors.
These laws or any future legislation, including deficit reduction legislation, could impact medical procedure volumes, reimbursement for our products, and demand for our products or the prices at which we sell our products. 9 Table of Contents Seasonality Our quarterly sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals, patient and physician holiday schedules, and other factors.
We continue to innovate and file new patent applications to protect our new products and technologies. Additionally, we are a party to license agreements with various third parties pursuant to which we have obtained, for varying terms, the exclusive or non-exclusive rights to certain patents held by such third parties in consideration for cross-licensing rights and/or royalty payments.
We continue to innovate and file new patent applications to protect our new products and technologies. 6 Table of Contents Additionally, we are a party to license agreements and other arrangements with various third parties pursuant to which we have obtained, for varying terms, the exclusive or non-exclusive rights to certain patents held by such third parties in consideration for cross-licensing rights and/or royalty payments.
Each of our manufacturing sites is evaluated regularly with respect to a broad range of Environmental, Health, and Safety criteria. 5 Table of Contents Research and Development In 2022, we made significant investments in research and development as we worked to develop therapies that we believe have the potential to change the practice of medicine.
Each of our manufacturing sites is evaluated regularly with respect to a broad range of Environmental, Health, and Safety criteria. Research and Development In 2023, we made significant investments in research and development as we worked to develop therapies that we believe have the potential to change the practice of medicine.
Our operations are frequently inspected by the many regulators that oversee medical device manufacturing, including the United States Food and Drug Administration ("FDA"), European Notified Bodies, and other regulatory entities. The medical technology industry is highly regulated and our facilities and operations are designed to comply with all applicable quality systems standards, including the International Organization for Standardization ("ISO") 13485.
Our operations are frequently inspected by the many regulators that oversee medical device manufacturing, including the FDA, European Notified Bodies, and other regulatory entities. The medical technology industry is highly regulated and our facilities and operations are designed to comply with all applicable quality systems standards, including the International Organization for Standardization ("ISO") 13485:2016.
Our T&O Strategy enables us to explore external workforce signals, share insights, and identify and build emerging capabilities across our organization. This has enabled us to build a comprehensive succession planning process that allows us to build strong talent from within while we pursue an aggressive recruiting process to fill any gaps with highly qualified external talent.
Our T&O Strategy enables us to explore external workforce signals, share insights, and identify and build emerging capabilities across our organization. We have also developed a comprehensive succession planning process that allows us to build strong talent from within while we pursue an aggressive recruiting process to fill any gaps with highly qualified external talent.
We believe the demand for surgical structural heart therapies is growing worldwide, and that our innovation strategy will continue to strengthen our leadership and positive impact on patients. Sales of our surgical tissue heart valve products represented 15%, 15%, and 16% of our net sales in 2022, 2021, and 2020, respectively.
We believe the demand for surgical structural heart therapies is growing worldwide, and that our innovation strategy will continue to strengthen our leadership and positive impact on patients. Sales of our surgical tissue heart valve products represented 16%, 15%, and 16% of our net sales in 2023, 2022, and 2021, respectively. 1 Bavaria, et al.
Research and development spending increased 5% year over year, representing 18% of 2022 sales. This increase was primarily the result of significant investments in our transcatheter structural heart programs, including an increase in clinical research for our mitral and tricuspid therapies.
Research and development spending increased 13% year over year, representing 18% of 2023 sales. This increase was primarily the result of significant investments in our transcatheter structural heart programs, including an increase in clinical research for our mitral, aortic, and tricuspid therapies.
Headcount and Labor Representation As of December 31, 2022, we had approximately 17,300 employees worldwide, the majority of whom were located in the United States, Singapore, the Dominican Republic, and Costa Rica. None of our North American employees are represented by a labor union.
Headcount and Labor Representation As of December 31, 2023, we had approximately 19,800 employees worldwide, the majority of whom were located in the United States, Singapore, the Dominican Republic, and Costa Rica. None of our North American employees are represented by a labor union.
In addition, our robust pipeline of future technologies is focused on the less invasive repair or replacement of the mitral and tricuspid valves of the heart, which are more complex and more challenging to treat than the aortic valve that is currently the focus of many of our commercially approved valve technologies.
In addition, our robust pipeline of future technologies is focused on the less invasive repair or replacement of the mitral and tricuspid valves of the heart, which are more complex and more challenging to treat than the aortic valve.
This commitment extends to creating a work environment where employees can feel confident speaking about mental well-being with their managers and know how best to access the tools and resources available to support them. We believe there are strong benefits when employees are feeling their best.
Mind+ offers a wide variety of mental well-being programs for our employees. This commitment extends to creating a work environment where employees can feel confident speaking about mental well-being with their managers and know how best to access the tools and resources available to support them. We believe there are strong benefits when employees are feeling their best.
Of the total sales outside of the United States, 52% were in Europe, 21% were in Japan, and 27% were in Rest of World. We sell our products in approximately 100 countries, including Japan, Germany, France, United Kingdom, Italy, China, and Canada.
Of the total sales outside of the United States, 53% were in Europe, 18% were in Japan, and 28% were in Rest of World. We sell our products in approximately 100 countries, including Japan, Germany, France, United Kingdom, Italy, China, and Canada.
We believe our two-platform mitral replacement strategy positions us for leadership in the mid-to-long term. SAPIEN M3 is based on the proven SAPIEN valve while EVOQUE Eos is designed specifically for mitral patients.
We believe our mitral replacement strategy positions us for leadership in the mid-to-long term. SAPIEN M3 is based on the proven SAPIEN valve and is designed specifically for mitral patients.
Critical Care We are the world leader in advanced hemodynamic monitoring systems used to measure a patient's heart function and fluid status in surgical and intensive care settings. Edwards’ complete hemodynamic portfolio helps clinicians make proactive clinical decisions that can improve patient recovery.
European Journal of Cardio-Thoracic Surgery, 2020. 3 Table of Contents Critical Care We are the world leader in advanced hemodynamic monitoring systems used to measure a patient's heart function and fluid status in surgical and intensive care settings. Edwards’ complete hemodynamic portfolio helps clinicians make proactive clinical decisions that can improve patient recovery.
We regularly evaluate our well-being package to make modifications that are aligned with the competitive landscape, legislative changes, and the unique needs of our population. We also provide robust well-being programs that address prevention, nutrition, mental health, physical activity, financial fitness, and community service. In recent years, mental well-being has become a central topic for organizations worldwide.
We regularly evaluate our benefits package to make modifications that are aligned with the competitive landscape, legislative changes, and the unique needs of our population. We also provide robust well-being programs that address prevention, nutrition, mental health, physical activity, financial fitness, and community service.
Litigation has been necessary to enforce certain patent rights held by us, and we plan to continue to defend and prosecute our rights with respect to such patents. 6 Table of Contents Moreover, we own certain United States registered trademarks used in our business.
We have also licensed certain patent rights to others. We undertake reasonable measures to protect our intellectual property rights. Litigation has been necessary to enforce certain patent rights held by us, and we plan to continue to defend and prosecute our rights with respect to such patents. Moreover, we own certain United States registered trademarks used in our business.
Our customers include physicians, nurses, and other clinical personnel, but can also include decision makers such as service line leaders, material managers, biomedical staff, hospital administrators and executives, purchasing managers, and ministries of health.
In addition to working closely with 4 Table of Contents physicians, nurses, and other clinical personnel, our customers include decision makers such as service line leaders, material managers, biomedical staff, hospital administrators and executives, purchasing managers, and ministries of health.
Five-year Outcomes of the COMMENCE trial investigating Aortic Valve Replacement with a Bioprosthetic Valve with a Novel Tissue. The Society of Thoracic Surgeons 2021 Annual Meeting; Bartus, et al. Final 5-year outcomes following aortic valve replacement with RESILIA tissue bio prosthesis. European Journal of Cardio-Thoracic Surgery, 2020. 3 Table of Contents Competition The medical technology industry is highly competitive.
Five-year Outcomes of the COMMENCE trial investigating Aortic Valve Replacement with a Bioprosthetic Valve with a Novel Tissue. The Society of Thoracic Surgeons 2021 Annual Meeting; Bartus, et al. Final 5-year outcomes following aortic valve replacement with RESILIA tissue bio prosthesis.
Cardiovascular disease is progressive in that it tends to worsen over time and often affects the structure of an individual's heart. Patients undergoing treatment for cardiovascular disease can be treated with a number of our medical technologies, which are designed to address individual patient needs with respect to disease process, comorbidities, and health status.
Patients undergoing treatment for cardiovascular disease can be treated with a number of our medical technologies, which are designed to address individual patient needs with respect to disease process, comorbidities, and health status.
To pursue primary research efforts, we have developed alliances with several leading research institutions and universities, and also work with leading clinicians around the world in conducting scientific studies on our existing and developing products. Proprietary Technology Patents, trademarks, and other proprietary rights are important to the success of our business.
Our experienced research and development staff are focused on product design and development, quality, clinical research, and regulatory compliance. To pursue primary research efforts, we have developed alliances with several leading research institutions and universities, and also work with leading clinicians around the world in conducting scientific studies on our existing and developing products.
We believe we hold leadership positions because we develop and produce safe and effective therapies supported by rigorous clinical studies with extensive data and with innovative features that enhance patient benefit, product performance, and reliability; these superior clinical outcomes are in part due to the level of customer and clinical support we provide.
We believe we hold leadership positions because we develop and produce safe and effective therapies supported by rigorous clinical studies with extensive data and with innovative features that can enhance patient benefit and product performance and reliability, as well as benefit healthcare systems.
We believe that we are a leading global competitor in each of our product lines. In Transcatheter Aortic Valve Replacement, our primary competitors include Medtronic PLC and Abbott Laboratories ("Abbott"). In Transcatheter Mitral and Tricuspid Therapies, our primary competitor is Abbott, and there are a considerable number of large and small companies with development efforts in these fields.
In Transcatheter Mitral and Tricuspid Therapies, our primary competitor is Abbott, and there are a considerable number of large and small companies with development efforts in these fields. In Surgical Structural Heart, our primary competitors include Medtronic PLC, Abbott, and Artivion, Inc (formerly CryoLife).
The CEO and Executive Leadership Team hold themselves accountable to act on the results of the survey, and these results are reviewed by management with our Board of Directors.
We conduct a multilingual global employee survey, called my Voice, to gain employees' feedback in a confidential manner. The CEO and Executive Leadership Team hold themselves accountable to consider and act on the results of the survey, and these results are reviewed by management with our Board of Directors.
The cardiovascular segment of the medical technology industry is dynamic and subject to significant change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and evolving patient needs. The ability to provide products and technologies that demonstrate value and improve clinical outcomes is becoming increasingly important for medical technology manufacturers.
The benefits associated with our products are in part due to the level of customer and clinical support we provide. The cardiovascular segment of the medical technology industry is dynamic and subject to significant change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and evolving patient needs.
We are also developing a decision support software suite with advanced algorithms for proactive hemodynamic management, including a semi-closed loop system for standardized management of patient fluid levels. Lastly, we are developing a connectivity platform that will offer clinicians additional clinical support, remote monitoring capability, analytics, and insights for their patients’ hemodynamic status.
This includes next-generation noninvasive and minimally-invasive hemodynamic monitoring systems, and a next-generation monitor platform. We are also developing a decision support software suite with advanced algorithms for proactive hemodynamic management, including a semi-closed loop system for standardized management of patient fluid levels.
We also rely upon trade secrets, know-how, continuing innovations, licensing opportunities, and non-disclosure agreements to develop and maintain our competitive position. We own or have rights to a substantial number of patents and have patent applications pending both in the United States and in foreign countries.
We own or have rights to a substantial number of patents and have patent applications pending both in the United States and in foreign countries.
Net sales in the third quarter are typically lower than other quarters of the year due to the seasonality of the United States and European markets, where summer vacation schedules normally result in fewer medical procedures. 9 Table of Contents Human Capital Management Strategy Human Capital Management ("HCM") Governance The primary goals of our talent management strategy are to attract and maintain a motivated, professional workforce and to ensure alignment on our patient-focused innovation strategy.
Sales in the third quarter are typically lower than other quarters of the year due to the seasonality of the United States and European markets, where summer vacation schedules normally result in fewer medical procedures.
Sales of our surgical therapies in the United States also continue to gain traction with KONECT RESILIA , the first pre-assembled, aortic tissue valved conduit. The MITRIS RESILIA valve, our newest mitral valve incorporating our latest tissue technology, is now commercially available in both the U.S. and Japan.
INSPIRIS is the leading aortic surgical valve in the world. Sales of our surgical therapies in the United States also continue to gain traction with KONECT RESILIA , the first pre-assembled, ready to implant, tissue valved conduit for complex combined procedures.
The Edwards SAPIEN family of valves , including Edwards SAPIEN XT, the Edwards SAPIEN 3, the Edwards SAPIEN 3 Ultra, and the Edwards SAPIEN 3 Ultra RESILIA transcatheter heart valves, and their respective delivery systems, are used to treat heart valve disease using catheter-based approaches for patients who have severe symptomatic aortic stenosis and certain patients with congenital heart disease.
The Edwards SAPIEN family of valves , including the Edwards SAPIEN 3, the Edwards SAPIEN 3 Ultra, and the Edwards SAPIEN 3 Ultra RESILIA systems, are catheter-based approaches for treating patients who 2 Table of Contents have severe symptomatic aortic stenosis. The SAPIEN 3 valves are delivered while the heart is still beating.
For tricuspid valve replacement, our EVOQUE system is also sub 30-French, and available in a variety of valve sizes to enable treatment in a wide range of patient anatomies. Surgical Structural Heart We are innovating in the field of cardiac surgical therapies to improve the quality of life for patients.
For tricuspid valve replacement, our EVOQUE system is delivered through a low-profile transfemoral sub 30-French system, and available in a variety of valve sizes to enable treatment in a wide range of patient anatomies. In 2023, the EVOQUE system received CE Mark approval for the transcatheter treatment of eligible patients with tricuspid regurgitation.
Talent Development Edwards has established a long-term aspiration to grow and develop talent significantly, centering our efforts around critical leadership and technical skills for the present and future needs of the business.
Talent Development Developing talent around the globe is critical to achieving our mission at Edwards. We believe in developing talent from within and have a long-term commitment to building the leadership and technical skills for the present and future needs of the business.
In addition to our internally developed programs, we have made investments in several companies that are independently developing minimally-invasive technologies to treat structural heart diseases. Our Surgical Structural Heart development programs include innovative platforms for patients who are best treated surgically, specifically active patients and patients with more complex combined procedures.
Our Surgical Structural Heart development programs include innovative platforms for patients who are best treated surgically, specifically active patients and patients with more complex combined procedures. In our Critical Care product line, we are pursuing the development of a variety of decision support solutions for our clinicians.
As part of our regular evaluation and commitment to putting employees first, we launched a new program, Mind+, which offers a wide variety of mental well-being programs for our employees.
As part of our regular evaluation and commitment to putting employees first, we determined our employees could benefit from support in four main areas related to health: Mind+, metabolic, heart, and musculoskeletal health. We offer a variety of programs and education to support employees in these areas. In recent years, mental well-being has become a central topic for organizations worldwide.
Our RESILIA tissue, with published clinical data showing 0% structural valve deterioration through five years 1 , is helping us redefine tissue durability standards. Our latest innovation, the INSPIRIS RESILIA aortic valve, is built on our PERIMOUNT platform, offering RESILIA tissue and VFit technology. INSPIRIS is the leading aortic surgical valve in the world.
Surgical Structural Heart We continue to invest in bringing innovations to cardiac surgery patients. Our RESILIA tissue, with published clinical data showing 99% freedom from structural valve deterioration through seven years 1 , has set the new standard for tissue valve durability. Our flagship INSPIRIS RESILIA aortic valve, offers RESILIA tissue and VFit technology.
Supported by extensive customer training and service, and a growing body of compelling clinical evidence, our SAPIEN family of transcatheter aortic heart valves are the most widely prescribed transcatheter heart valves in the world. Sales of our transcatheter aortic valve replacement products represented 65% of our net sales in each of 2022, 2021, and 2020, respectively.
Additionally, the Edwards SAPIEN 3 system and Alterra system offer a minimally invasive option for pulmonary valve replacement for patients with congenital heart disease. Sales of our transcatheter aortic valve replacement products represented 65% of our net sales in each of 2023, 2022, and 2021.
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Delivered while the heart is beating, these valves 2 Table of Contents can enable patients to experience a better quality of life sooner than patients receiving traditional surgical therapies. We began offering our transcatheter aortic heart valves to patients commercially in Europe in 2007, in the United States in 2011, and in Japan in 2013.
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In the U.S. alone, one cardiovascular patient dies every 33 seconds. Cardiovascular disease is progressive in that it tends to worsen over time and often affects the structure of an individual's heart. Our vision is to transform patient care where patients are diagnosed earlier, treated in a routine fashion, living longer and enjoying a better quality of life.
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In Surgical Structural Heart, our primary competitors include Medtronic PLC, Abbott, and Artivion, Inc (formerly CryoLife).
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The majority of procedures are conducted without the use of general anesthesia and patients are discharged home within one to two days. Transcatheter aortic valve replacement with the SAPIEN 3 family of valves enables patients to recover more quickly and return to a better quality of life sooner than patients receiving traditional open heart surgical therapies.
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In our Critical Care product line, we are pursuing the development of a variety of decision support solutions for our clinicians. This includes next-generation noninvasive and minimally-invasive hemodynamic monitoring systems, and a next-generation monitor platform.
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Edwards' transcatheter aortic heart valves were first commercialized in Europe in 2007, in the United States in 2011, and in Japan in 2013. Edwards has partnered with the physician community to generate groundbreaking data that has expanded access to patients of all risk profiles.
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Our research and development activities are conducted primarily in facilities located in the United States and Israel. Our experienced research and development staff are focused on product design and development, quality, clinical research, and regulatory compliance.
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In 2023, The PARTNER 3 Trial, which demonstrated a 99% freedom from stroke or mortality at 1 year, had 5-year data presented with a 90% freedom from all-cause mortality.
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We have also licensed certain patent rights to others. We undertake reasonable measures to protect our patent rights, including monitoring the products of our competitors for possible infringement of our patents.
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The SAPIEN 3 platform remains the only transcatheter heart valve with a THV-in-THV indication for patients assessed at high-risk for surgical replacement, offering patients the ability to have a second minimally invasive procedure. The SAPIEN family of valves are the most widely implanted transcatheter heart valves in the world with over one million patients lives impacted since launch.
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Employee Listening We believe in empowering our employees and providing avenues that enable their voices to be heard. We conduct a multilingual global employee survey, called my Voice, to gain employees' feedback in a confidential manner.
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More recently, in February 2024, the EVOQUE system received United States Food and Drug Administration ("FDA") approval for the treatment of tricuspid regurgitation.
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Our learning and development structure and processes strive to meet the internal demand to develop our talent in such a way that demonstrates impact at scale and delivered to our workforce through optimized learning modalities. This includes leadership training programs, including our ethical decision making training program for managers.
Added
This development will give a wide range of U.S. patients access to a treatment option that not only has the potential to improve quality-of-life, but also showed favorable clinical trends in all-cause mortality, re-intervention, and heart failure hospitalizations. The EVOQUE system is the world's first transcatheter valve replacement therapy to receive regulatory approval to treat tricuspid regurgitation.
Added
Our latest innovation, the MITRIS RESILIA valve, is now commercially available in Europe as well as other geographies, including the U.S. and Japan, where it has been strongly adopted by surgeons as the leading product in our mitral valve portfolio.
Added
On December 7, 2023, we announced plans for a tax-free spin-off of our Critical Care product group as a separate publicly traded company to Edwards Lifesciences' shareholders. While we expect to complete the Critical Care spin-off around the end of 2024, we remain committed to supporting strong momentum and growth during the transition period.
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The team will advance innovative advanced patient monitoring solutions, with the goal of improving the quality of care for millions of patients annually. Critical Care is currently integrating a full range of smart monitoring technologies into the seventh generation of its HemoSphere platform, creating a unique offering of enhanced recovery tools. Competition The medical technology industry is highly competitive.
Added
The ability to provide products and technologies that demonstrate value and improve clinical outcomes is becoming increasingly important for medical technology manufacturers. We believe that we are a leading global competitor in each of our product lines. In Transcatheter Aortic Valve Replacement, our primary competitors include Medtronic PLC, Abbott Laboratories ("Abbott"), and Boston Scientific Corporation.
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Lastly, we are developing a connectivity platform that will offer clinicians additional clinical support, remote monitoring capability, analytics, and insights for their patients’ hemodynamic status. Our research and development activities are conducted primarily in facilities located in the United States and Israel.
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Proprietary Technology Patents, trademarks, and other proprietary rights are important to the success of our business. We also rely upon trade secrets, know-how, continuing innovations, licensing opportunities, and non-disclosure agreements to develop and maintain our competitive position.
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Human Capital Management Strategy Human Capital Management ("HCM") Governance The primary goals of our talent management strategy are to attract, develop and retain a motivated, professional workforce and to ensure alignment on our patient-focused innovation strategy.
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A diverse workforce results in a broader range of perspectives, helping drive our commitment to innovation.
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Edwards provides in-depth learning and development resources for employees at all levels, including blended learning opportunities such as in-person, virtual, and online courses, capability assessments, coaching, and developmental experiences.
Added
We are committed to enabling our employees to have long-term careers at Edwards by encouraging each employee to take ownership of their professional development, engage in the significant resources available, and leverage the performance management and feedback process to be on a journey of continuous growth.
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We also encourage managers to be involved in helping their employees develop enhanced personal, professional, and leadership skills.
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Our learning and development strategy aims to have a balanced focus on building leadership and technical capabilities, with resources dedicated to building learning and development for global leaders, such as our course on ethical decision making for managers, and developing technical skills and capabilities for unique talent segments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis summary should not be relied upon as an exhaustive summary of the material risks facing our business and you should read this summary together with the more detailed description of risks and uncertainties discussed below. 11 Table of Contents Business and Operating Risks • Failure to successfully innovate and market products • Unsuccessful clinical trials or procedures • Manufacturing, logistics, or quality problems • Public health crises, including pandemics and epidemics • Competition • Dependence on key physicians and research institutions • Reliance on vendors, suppliers, and other third parties • Damage, failure, or interruption of our information technology systems, including due to cyber-based attacks and breaches • Failure to recruit and retain qualified talent or execute management succession plans • Underperforming operations or unsuccessful business acquisitions or strategic alliances Market and Other External Risks • Risks associated with international sales and operations • Inability to obtain government reimbursement or reductions in reimbursement levels • Industry consolidation Legal, Compliance and Regulatory Risks • Inability to protect our intellectual property • Inability to defend against intellectual property claims from third parties • Compliance with government regulations • Losses from product liability claims • Use of products in unapproved circumstances • Substantial costs from environmental, health and safety regulations • Climate change • Regulatory actions relating to animal borne illnesses Business and Operating Risks Failure to successfully innovate and develop new and differentiated products in a timely manner and effectively market these products could have a material effect on our prospects.
Biggest changeBusiness and Operating Risks • Failure to successfully innovate and market products • Unsuccessful clinical trials or procedures • Manufacturing, logistics, or quality problems • Public health crises, including pandemics and epidemics • Competition • Dependence on key physicians and research institutions • Reliance on vendors, suppliers, and other third parties • Damage, failure, or interruption of our information technology systems, including due to cyber-based attacks and breaches • Failure to recruit and retain qualified talent or execute management succession plans • Underperforming operations or unsuccessful business acquisitions or strategic alliances • Risks related to the spin-off of our Critical Care product group Market and Other External Risks • Risks associated with international sales and operations • Inability to obtain government reimbursement or reductions in reimbursement levels • Industry consolidation Legal, Compliance and Regulatory Risks • Inability to protect our intellectual property • Inability to defend against intellectual property claims from third parties • Compliance with government regulations • Losses from product liability claims • Use of products in unapproved circumstances • Substantial costs from environmental, health and safety regulations • Climate change • Regulatory actions relating to animal-borne illnesses Business and Operating Risks Failure to successfully innovate and develop new and differentiated products in a timely manner and effectively market these products could have a material effect on our prospects.
In addition to the factors enumerated above, we are from time to time impacted by a variety of other factors associated with doing business internationally that can harm our future results, including the following: • trade protection measures, quotas, embargoes, import or export requirements, and duties, tariffs, or surcharges; • cultural or other local factors affecting financial terms with customers; • differing labor regulations; • military conflict, political unrest, or wars; and • currency exchange rate fluctuations; that is, decreases in the value of the United States dollar to the Euro or the Japanese yen, as well as other currencies in which we transact business, have the effect of increasing our reported revenues even when the volume of sales outside of the United States has remained constant.
In addition to the factors enumerated above, we are from time to time impacted by a variety of other factors associated with doing business internationally that can harm our future results, including the following: • trade protection measures, quotas, embargoes, import or export requirements, and duties, tariffs, or surcharges; • cultural or other local factors affecting financial terms with customers; • differing labor regulations; • military conflict, political unrest, or wars; and • currency exchange rate fluctuations; that is, decreases in the value of the United States dollar to the Euro or the Japanese yen, as well as other currencies in which we transact business, have the effect of increasing our reported sales even when the volume of sales outside of the United States has remained constant.
If we or one of our suppliers or logistics partners encounters manufacturing, logistics, or quality problems, our business could be materially adversely affected. The manufacture and sterilization of many of our products is highly complex due in part to rigorous regulatory requirements. Quality is extremely important due to the serious and costly consequences of a product failure.
If we or one of our suppliers or logistics partners encounters manufacturing, logistics, safety, or quality problems, our business could be materially adversely affected. The manufacture and sterilization of many of our products is highly complex due in part to rigorous regulatory requirements. Quality is extremely important due to the serious and costly consequences of a product failure.
Although we regularly assess the likely outcomes of the audits and record reserves for potential tax payments, the calculation of tax liabilities involves the application of complex tax laws, and our estimates could be different than the amounts for which we are ultimately liable. • Tax Incentives .
Although we regularly assess the likely outcomes of the audits and record reserves for potential tax payments, the calculation of tax liabilities involves the application of complex tax laws, and our estimates could be different than the amounts for which we are ultimately liable.
Increases in the value of the United States dollar relative to the Euro or the Japanese yen, as well as other currencies, have the opposite effect. Significant increases or decreases in the value of the United States dollar could have a material adverse effect on our revenues, cost of sales, or results of operations.
Increases in the value of the United States dollar relative to the Euro or the Japanese yen, as well as other currencies, have the opposite effect. Significant increases or decreases in the value of the United States dollar could have a material adverse effect on our sales, cost of sales, or results of operations.
New laws and regulations, violations of these laws or regulations, stricter enforcement of existing requirements, or the discovery of previously unknown contamination could require us to incur costs or could become the basis for new or increased liabilities that could be material.
New laws and regulations, violations of these laws or regulations, stricter enforcement of existing requirements, or the discovery of previously unknown contamination could require us to incur costs or could become the basis for litigation or new or increased liabilities that could be material.
Our inability to protect our intellectual property could have a material adverse effect on our business or prospects. 17 Table of Contents Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products.
Our inability to protect our intellectual property could have a material adverse effect on our business or prospects. 18 Table of Contents Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products.
Clinical trials or procedures may be delayed, suspended, or terminated by us, the FDA, or other regulatory authorities at any time if it is believed 12 Table of Contents that the trial participants face unacceptable health risks or any other reasons, and any such delay, suspension, or termination could have a material adverse effect on our prospects or the market's view of our future prospects.
Clinical trials or procedures may be delayed, suspended, or terminated by us, the FDA, or other regulatory authorities at any time if it is believed that the trial participants face unacceptable health risks or any other reasons, and any such delay, suspension, or termination could have a material adverse effect on our prospects or the market's view of our future prospects.
For example, many countries are aligning their international tax rules with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations and action plans that aim to standardize and modernize international corporate tax policy, including changes to cross-border taxes, transfer pricing documentation rules, nexus-based tax practices, and taxation of digital activities.
For example, many countries are aligning their international tax rules with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations and action plans that aim to 16 Table of Contents standardize and modernize international corporate tax policy, including changes to cross-border taxes, transfer pricing documentation rules, nexus-based tax practices, and taxation of digital activities.
Our continued growth and success depend on our ability to innovate and develop new and differentiated products in a timely manner and effectively market these products. Without the timely innovation and development of products, our products could be rendered obsolete or less competitive because of the introduction of a competitor’s newer technologies or changing customer preferences.
Our continued growth and success depend on our ability to innovate and develop new and differentiated products in a timely manner and effectively market these products. Without the timely innovation and development of products, our products 12 Table of Contents could be rendered obsolete or less competitive because of the introduction of a competitor’s newer technologies or changing customer preferences.
If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to 19 Table of Contents meet the regulatory obligations, and it may adversely affect our raw material sourcing, manufacturing operations, and the distribution of our products.
If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations, and it may adversely affect our raw material sourcing, manufacturing operations, and the distribution of our products.
Penalties resulting from any violation of these laws could adversely affect us and our business. 15 Table of Contents Taxes. We are subject to income taxes in the United States as well as other jurisdictions. • Provision for Income Taxes.
Penalties resulting from any violation of these laws could adversely affect us and our business. Taxes. We are subject to income taxes in the United States as well as other jurisdictions. • Provision for Income Taxes.
Even if we timely innovate and develop products, our ability to successfully market them could be constrained by a number of different factors, including competitive products and pricing, barriers in patients' treatment pathway (including disease awareness, detection, and diagnosis), the need for regulatory clearance, restrictions imposed on approved indications, and uncertainty over third-party reimbursement.
Even if we timely innovate and develop products, our ability to successfully market them could be constrained by a number of different factors, including competitive products and pricing, barriers in patient activation (including disease awareness, detection, and diagnosis), the need for regulatory clearance, restrictions imposed on approved indications, and uncertainty over third-party reimbursement.
We are also subject to various United States and foreign laws pertaining to health care pricing, anti-corruption, and fraud and abuse, including prohibitions on kickbacks and the submission of false claims laws and restrictions on relationships with physicians and other referral sources.
We are also subject to various United States and foreign laws pertaining to health care pricing, anti-competition, anti-corruption, and fraud and abuse, including prohibitions on kickbacks and the submission of false claims laws and restrictions on 19 Table of Contents relationships with physicians and other referral sources.
Problems can arise for a number of reasons, including disruption of facility utilities, equipment malfunction, failure to follow protocols and procedures, raw material problems, software problems, cyber incidents, or human error. Disruptions can occur at any time, including during production line transfers and expansions.
Safety is also critically important. Problems can arise for a number of reasons, including disruption of facility utilities, equipment malfunction, failure to follow protocols and procedures, raw material problems, software problems, cyber incidents, or human error. Disruptions can occur at any time, including during production line transfers and expansions.
Our operations are subject to environmental, health, and safety regulations that could result in substantial costs. Our operations are subject to environmental, health, and safety laws, and regulations concerning, among other things, the generation, handling, transportation, and disposal of hazardous substances or wastes, the cleanup of hazardous substance releases, and emissions or discharges into the air or water.
Our operations are subject to environmental, health, and safety laws, and regulations concerning, among other things, the generation, handling, transportation, and disposal of hazardous substances or wastes, the cleanup of hazardous substance releases, and emissions or discharges into the air or water.
Although the product training we provide to physicians and other health care professionals is conducted in compliance with applicable laws, and therefore, is mainly limited to approved uses or for clinical trials, no assurance can be given that claims might not be asserted against us if our products are used in ways or for procedures that are not approved.
Although the product training we provide to physicians and other health care professionals is conducted in compliance with applicable laws, and therefore, is mainly limited to approved uses or for clinical trials, no assurance can be given that claims might not be asserted against us if our products are used in ways or for procedures that are not approved. 20 Table of Contents Our operations are subject to environmental, health, and safety regulations that could result in substantial costs.
We believe that many of our existing products are cost-effective, even though the one-time cost may be significant, because they are intended to improve quality of life and reduce overall health care costs over a long period of time.
Third-party payors may also deny reimbursement for experimental procedures and devices. We believe that many of our existing products are cost-effective, even though the one-time cost may be significant, because they are intended to improve quality of life and reduce overall health care costs over a long period of time.
The effective dates of implementation, the interactions of tax reforms in multiple jurisdictions, and uncertainty related to dispute resolution mechanisms could impact our provision for income taxes. • Tax Audits . We are subject to ongoing tax audits in the various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken and assess additional taxes.
The effective dates of implementation, the interactions of tax reforms in multiple jurisdictions, and uncertainty related to dispute resolution mechanisms could impact our provision for income taxes. • Tax Audits . We are subject to ongoing tax audits in the various jurisdictions in which we operate.
Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Reimbursement levels may be decreased in the future.
Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Reimbursement levels may be decreased in the future. Additionally, future legislation, regulation, or reimbursement policies of third-party payors may otherwise adversely affect the demand for and price levels of our products.
The introduction of cost containment incentives, combined with closer scrutiny of health care expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed. Hospitals or physicians may respond to such cost-containment pressures by substituting lower cost products or other therapies.
The introduction of cost containment incentives, combined with closer scrutiny of health care expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed.
Significant disruption in either our or our service providers’ or suppliers’ information technology or the security of our products could impede our operations or result in decreased sales, result in liability claims or regulatory penalties, or lead to increased overhead costs, product shortages, loss or misuse of proprietary or confidential information, intellectual property, or 14 Table of Contents sensitive or personal information, all of which could have a material adverse effect on our reputation, business, financial condition, and operating results.
In addition, we rely upon technology suppliers, including cloud‑based data management applications hosted by third‑party service providers, whose security and information technology systems are subject to similar risks. 14 Table of Contents Significant disruption in either our or our service providers’ or suppliers’ information technology or the security of our products could impede our operations or result in decreased sales, result in liability claims or regulatory penalties, or lead to increased overhead costs, product shortages, loss or misuse of proprietary or confidential information, intellectual property, or sensitive or personal information, all of which could have a material adverse effect on our reputation, business, financial condition, and operating results.
If our incentives are not renewed or we cannot or do not wish to satisfy all or part of the tax incentive conditions, we may lose the tax incentives and could be required to refund tax incentives previously realized.
Several foreign jurisdictions have granted us tax incentives which require renewal at various times in the future. If our incentives are not renewed or we cannot or do not wish to satisfy all or part of the tax incentive conditions, we may lose the tax incentives and could be required to refund tax incentives previously realized.
If we are found not to be in compliance, we may be required to alter our practices or have sanctions imposed against us and our officers and employees, including substantial fines, imprisonment, and exclusion from participation in governmental health care programs. 18 Table of Contents In addition, as a global company, we are subject to global data privacy and security laws, regulations and codes of conduct that apply to our businesses.
If we are found not to be in compliance, we may be required to alter our practices or have sanctions imposed against us and our officers and employees, including substantial fines, imprisonment, and exclusion from participation in governmental health care programs.
Any of these events could result in charges, which could be substantial and which could adversely affect our results of operations. Market and Other External Risks Because we operate globally, our business is subject to a variety of risks associated with international sales and operations.
Market and Other External Risks Because we operate globally, our business is subject to a variety of risks associated with international sales and operations.
Third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods as determined by such third-party payors or was used for an unapproved indication. Third-party payors may also deny reimbursement for experimental procedures and devices.
Hospitals or physicians may respond to such cost-containment pressures by substituting lower cost products or other therapies. 17 Table of Contents Third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods as determined by such third-party payors or was used for an unapproved indication.
We are subject to risks associated with public health crises, including the COVID-19 pandemic and other pandemics or epidemics. We are subject to risks associated with public health crises, including the global health concerns related to the COVID-19 pandemic.
We are subject to risks associated with public health crises, particularly with respect to the pressures that such crises create on the hospital systems and supply chains in which we operate. We are subject to risks associated with public health crises, including pandemics and epidemics, such as COVID-19.
We operate in highly competitive markets, and if we do not compete effectively, our business will be harmed.
Other public health crises, including any future epidemics or pandemics, are highly uncertain and difficult to predict, and could result in material adverse impacts on our business and financial condition. We operate in highly competitive markets, and if we do not compete effectively, our business will be harmed.
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Summary of Risk Factors We group our risk factors into three principal sections: (1) Business and Operating Risks; (2) Market and Other External Risks and (3) Legal, Compliance and Regulatory Risks. The following summarizes the principal risks and uncertainties affecting our business, financial condition, and results of operations.
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Summary of Risk Factors The following summarizes the principal risks and uncertainties affecting our business, financial condition, and results of operations. This summary should not be relied upon as an exhaustive summary of the material risks facing our business and you should read this summary together with the more detailed description of risks and uncertainties discussed below.
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The 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 operations and the operations of our customers, suppliers, and business partners. Other public health crises, including any future epidemics or pandemics, could result in similar adverse impacts on our business and markets.
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Any of these events could result in charges, which could be substantial and which could adversely affect our results of operations.
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Financial or operational impacts that we have experienced in connection with the COVID-19 pandemic and may experience as a result of future COVID-19 outbreaks or other public health crises include: • Staffing shortages at hospitals which can add to the barriers along the patient treatment pathway; • Impacts and delays to clinical trials, our pipeline milestones, or regulatory clearances and approvals; • The inability to meet our customers’ needs or other obligations 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; or • Significant volatility or reductions in demand for our products.
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We may not be able to complete the announced spin-off of our Critical Care product group at all, or within the timeframes we anticipate, or pursuant to the tax-free structure that we anticipate, and we may not realize some or all of the expected benefits of this transaction.
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Depending on the severity of the financial and operational impacts, our business, financial condition, and results of operations may be materially adversely impacted. The extent to which the COVID-19 pandemic or other future public health crises may impact our business, results of operations, and financial condition depends on many factors which are highly uncertain and are difficult to predict.
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On December 7, 2023, we announced our intention to complete a tax-free spin-off of our Critical Care product group at the end of 2024. We also announced our intention to submit a Form 10 with the SEC in mid-year 2024.
Removed
These factors include, but are not limited to, the duration and spread of any outbreak, its severity, the actions to contain or address the impact of the outbreak, the timing, distribution, and efficacy of vaccines and other treatments, United States and foreign government actions to respond to possible reductions in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
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In connection with this spin-off and the separation of the Critical Care product group from the rest of Edwards, we will be required to satisfy all necessary governance, contractual, and regulatory conditions, among other, including those required by third parties.
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In addition, we rely upon technology suppliers, including cloud‑based data management applications hosted by third‑party service providers, whose security and information technology systems are subject to similar risks.
Added
A failure to satisfy all necessary conditions could delay or prevent the spin-off from occurring or could result in us completing the spin-off on terms less than favorable to us. In addition, we will incur significant costs associated with the spin-off, which may be significantly higher than projected.
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We benefit from various global tax incentives extended to encourage investment or employment. Several foreign jurisdictions have granted us tax incentives which require renewal at various times in the future.
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Our intention is to complete the spin-off on a tax-free basis, however, there is no assurance that the spin-off will qualify tax-free as intended, which may result in a significant tax liability.
Removed
Additionally, future legislation, regulation, or reimbursement policies of third-party payors may otherwise adversely 16 Table of Contents affect the demand for and price levels of our products.
Added
Lastly, preparing and structuring the spin-off requires significant resources from Edwards, including but not limited to management’s attention, financial support for the new company, and the collective employee effort to separate the Critical Care product group from the rest of Edwards while continuing to operate in the normal course of business.
Added
There is no assurance that the spin-off will occur at all or that the execution, timing, and structure of the spin-off will proceed as intended. There may be a sudden or unpredictable reaction to the spin-off by the investors and financial institutions, which would affect our stock market price.
Added
If we don’t realize some or all of the benefits of the spin-off, our business and financial condition and those of the newly spun-off company will be materially adversely affected. 15 Table of Contents Assuming the spin-off is successfully completed, the newly spun-off Critical Care company as a standalone public company may not deliver the returns that we or the shareholders anticipate.
Added
The Company plans to spin-off the Critical Care product group into a successful independent public company to be able to increase focus and flexibility to build upon its global leadership position in advanced patient monitoring, transforming care through AI-enabled smart monitoring solutions while expanding its reach to millions of patients around the world.
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The intention for the newly spun-off company is to retain its Chief Executive Officer and other senior leaders, however, there is no assurance that we or the newly spun-off company will be able to do so, which may materially impact the operations of the newly spun-off company.
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In addition, the new spin-off will result in a smaller, less diversified standalone company than it was as part of Edwards, which may make it more susceptible to macroeconomic trends, geopolitical risks, financial volatility, and changing market and regulatory conditions, any of which could have a material adverse effect on its financial condition and operations.
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The newly spun-off company will incur ongoing costs related to the separation and its public listing, and its transition to a standalone public company, if executed at all, may not be executed as anticipated.
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Lastly, we cannot predict whether the market value of our stock and the stock of the spun-off company after the completion of the transaction, will be, in the aggregate, less than, equal to, or greater than the market value of our stock prior to the spin-off.
Added
There is no assurance that the newly spun-off company will be successful as a standalone public company, and if it is not successful, that would have a material adverse impact on the operations and financial condition of the newly spun-off company.
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Tax authorities have disagreed and may disagree with certain positions we have taken and assess additional taxes that could be material. Please review Note 18 (Income Taxes) to our " Consolidated Financial Statements " in this report for information regarding our current audits and disputes with tax authorities.
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In addition, we may decide to challenge any assessments, if made, and may exercise our right to appeal, which could result in expensive and time-consuming litigation that may ultimately be unsuccessful. • Tax Incentives . We benefit from various global tax incentives extended to encourage investment or employment.
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In addition, as a global company, we are subject to global data privacy and security laws, regulations and codes of conduct that apply to our businesses.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings For a description of our material pending legal proceedings, please see Note 18 to the " Consolidated Financial Statements " of this Annual Report on Form 10-K, which is incorporated by reference. Item 4. Mine Safety Disclosures Not applicable. 20 Table of Contents PART II
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Item 3. Legal Proceedings In 2021, we initiated an internal review and investigation into whether business activities in Japan and other markets violated certain provisions of the Foreign Corrupt Practices Act ("FCPA").
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We voluntarily notified the United States Securities and Exchange Commission ("SEC") and the United States Department of Justice ("DOJ") during 2021 that we engaged outside counsel to conduct this review and investigation. We have provided status updates to the SEC and DOJ since that time.
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Any determination that our operations or activities are not in compliance with existing laws, including the FCPA, could result in the imposition of fines, penalties, and equitable remedies. We cannot currently predict the final outcome of the investigation or any potential impact on our financial statements.
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On September 28, 2021, Aortic Innovations LLC, a non-practicing entity, filed a lawsuit against Edwards Lifesciences Corporation and certain of its subsidiaries (“Edwards”) in the United States District Court for the District of Delaware, alleging that Edwards’ SAPIEN 3 Ultra product infringes certain of its patents.
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We are unable to predict the ultimate outcome of this matter or estimate a range of possible exposure; therefore, no amount has been accrued. We intend to vigorously defend ourselves in this litigation. The European Commission (the "Commission") is investigating certain business practices of Edwards including its unilateral pro-innovation (anti-copycat) policy and patent practices.
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We are committed to healthy competition and are cooperating with the Commission. We cannot predict the outcome of the investigation or the potential impact on its financial statements. We are subject to various environmental laws and regulations both within and outside of the United States.
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Our operations, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of continuing compliance with environmental protection laws, management believes that such compliance will not have a material impact on our financial results.
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Our threshold for disclosing material environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million. 23 Table of Contents Item 4. Mine Safety Disclosures Not applicable. 24 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. [Reserved] 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. [Reserved] 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 40 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities 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) October 1, 2022 through October 31, 2022 1,381,903 $ 83.66 1,381,903 $ 1,666.0 November 1, 2022 through November 30, 2022 8,284,153 72.91 8,283,860 1,061.6 December 1, 2022 through December 31, 2022 2,003,416 72.91 2,003,416 915.6 Total 11,669,472 74.18 11,669,179 (a) The difference between the total number of shares (or units) purchased and the total number of shares (or units) purchased as part of publicly announced plans or programs is due to shares withheld by us to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees.
Biggest changeIssuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (a), (b) October 1, 2023 through October 31, 2023 — $ — — $ 492.8 November 1, 2023 through November 30, 2023 649,918 64.76 649,918 450.7 December 1, 2023 through December 31, 2023 5,333,315 75.41 5,333,315 1,048.5 Total 5,983,233 74.25 5,983,233 (a) In July 2022, the Board of Directors approved a stock repurchase program providing for up to $1.5 billion of repurchases of our common stock, effective July 28, 2022.
The cumulative total return listed below assumes an initial investment of $100 at the market close on December 31, 2017 and reinvestment of dividends. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
The cumulative total return listed below assumes an initial investment of $100 at the market close on December 31, 2018 and reinvestment of dividends. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "EW." Number of Stockholders On January 31, 2023, there were 8,019 stockholders of record of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "EW." Number of Stockholders On January 31, 2024, there were 7,599 stockholders of record of our common stock.
Repurchases under the program may be made on the open market, including pursuant to a Rule 10b5-1 plan, and in privately negotiated transactions.
In December 2023, the Board of Directors approved an additional $1.0 billion of repurchases under this program. Repurchases under the program may be made on the open market, including pursuant to a Rule 10b5-1 plan, and in privately negotiated transactions. The repurchase program does not have an expiration date.
The repurchase program does not have an expiration date. 21 Table of Contents Performance Graph The following graph compares the performance of our common stock with that of the S&P 500 Index and the S&P 500 Health Care Equipment Index.
Shares purchased pursuant to the ASR agreement are presented in the table above in the periods in which they were received. 25 Table of Contents Performance Graph The following graph compares the performance of our common stock with that of the S&P 500 Index and the S&P 500 Health Care Equipment Index.
Removed
(b) On May 4, 2021, the Board of Directors approved a stock repurchase program providing for up to $1.0 billion of repurchases of our common stock. In July 2022, the Board of Directors approved an additional $1.5 billion of repurchases of our common stock under this program, effective July 28, 2022.
Added
(b) In December 2023, we entered into a $400.0 million accelerated share repurchase ("ASR") agreement and received, on December 12, 2023, an initial delivery of 4.6 million shares of our common stock, representing approximately 80 percent of the total contract value. The ASR concluded and on December 29, 2023 we received an additional 0.7 million shares.
Removed
Total Cumulative Return 2018 2019 2020 2021 2022 Edwards Lifesciences $ 135.90 $ 206.98 $ 242.83 $ 344.82 $ 198.59 S&P 500 95.62 125.72 148.85 191.58 156.89 S&P 500 Health Care Equipment 116.24 150.32 176.83 211.05 171.25
Added
Total Cumulative Return 2019 2020 2021 2022 2023 Edwards Lifesciences $ 152.31 $ 178.68 $ 253.74 $ 146.13 $ 149.34 S&P 500 131.49 155.68 200.37 164.08 207.21 S&P 500 Health Care Equipment 129.32 152.12 181.56 147.32 160.64

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

70 edited+35 added−34 removed37 unchanged
Biggest changeThe following is a summary of important developments during 2022: • we received United States Food and Drug Administration ("FDA") approval for the MITRIS RESILIA valve, a tissue valve replacement specifically designed for the heart's mitral position; • we received CE Mark approval for the PASCAL Precision transcatheter valve repair system for patients suffering from mitral and tricuspid regurgitation, and FDA approval for PASCAL Precision for patients with degenerative mitral regurgitation; and • we launched the SAPIEN 3 Ultra RESILIA valve following FDA approval.
Biggest changeThe following is a summary of important developments since January 1, 2023: • we launched the Edwards SAPIEN 3 Ultra RESILIA valve in Japan; • we received CE Mark approval for the Edwards SAPIEN 3 Ultra RESILIA valve in Europe; • we received CE Mark approval for the EVOQUE tricuspid valve replacement system for the transcatheter treatment of eligible patients with tricuspid regurgitation and United States Food and Drug Administration ("FDA") approval for the treatment of tricuspid regurgitation, making it the world's first transcatheter valve replacement therapy to receive regulatory approval to treat tricuspid regurgitation; • we received approval in Japan for PASCAL Precision to treat patients with degenerative mitral regurgitation; • we received CE Mark approval for our MITRIS RESILIA surgical mitral valve; • we completed enrollment in the ENCIRCLE Trial, the first pivotal trial for our transfemoral mitral replacement therapy, SAPIEN M3 ; • we received FDA approval for a SAPIEN M3 continued access program; • we restarted enrollment in our pivotal trial, ALLIANCE, designed to study our next generation TAVR technology, SAPIEN X4 ; • we completed enrollment in PROGRESS, a pivotal trial studying the treatment of moderate aortic stenosis patients; • we completed the enrollment of the full cohort of the TRISCEND II pivotal trial of the EVOQUE replacement system; and • we announced our intention to complete a tax-free spin-off of our Critical Care product group around the end of 2024.
We believe that adequate amounts of tax and related penalty and interest have been provided for any adjustments that may result from our uncertain tax positions. We executed an Advance Pricing Agreement (“APA”) in 2018 between the United States and Switzerland governments for tax years 2009 through 2020 covering various, but not all, transfer pricing matters.
We believe that adequate amounts of tax and related penalty and interest have been provided for any adjustments that may result from our uncertain tax positions. We executed an Advance Pricing Agreement ("APA") in 2018 between the United States and Switzerland governments for tax years 2009 through 2020 covering various, but not all, transfer pricing matters.
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 areas: Transcatheter Aortic Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies ("TMTT"), Surgical Structural Heart ("Surgical"), and Critical 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 groups: Transcatheter Aortic Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies ("TMTT"), Surgical Structural Heart ("Surgical"), and Critical Care.
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.
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 14 to the " Consolidated Financial Statements " for further information.
During 2021, we received a Notice of Proposed Adjustment (“NOPA”) from the IRS for the 2015-2017 tax years relating to transfer pricing involving certain Surgical/TAVR intercompany royalty transactions between our United States and Switzerland subsidiaries.
During 2021, we received a Notice of Proposed Adjustment (“NOPA”) from the IRS for the 2015 through 2017 tax years relating to transfer pricing involving Surgical/TAVR intercompany royalty transactions between our United States and Switzerland subsidiaries.
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 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.
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."
We describe our legal proceedings in Note 19 to the " Consolidated Financial Statements. " New Accounting Standards Information regarding new accounting standards is included in Note 2 to the " Consolidated Financial Statements."
For a discussion related to the results of operations for 2021 compared to 2020 and a discussion related to our consolidated cash flows for 2021 compared to 2020, refer to Part II, Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations " in our 2021 Annual Report on Form 10–K filed with the Securities and Exchange Commission on February 14, 2022.
For a discussion related to the results of operations for 2022 compared to 2021 and a discussion related to our consolidated cash flows for 2022 compared to 2021, refer to Part II, Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations " in our 2022 Annual Report on Form 10–K filed with the Securities and Exchange Commission on February 13, 2023.
See Note 17 to the " Consolidated Financial Statements " for additional information about the one-time transition tax. 33 Table of Contents (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.
See Note 18 to the " Consolidated Financial Statements " for additional information about the one-time transition tax. 37 Table of Contents (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.
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 into the distant future. As of December 31, 2022, our gross uncertain tax positions were $475.3 million.
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 into the distant future. As of December 31, 2023, our gross uncertain tax positions were $583.9 million.
The transition tax is due in eight annual installments, with the first five installments paid in 2018 through 2022. The remaining installment amounts will be equal to 15% of the total liability payable in 2023, 20% in 2024, and 25% in 2025.
The transition tax is due in eight annual installments, with the first six installments paid in 2018 through 2023. The remaining installment amounts will be equal to 20% of the total liability payable in 2024 and 25% in 2025.
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.
We estimate that these contingent payments could be up to $1.6 billion 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.
In addition, we executed other bilateral 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.
In addition, we executed other bilateral APAs as follows: during 2017, an APA between the United States and Japan 34 Table of Contents covering tax years 2015 through 2019; and during 2018, APAs between Singapore and Japan and between Switzerland and Japan covering tax years 2015 through 2019.
We estimate that these liabilities would be reduced by $182.1 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 $293.2 million, if not required, would favorably affect our effective tax rate.
We estimate that these liabilities would be reduced by $250.7 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 $333.2 million, if not required, would favorably affect our effective tax rate.
The total accrued benefit liability for our pension plans recognized as of December 31, 2022 was $23.5 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.
The total accrued benefit liability for our pension plans recognized as of December 31, 2023 was $36.2 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.
These increases were partially offset by the impact of foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $46.5 million primarily due to the weakening of the Euro and the Japanese yen against the United States dollar.
These increases were partially offset by the impact of foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $6.4 million, primarily due to the weakening of the Japanese yen against the United States dollar, partially offset by the strengthening of the Euro against the United States dollar.
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 2022, under the Board authorized repurchase program, we repurchased a total of 20.0 million shares at an aggregate cost of $1.7 billion.
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 2023, under the Board authorized repurchase program, we repurchased a total of 11.3 million shares at an aggregate cost of $867.1 million.
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, 2022. Also discussed is our financial position as of December 31, 2022.
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, 2023. Also discussed is our financial position as of December 31, 2023 and our consolidated cash flows for 2023 compared to 2022.
As of December 31, 2022, we had $189.8 million of gross California research expenditure tax credits that we expect to use in future periods. The credits may be carried forward indefinitely.
As of December 31, 2023, we had $211.3 million of gross California research expenditure tax credits that we expect to use in future periods. The credits may be carried forward indefinitely.
Critical Care The increase in net sales of Critical Care products was driven by: • increased demand for our capital products, primarily the HemoSphere monitoring platform in the United States and Japan; 27 Table of Contents • increased demand for our pressure monitoring products, primarily in the United States; and • increased demand for our enhanced surgical recovery products, primarily in the United States; partially offset by: • foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $39.5 million primarily due to the weakening of the Japanese yen and the Euro against the United States dollar.
Critical Care The increase in net sales of Critical Care products was driven by: • increased demand for our enhanced surgical recovery products and pressure monitoring products, primarily in the United States; 31 Table of Contents partially offset by: • foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $10.3 million primarily due to the weakening of the Japanese yen against the United States dollar.
As of December 31, 2022, we had a remaining tax obligation of $188.5 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, 2023, we had a remaining tax obligation of $141.4 million related to the deemed repatriation. See Note 18 to the " Consolidated Financial Statements " for additional information about the one-time transition tax.
For further information, see Note 11 to the " Consolidated Financial Statements. " We have purchased options to acquire and have agreed to provide promissory notes to various entities. These arrangements could result in additional cash outlays in the future should we decide to exercise the options or should the entities draw on the promissory notes.
These arrangements could result in additional cash outlays in the future should we decide to exercise the options or should the entities draw on the promissory notes. For further information, see Note 8 to the " Consolidated Financial Statements.
Based on the information currently available and numerous possible outcomes, we cannot reasonably estimate what, if any, changes in our existing uncertain tax positions may occur in the next 12 months and, therefore, have continued to record the uncertain tax positions as a long-term liability. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.
Based on the information currently available and numerous possible outcomes, we cannot reasonably estimate what, if any, changes in our existing uncertain tax positions may occur in the next 12 months and, therefore, have continued to record the uncertain tax positions as a long-term liability.
We assert that $1.0 billion of our foreign earnings continue to be permanently reinvested and our intent is to repatriate $580.8 million of our foreign earnings as of December 31, 2022. The estimated net tax liability on the indefinitely reinvested earnings if repatriated is $14.9 million.
We assert that $1.0 billion of our foreign earnings continue to be permanently reinvested and our intent is to repatriate, in the future, $1.2 billion of our foreign earnings as of December 31, 2023. The estimated net tax liability on the indefinitely reinvested earnings if repatriated is $5.1 million.
Legal Contingencies We are or may be a party to, or may otherwise be responsible for, pending or threatened lawsuits, including those related to products and services currently or formerly manufactured or performed by us, workplace and employment matters, matters involving real estate, our operations or health care regulations, or governmental investigations.
For additional details on our income taxes, see Note 2 and Note 18 to the " Consolidated Financial Statements ." Legal Contingencies We are or may be a party to, or may otherwise be responsible for, pending or threatened lawsuits, including those related to products and services currently or formerly manufactured or performed by us, workplace and employment matters, matters involving real estate, our operations or health care regulations, or governmental investigations.
Healthcare Environment, Opportunities, and Challenges The medical technology industry is highly competitive and continues to evolve. Our success is measured both by the development of innovative products and the value we bring to our stakeholders.
See Note 3 to the " Consolidated Financial Statements " for further information. Healthcare Environment, Opportunities, and Challenges The medical technology industry is highly competitive and continues to evolve. Our success is measured both by the development of innovative products and the value we bring to our stakeholders.
Provision for Income Taxes ($ in millions) Years Ended December 31, Change 2022 2021 $ % Provision for income taxes $ 245.5 $ 198.9 $ 46.6 23.4 % Effective tax rate 13.9 % 11.7 % Our effective income tax rate in 2022 and 2021 was 13.9% and 11.7%, respectively.
Provision for Income Taxes ($ in millions) Years Ended December 31, Change 2023 2022 $ % Provision for income taxes $ 198.7 $ 245.5 $ (46.8) (19.1) % Effective tax rate 12.4 % 13.9 % Our effective income tax rate in 2023 and 2022 was 12.4% and 13.9%, respectively.
In July 2022, we entered into a new Five-Year Credit Agreement (the "New Credit Agreement") which provides for a $750.0 million multi-currency unsecured revolving credit facility and replaced the Prior Credit Agreement. The New Credit Agreement matures on July 15, 2027.
We have a Five-year Credit Agreement (the "Credit Agreement") which provides for a $750.0 million multi-currency unsecured revolving credit facility and matures on July 15, 2027.
For more information, see "Quantitative and Qualitative Disclosures About Market Risk." Net Sales by Product Group (dollars in millions) Years Ended December 31, Change 2022 2021 $ % Transcatheter Aortic Valve Replacement $ 3,518.2 $ 3,422.5 $ 95.7 2.8 % Transcatheter Mitral and Tricuspid Therapies 116.1 86.0 30.1 35.1 % Surgical Heart Valve Therapy 893.1 889.1 4.0 0.4 % Critical Care 855.0 834.9 20.1 2.4 % Total net sales $ 5,382.4 $ 5,232.5 $ 149.9 2.9 % Transcatheter Aortic Valve Replacement 25 Table of Contents The increase in net sales of TAVR products was driven by: • higher sales of the Edwards SAPIEN platform in 2022, primarily the Edwards SAPIEN 3 Ultra valve in the United States, Europe, and Rest of World, the Edwards SAPIEN 3 Ultra RESILIA valve in the United States, and the Edwards SAPIEN 3 in Japan; partially offset by: • foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $140.2 million primarily due to the weakening of the Euro and the Japanese yen against the United States dollar.
For more information, see "Quantitative and Qualitative Disclosures About Market Risk." Net Sales by Product Group (dollars in millions) Years Ended December 31, Change 2023 2022 $ % Transcatheter Aortic Valve Replacement $ 3,879.8 $ 3,518.2 $ 361.6 10.3 % Transcatheter Mitral and Tricuspid Therapies 197.6 116.1 81.5 70.1 % Surgical Heart Valve Therapy 999.3 893.1 106.2 11.9 % Critical Care 928.1 855.0 73.1 8.5 % Total net sales $ 6,004.8 $ 5,382.4 $ 622.4 11.6 % Transcatheter Aortic Valve Replacement 29 Table of Contents The increase in net sales of TAVR products was driven by: • higher sales of the Edwards SAPIEN platform in 2023, primarily the Edwards SAPIEN 3 Ultra RESILIA valve in the United States and Japan, and the Edwards SAPIEN 3 Ultra valve in Europe and Rest of World; partially offset by: • foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $11.3 million primarily due to the weakening of the Japanese yen against the United States dollar, partially offset by the strengthening of the Euro against the United States dollar.
Material Cash Requirements A summary of our material cash requirements as of December 31, 2022 is as follows (in millions): Payments Due by Period Contractual Obligations Total Year 1 Years 2-3 Years 4-5 After 5 Years Debt $ 600.0 $ — $ — $ — $ 600.0 Operating leases 102.7 27.0 31.0 18.7 26.0 Interest on debt 106.4 19.6 39.3 38.9 8.6 Transition tax on unremitted foreign earnings and profits (a) 188.5 47.1 141.4 — — Litigation settlement obligation (minimum payments) 162.5 50.0 100.0 12.5 — Pension obligations (b) 2.4 2.4 — — — Purchase and other commitments (c) 34.3 18.5 12.0 2.8 1.0 Total contractual cash obligations (d), (e) $ 1,196.8 $ 164.6 $ 323.7 $ 72.9 $ 635.6 _______________________________________________________________________________ (a) As of December 31, 2022, we had recorded $188.5 million of income tax liabilities related to the one-time transition tax that resulted from the enactment of the 2017 Act.
Material Cash Requirements A summary of our material cash requirements as of December 31, 2023 is as follows (in millions): Payments Due by Period Contractual Obligations Total Year 1 Years 2-3 Years 4-5 After 5 Years Debt $ 600.0 $ — $ — $ 600.0 $ — Operating leases 105.8 26.8 35.9 22.4 20.7 Interest on debt 87.7 19.8 39.7 28.2 — Transition tax on unremitted foreign earnings and profits (a) 141.4 62.8 78.6 — — Litigation settlement obligation (minimum payments) 112.5 50.0 62.5 — — Pension obligations (b) 2.7 2.7 — — — Purchase and other commitments (c) 106.3 34.5 46.5 24.7 0.6 Total contractual cash obligations (d), (e) $ 1,156.4 $ 196.6 $ 263.2 $ 675.3 $ 21.3 _______________________________________________________________________________ (a) As of December 31, 2023, we had recorded $141.4 million of income tax liabilities related to the one-time transition tax that resulted from the enactment of the 2017 Act.
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. 24 Table of Contents Results of Operations Net Sales by Major Regions (dollars in millions) Years Ended December 31, Change 2022 2021 $ % United States $ 3,132.6 $ 2,963.1 $ 169.5 5.7 % Europe 1,174.8 1,190.3 (15.5) (1.3) % Japan 473.6 528.9 (55.3) (10.4) % Rest of World 601.4 550.2 51.2 9.3 % Outside of the United States 2,249.8 2,269.4 (19.6) (0.9) % Total net sales $ 5,382.4 $ 5,232.5 $ 149.9 2.9 % Net sales outside of the United States include the impact of foreign currency exchange rate fluctuations.
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. 28 Table of Contents Results of Operations Net Sales by Geographic Region (dollars in millions) Years Ended December 31, Change 2023 2022 $ % United States $ 3,508.7 $ 3,132.6 $ 376.1 12.0 % Europe 1,334.5 1,174.8 159.7 13.6 % Japan 452.4 473.6 (21.2) (4.5) % Rest of World 709.2 601.4 107.8 17.9 % Outside of the United States 2,496.1 2,249.8 246.3 10.9 % Total net sales $ 6,004.8 $ 5,382.4 $ 622.4 11.6 % Net sales outside of the United States include the impact of foreign currency exchange rate fluctuations.
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.
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.
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.
As of December 31, 2023, the carrying value of the 2018 Notes was $597.0 million. For further information on our debt, see Note 11 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 also continued to make progress in enrolling the TRISCEND II pivotal trial of the EVOQUE replacement system and the CLASP IITR pivotal trial with the PASCAL repair system in patients with symptomatic, severe tricuspid regurgitation. 26 Table of Contents Surgical Structural Heart The increase in net sales of Surgical products was due primarily to strong adoption of the INSPIRIS RESILIA aortic valve, primarily in the United States and Europe, and the MITRIS RESILIA valve, primarily in the United States.
In addition, enrollment continued in the CLASP IITR pivotal trial with the PASCAL repair system in patients with symptomatic, severe tricuspid regurgitation. 30 Table of Contents Surgical Structural Heart Net sales of Surgical products increased in 2023 primarily due to sales of the INSPIRIS RESILIA aortic valve in the United States and Europe, and the MITRIS RESILIA valve in the United States.
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.
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.
As of December 31, 2022, cash and cash equivalents and short-term investments held in the United States and outside of the United States were $731.8 million and $483.5 million, respectively. During 2022, we repatriated cash of $934.0 million.
As of December 31, 2023, cash and cash equivalents and short-term investments held in the United States and outside of the United States were $1,097.1 million and $547.4 million, respectively. During 2023, we repatriated cash of $790.0 million.
The income in 2022 was due to changes in projected probabilities of milestone achievement and our decision in the third quarter of 2022 to exit our HARPOON surgical mitral repair system program. The income in 2021 was attributable to changes in the projected probabilities of milestone achievements and the projected timing of cash inflows from product sales.
The gains in 2022 were due to changes in projected probabilities of milestone achievement and our decision in the third quarter of 2022 to exit our HARPOON surgical mitral repair system program.
At December 31, 2022, 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 India for years from 2010 and on. The audits of our United States federal income tax returns through 2014 have been closed.
The IRS is currently examining the 2018 through 2020 tax years. The audits of our material state, local, and foreign income tax matters have been concluded for years through 2015. While not material, we continue to address matters in India for years from 2010 and on.
See Item 1A, " Risk Factors ," for additional information. 2022 Financial Highlights Despite the challenges to our business in 2022 due to COVID-19 and macroeconomic factors, our net sales for 2022 were $5.4 billion, representing an increase of $149.9 million over 2021, driven by sales growth of our TAVR products.
Financial Highlights Despite the challenges to our business due to COVID-19 and macroeconomic headwinds, our net sales for 2023 were $6.0 billion, representing an increase of $622.4 million over 2022, driven by sales growth of our TAVR products. Our gross profit increased in 2023, driven by our sales growth.
In 2022, the difference between our 13.9% effective tax rate and the Federal statutory rate of 21% was primarily due to (1) foreign earnings taxed at lower rates, (2) Federal and California research and development credits, (3) the excess tax benefit from employee share-based compensation and (4) the tax benefit from the change in fair value of contingent consideration liabilities.
The effective rates for 2023 and 2022 were lower than the federal statutory rate of 21% primarily due to (1) foreign earnings taxed at lower rates, (2) Federal and California research and development credits, and (3) the tax benefit from employee share-based compensation.
We have filed to renew all the APAs which cover transactions with Japan for the years 2020 and forward. An APA between Switzerland and Japan covering tax years 2020 through 2024 was executed in 2021. The execution of the other APA renewals depends on many variables outside of our control.
We have filed to renew all three of the APAs with Japan for the years 2020 and forward. An APA between Switzerland and Japan covering tax years 2020 through 2024 was executed in 2021. An APA between the United States and Japan covering tax years 2020 through 2024 was executed in 2023.
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, 2022, we have not elected to redeem any of the 2018 Notes. As of December 31, 2022, the carrying value of the 2018 Notes was $596.3 million.
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, 2023, we have not elected to redeem any of the 2018 Notes.
We may increase the amount available under the New Credit Agreement by up to an additional $250.0 million in the aggregate and extend the maturity date for an additional year, subject to agreement of the lenders. The New Credit Agreement contains various financial and other covenants, including a maximum leverage ratio, as defined in the agreement.
We may increase the amount available under the Credit Agreement by up to an additional $250.0 million in the aggregate and extend the maturity date for an additional year, subject to agreement of the lenders. As of December 31, 2023, no amounts were outstanding under the Credit Agreement.
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 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. 38 Table of Contents 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.
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.
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. 39 Table of Contents 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.
While we have accrued for matters we believe are more likely than not to 30 Table of Contents require settlement, the eventual outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements.
While we have accrued for matters we believe are more likely than not to require settlement, the eventual outcome with a tax authority may result in a tax liability that is materially different from 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.
Transcatheter Mitral and Tricuspid Therapies The increase in net sales of TMTT products was due primarily to continued adoption of our PASCAL system in Europe.
Transcatheter Mitral and Tricuspid Therapies The increase in net sales of TMTT products was due primarily to the launch of our PASCAL system in the United States and its continued adoption in Europe. During 2023, we continued to enroll the CLASP IIF pivotal trial with PASCAL for patients with functional mitral regurgitation.
The NOPA proposes an increase to our United States taxable income, which could result in additional tax expense for this period of approximately $210 million and represents a significant change to previously agreed upon transfer pricing methodologies for these types of transactions.
The NOPA proposed a substantial increase to our United States taxable income, which could result in additional tax expense for this period of approximately $230.0 million and represented a departure from a transfer pricing method we had previously agreed upon with the IRS.
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. 35 Table of Contents We have made an accounting policy election to recognize the United States tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.
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.
For further information, see Note 8 to the " Consolidated Financial Statements. " 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.
" On July 12, 2020, we reached a 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.
Our priority has been to maintain access for patients to our life-saving technologies while providing continuous front-line support to our clinician partners, and protecting the well-being of our employees. 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.
We continued to remain fully committed to our patient-focused innovation strategy, and our teams were relentless in doing the right things for patients. Our priority has been to maintain access for patients to our life-saving technologies while providing continuous front-line support to our clinician partners, and protecting the well-being of our employees.
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.
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.
" Net cash used in investing activities of $1.7 billion in 2021 consisted primarily of net purchases of investments of $1.4 billion and capital expenditures of $325.8 million. We currently anticipate making capital expenditures of approximately $300.0 million in 2023 as we continue to invest in our operations.
" We currently anticipate making capital expenditures of approximately $300.0 million in 2024 as we continue to invest in our operations. Net cash used in financing activities of $711.0 million in 2023 consisted primarily of purchases of treasury stock of $879.6 million, partially offset by proceeds from stock plans of $169.9 million.
Gross Profit The increase in gross profit as a percentage of net sales in 2022 compared to 2021 was driven primarily by a 3.6 percentage point increase from the impact of our foreign currency hedging program, which includes hedge contract gains and natural hedges (primarily the strengthening of the United States dollar against the Euro and the Japanese yen).
Gross Profit The decrease in gross profit as a percentage of net sales in 2023 compared to 2022 was driven primarily by a 2.5 percentage point decrease from the impact of foreign currency exchange rate fluctuations, primarily the weakening of the United States dollar against multiple currencies, partially offset by the strengthening of the United States dollar against the Japanese yen.
We have considered this information, as well as information regarding the NOPA and rebuttal described above, in our evaluation of our uncertain tax positions. The impact of these unresolved transfer pricing matters, net of any correlative repatriation tax adjustment, may be significant to our consolidated financial statements.
The impact of these unresolved transfer pricing matters, net of any correlative tax adjustments, may be significant to our consolidated financial statements.
(d) As of December 31, 2022, the gross liability for uncertain tax positions, including interest, was $519.8 million and relates primarily to transfer pricing matters which are discussed in detail in Note 17 to the "Consolidated Financial Statements." Based upon the information currently available and numerous possible outcomes, we cannot reasonably estimate the amount and period in which the liability might be paid, and did not include this amount in the contractual obligations table.
Based upon the information currently available and numerous possible outcomes, we cannot reasonably estimate the amount and period in which the liability might be paid, and did not include this amount in the contractual obligations table.
While no payment of any amount related to the NOPA is required to be made, if at all, until all applicable proceedings have been completed, we made an advance payment of tax in November 2022 to prevent the further accrual of interest on any potential deficiency.
While no payment of any amount related to the NOPA or NOD has yet been required, we made a partial deposit in November 2022 to prevent the further accrual of interest on that portion of any additional tax we may ultimately be found to owe.
Certain Surgical/TAVR intercompany royalty transactions covering tax years 2015 through 2022 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, 2022.
Surgical/TAVR intercompany royalty transactions covering tax years 2018 through 2023 remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of December 31, 2023. We have considered this information, as well as information regarding the NOD and other proceedings described above, in our evaluation of our uncertain tax positions.
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. 34 Table of Contents In addition, in limited circumstances, we may allow customers to return previously purchased products, such as for next-generation product offerings.
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.
" 32 Table of Contents Consolidated Cash Flows - For the twelve months ended December 31, 2022 and 2021 Net cash flows provided by operating activities of $1.2 billion for 2022 decreased $513.9 million from 2021 due to an increase in tax payments, an increase in inventory builds compared to the prior year, and a higher bonus payout in 2022 associated with 2021 performance.
We made a one-time $100.0 million payment to Abbott in July 2020, and are making quarterly payments in subsequent years. 36 Table of Contents Consolidated Cash Flows - For the twelve months ended December 31, 2023 and 2022 Net cash flows provided by operating activities of $895.8 million for 2023 decreased $322.4 million from 2022 due primarily to a $300.0 million payment in 2023 under the Intellectual Property Agreement, partially offset by a higher bonus payout in 2022 associated with 2021 performance.
Selling, General, and Administrative ("SG&A") Expenses SG&A expenses increased in 2022 compared to 2021 due primarily to a resumption of in-person commercial activities following COVID-19 and higher field-based personnel-related costs, primarily TAVR and TMTT in the United States.
Selling, General, and Administrative ("SG&A") Expenses SG&A expenses increased in 2023 compared to 2022 due primarily to higher performance-based compensation and higher field-based personnel-related costs in support of our growth strategy and patient activation initiatives, primarily related to TAVR and TMTT in the United States and Europe. 32 Table of Contents Research and Development ("R&D") Expenses R&D expenses increased in 2023 compared to 2022 due primarily to continued investments in our transcatheter innovations, including increased clinical trial activity.
During the second quarter of 2022, we began treating patients in our ALLIANCE pivotal trial, studying our next-generation TAVR technology, SAPIEN X4 , and during the fourth quarter of 2022, we began the introduction of the SAPIEN 3 Ultra Resilia valve in the United States.
In March 2023, we launched the Edwards SAPIEN 3 Ultra RESILIA valve in Japan. In July 2023, we announced the restart of enrollment in our pivotal trial, ALLIANCE, designed to study our next generation TAVR technology, SAPIEN X4 .
Special Charge For information on special charge, see Note 4 to the " Consolidated Financial Statements. " Interest Expense Interest expense was $19.2 million and $18.4 million in 2022 and 2021, respectively. The increase in interest expense resulted primarily from lower capitalized interest due to decreased facilities construction.
The charge primarily related to the full impairment of intangible assets associated with the technology for $52.7 million and other related exit costs. For more information, see Note 4 to the " Consolidated Financial Statements ." Interest Expense Interest expense was $17.6 million and $19.2 million in 2023 and 2022, respectively.
In early 2023, we began enrolling patients in our MOMENTS clinical study to demonstrate the durability of RESILIA tissue in the mitral position.
We are continuing to enroll patients in our MOMENTIS clinical study to demonstrate the durability of RESILIA tissue in the mitral position. In October 2023, we received CE Mark approval for our MITRIS RESILIA mitral valve and have begun its launch in several European countries.
Change in Fair Value of Contingent Consideration Liabilities, net The change in fair value of contingent consideration liabilities resulted in income of $35.8 million and $124.1 million in in 2022 and 2021, respectively.
For more information, see Note 3 to the " Consolidated Financial Statements ." Change in Fair Value of Contingent Consideration Liabilities, net The change in fair value of contingent consideration liabilities resulted in gains of $26.2 million and $35.8 million during 2023 and 2022, respectively. The gains in 2023 were primarily due to changes in projected probabilities of milestone achievement.
In mitral replacement, we continued to treat patients through the ENCIRCLE pivotal trial for SAPIEN M3 and completed enrollment in the MISCEND early feasibility study for EVOQUE Eos .
In mitral replacement, we completed enrollment in the ENCIRCLE pivotal trial for SAPIEN M3 and, in January 2024, we received FDA approval for a S APIEN M3 continued access program . In tricuspid, we completed the enrollment of the full cohort of the TRISCEND II pivotal trial of the EVOQUE replacement system.
The opening conference is scheduled for the first quarter of 2023. We continue to evaluate all possible remedies available to us, which could take several years to resolve. We believe the amounts previously accrued related to this uncertain tax position are sufficient and, accordingly, have not accrued any additional amount based on the NOPA received.
We believe the amounts previously accrued related to this uncertain tax position are appropriate for a number of reasons, including the interpretation and application of relevant tax law and accounting standards to our facts and, accordingly, have not accrued any additional amount based on the NOD and other proceedings to date.
The tax reductions as compared to the local statutory rates were $247.4 million ($0.40 per diluted share) and $208.0 million ($0.33 per diluted share) for the years ended December 31, 2022 and 2021, respectively. 31 Table of Contents Liquidity and Capital Resources Our sources of cash liquidity include cash and cash equivalents, short-term investments, cash from operations, and amounts available under credit facilities.
We have received tax incentives in certain non-United States tax jurisdictions, the primary benefit for which will expire in 2029. The tax reductions as compared to the local statutory rates were $333.2 million ($0.55 per diluted share) and $247.4 million ($0.40 per diluted share) for the years ended December 31, 2023 and 2022, respectively.
The IRS fieldwork for the 2015 through 2017 tax years was completed during the second quarter of 2021, except for transfer pricing and related matters. The IRS began its examination of the 2018 through 2020 tax years during the first quarter of 2022.
The execution of some or all these APA renewals depends on many variables outside of our control. The audits of our United States federal income tax returns through 2014 have been closed. The IRS audit field work for the 2015 through 2017 tax years was completed during the second quarter of 2021, except for certain transfer pricing and related matters.
During August 2022, we received European regulatory approval for PASCAL Precision for patients suffering from mitral and tricuspid regurgitation, and in September 2022, we received FDA approval for PASCAL Precision for patients with degenerative mitral regurgitation.
In October 2023, we received CE Mark approval in Europe for EVOQUE and in February 2024 we received FDA approval for EVOQUE for the treatment of tricuspic regurgitation. In October 2023, we also received approval in Japan for PASCAL Precision to treat patients with degenerative mitral regurgitation.
Removed
Financial Highlights and Market Update COVID-19 and Macroeconomic Uncertainties The COVID-19 pandemic has adversely impacted, and may further adversely impact, nearly all aspects of our business and markets, including our workforce and the operations of our customers, suppliers, and business partners.
Added
On December 7, 2023, we announced our intention to complete a tax-free spin-off of our Critical Care product group around the end of 2024. The planned separation will enable us to pursue expanded opportunities for TAVR, TMTT, and Surgical patients, as well as new investments in interventional heart failure technologies.
Removed
Across the organization, we are proactively managing inventory, assessing alternative logistics options, and closely monitoring the supply of components to address potential supply constraints. During the first quarter of 2021, COVID-19 stressed the global healthcare system during the winter months.
Added
Financial Highlights and Market Update COVID-19 and Macroeconomic Uncertainties While conditions related to the COVID-19 pandemic have improved compared to 2022, we have continued to experience the impacts of the COVID-19 pandemic in 2023, particularly in Japan and disruptions related to staffing shortages in the United States and Europe.
Removed
However, we saw strong recovery beginning in the second quarter of 2021 as widespread vaccine adoption contributed to an increased number of patients.
Added
We expect to continue to experience adverse effects related to COVID-19 for some time, particularly as hospital systems continue experiencing budget constraints and staffing shortages, the supply chains continue to adjust to the market, and medical procedure rates and demand for our products continue to fluctuate as the medical system rebalances its infrastructure and resources in a post-COVID-19 market. 27 Table of Contents In addition to the impacts described above, the global economy, including the financial and credit markets, continues to experience volatility and disruptions, including conditions impacting inflation, credit and capital markets, interest rates, and factors affecting global economic stability and the political environment relating to health care.
Removed
However, the Delta variant had a significant impact on hospital resources during the last two months of the third quarter of 2021, and the Omicron variant had a significant impact during December 2021, especially in the United States. 23 Table of Contents During the first quarter of 2022, the Omicron variant had a pronounced impact on hospital capacity, resources, and procedure volumes in January 2022, especially in the United States.
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The severity and duration of the impact of these conditions on our business cannot be predicted. See Item 1A, " Risk Factors ," for additional information.
Removed
Our 2022 sales were also impacted by slower than expected improvement in United States hospital staffing shortages and foreign currency headwinds. In the second half of 2022, we faced COVID-19 headwinds in Japan, which created significant strain on hospital capacity.
Added
Gross profit as a percentage of sales decreased primarily due to the impact of foreign currency exchange rate fluctuations. The decrease in our net income and diluted earnings per share in 2023 was driven primarily by an after-tax charge of $134.9 million related to an intellectual property agreement.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest change" 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, 2022, all derivative financial instruments were with bank counterparties assigned investment grade ratings by national rating agencies.
Biggest changeFor more information related to outstanding foreign exchange contracts, see Note 2 and Note 13 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.
As of December 31, 2022, we had $600.0 million of 2018 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 Secured Overnight Financing Rate ("SOFR"). As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement.
As of December 31, 2023, we had $600.0 million of 2018 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 Secured Overnight Financing Rate ("SOFR"). As of December 31, 2023, there were no borrowings outstanding under the Credit Agreement.
Based on our December 31, 2022 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.
Based on our December 31, 2023 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.
In 2022, we had no customers that represented 10% or more of our total net sales or accounts receivable, net. 37 Table of Contents Investment Risk We are exposed to investment risks related to changes in the underlying financial condition and credit capacity of certain of our investments.
In 2023, we had no customers that represented 10% or more of our total net sales or accounts receivable, net. 41 Table of Contents 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, 2022, a hypothetical 1.0% absolute increase in market interest rates would decrease the fair value of the fixed-rate debt by approximately $26.7 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.
As of December 31, 2023, a hypothetical 1.0% absolute increase in market interest rates would decrease the fair value of the fixed-rate debt by approximately $23.1 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 11 to the " Consolidated Financial Statements.
The total notional amount of our derivative financial instruments entered into for foreign currency management purposes at December 31, 2022 was $2.0 billion. A hypothetical 10% increase (or decrease) in the value of the United States dollar against all hedged currencies would increase (or decrease) the fair value of these derivative contracts by $158.2 million.
The total notional amount of our derivative financial instruments entered into for foreign currency management purposes at December 31, 2023 was $2.1 billion. A hypothetical 10% increase (or decrease) in the value of the United States dollar against all hedged currencies would increase (or decrease) the fair value of these derivative contracts by $165.5 million.
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.
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.
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.
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 global intercompany receivable and payable balances.
Our investment policy limits the amount of credit exposure to any one issuer. 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 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.
Should these companies experience a decline in financial performance, financial condition or credit capacity, or fail to meet certain development milestones, a decline in the investments' value may occur, resulting in unrealized or realized losses. 38 Table of Contents
Should these companies experience a decline in financial performance, financial condition or credit capacity, or fail to meet certain development milestones, a decline in the investments' value may occur, resulting in unrealized or realized losses. See Note 7 to the "Consolidated Financial Statements" for additional information. 42 Table of Contents
Taking into consideration the 36 Table of Contents average maturity of our debt securities, a hypothetical 0.5% to 1.0% absolute increase in interest rates at December 31, 2022 would have resulted in a $7.8 million to $15.5 million decrease in the fair value of these investments.
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, 2023 would have resulted in a $3.2 million to $6.5 million decrease in the fair value of these investments.
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.
Any gains or losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying transactions and the net investment, so the net impact would not be significant to our financial condition or results of operations.
As of December 31, 2022, we had $1.6 billion of investments in debt securities of various companies, of which $1.1 billion were long-term. In addition, we had $108.3 million of investments in equity instruments.
As of December 31, 2023, we had $963.2 million of investments in debt securities of various companies, of which $462.7 million were long-term. In addition, we had $121.2 million of investments in equity instruments.
As of December 31, 2022, we had $1.6 billion of investments in debt securities which had an average remaining term to maturity of 0.98 years.
As of December 31, 2023, we had $963.2 40 Table of Contents million of investments in debt securities which had an average remaining term to maturity of 0.53 years.
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.
At December 31, 2023, 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.
Added
Concentrations of Risk We invest excess cash in a variety of debt securities, and diversify the investments amongst financial institutions. Our investment policy limits the amount of credit exposure to any one issuer.

Other EW 10-K year-over-year comparisons