line and the perfusion services business had occurred as of January  1 , 1999 (see “Disposition of Assets and Other Non- Recurring Charges, net”), net sales by product line would have changed as follows (“Adjusted Net Sales”): Assuming the change in accounting for sales in Japan was effective as of January  1 , 1999 , excluding the impact of foreign currency exchange rate fluctuations and assuming the sales of the mechanical cardiac assist product line, the perfusion product treatment and intends to build on the Company’s strong base franchise by developing and marketing minimally invasive therapies such as its Lifepath AAA Endovascular Graft System. In September  2001 , the Company received approval to re-enter the market in Europe with its Lifepath AAA Endovascular Graft System, and in October  2001 received approval from the Food and Drug Administration to restart clinical studies for the same product in the United States. Cardiac Surgery The Adjusted Net Sales growth in  2001 and 2000 in cardiac surgery products resulted primarily from strong sales growth of pericardial tissue valves and repair products. This increase was partially offset by declines in porcine tissue valve sales as a result of competition and as customers upgraded to pericardial tissue valves. Management expects that its cardiac surgery products will continue to serve as a key driver of Edwards Lifesciences’ sales growth. Perfusion The Adjusted Net Sales decreases for perfusion were due primarily to a reduction in  2001 of products sales to Jostra AG (see “Disposition of Assets and Other Non- Recurring Charges, net”) and a continually increasing number of “beating-heart” coronary artery bypass surgeries in Western Europe, which reduced the need for perfusion services. Critical Care The Adjusted Net Sales growth in  2001 and 2000 in critical care products was due primarily to strong sales of advanced technology catheter products and the newer access and hemofiltration product categories, partially offset by the decline in base hemodynamic catheters. Critical care products have been, and are expected to continue to be, significant contributors to Edwards Lifesciences’ total sales. Other Other sales include miscellaneous pharmaceutical and distributed products. The decline in Adjusted Net Sales in 2000 was due primarily to the termination of certain distributed products at the end of  1999 and the $ 5 million sale of a patent during  1999 . Vascular The decline in Adjusted Net Sales for vascular  products resulted primarily from the continued shift to less- invasive therapies and non-surgical options, and the wind-down of a distribution contract in France during  2001 . Management continues to see opportunities in peripheral vascular disease 16 Edwards Lifesciences Corporation 17 Edwards Lifesciences Corporation as appropriate. In furtherance of this commitment, the Company expects to increase in  2002 its research and development expenses by 20 % from  2001 . Assuming the change in accounting in Japan was effective as of January  1 , 1999 , and assuming the sales of the mechanical cardiac assist product line, the perfusion product line and the perfusion services business had each occurred on January  1 , 1999 (see “Disposition of Assets and Other Non-Recurring Charges, net”), research and development expenses as a percentage of net sales (“Adjusted Percentage”) would have been  8.7 % in  2001 , 7.6 % in  2000 and  6.6 % in  1999 . The Adjusted Percentage increases in research and development expenses for  2001 and  2000 reflect Edwards Lifesciences’ commitment to ongoing research and development to deliver clinically advanced new products, to enhance the effectiveness, ease of use, safety and reliability of its current leading products and to expand the applications of its products Goodwill Amortization Goodwill amortization was $ 19 million, $ 29 million and $ 34 million in  2001 , 2000 and  1999 , respectively. The reduction in goodwill amortization for the years  2001 and 2000 resulted primarily from (a) the sale of the perfusion services business in the United States and the disposition of the related goodwill effective June  30 , 2001 , and (b) the write- down of goodwill effective June  30 , 2000 related to the sale of the Company’s line of perfusion products in the United States and Western Europe (see “Disposition of Assets and Other Non-Recurring Charges, net”). The Adjusted Percentage increases in SG & A expenses as a percentage of net sales for  2001 and  2000 were due primarily to additional personnel costs and expenses associated with the Company’s operation as an independent company commencing April  1 , 2000 . Additionally, in  2000 , the Company established a $ 9.5 million reserve for litigation, property taxes and un- collectable receivables. Assuming the change in accounting in Japan was effective as of January  1 , 1999 , and assuming the sales of the mechanical cardiac assist product line, the perfusion product line and the perfusion services business had each occurred on January  1 , 1999 (see “Disposition of Assets and Other Non-Recurring Charges, net”), SG & A expenses as a percentage of net sales (“Adjusted Percentage”) would have been  31 % in  2001 , 29 % in 2000 and  24 % in  1999 . The Adjusted Percentage increase in the gross profit percentage for  2001 was due primarily to increased sales of higher-margin cardiac surgery products. The Adjusted Percentage for  2000 was also favorably impacted by increased sales of higher-margin cardiac surgery products, offset by an unfavorable impact of foreign currency exchange rate fluctuations. Assuming the change in accounting in Japan was effective as of January  1 , 1999 , and assuming the sales of the mechanical cardiac assist product line, the perfusion product line and the perfusion services business had each occurred on January  1 , 1999 (see “Disposition of Assets and Other Non-Recurring Charges, net”), the gross profit percentage (“Adjusted Percentage”) would have been  57 % in  2001 , 54 % in  2000 and  54 % in  1999 . Percentage Years Ended December 31, Point Change 2001 2000 1999 2001 2000 Research and development expenses  as a percentage of net sales 7.9 % 6.8 % 6.1 % 1.1 pts. 0.7 pts Research and Development Expenses Percentage Years Ended December 31, Point Change 2001 2000 1999 2001 2000 SG & A expenses as a percentage of net sales 29.3 % 26.9 % 25.7 % 2.4 pts. 1.2 pts. Selling, General and Administrative (“SG&A”) Expenses Percentage Years Ended December 31, Point Change 2001 2000 1999 2001 2000 Gross Margin 53.2 % 47.4 % 48.5 % 5.8 pts. ( 1.1 ) pts. Gross Margin Years Ended December 31, Percent Change (dollars in millions) 2001 2000 1999 2001 2000 Cardiac Surgery $ 329 $ 300 $ 279 10 % 8 % Critical Care 213 203 201 5 % 1 % Vascular 50 53 55 ( 6 %) ( 4 %) Perfusion 46 53 54 ( 14 %) ( 2 %) Other 1 3 14 ( 67 %) ( 79 %) Total net sales $ 639 $ 612 $ 603 4 % 1 % Management’s Discussion and Analysis  of Financial Condition and Results of Operations Management’s Discussion and Analysis  of Financial Condition and Results of Operations