Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements note 9. EMPLOYEE BENEFIT PLANS Defined Benefit Plans 46 Edwards Lifesciences Corporation Subsequent to the Distribution, Edwards Lifesciences began sponsoring defined benefit pension plans in Puerto Rico and in certain European countries. A reconciliation of these plans’ benefit obligations, assets and funded status are as follows: Prior to the Distribution, Edwards Lifesciences employees participated in Baxter-sponsored defined benefit pension plans covering substantially all employees in the United States and Puerto Rico and employees in certain European countries. The benefits were based on years of service and the employees’ compensation during five of the last  10 years of employment as defined by the plans. Effective as of the Distribution, Edwards Lifesciences’ employees ceased to be eligible to accrue any additional benefits under the Baxter plan for United States employees. Edwards Lifesciences did not adopt a pension plan for United States employees to replace the Baxter plan in the United States. The pension liability related to Edwards Lifesciences’ United States employees’ service prior to the Distribution remains with Baxter. With respect to the Puerto Rico and certain European plans, Baxter transferred the assets and liabilities relating to Edwards Lifesciences’ employees to Edwards Lifesciences as of the Distribution. Edwards Lifesciences has adopted a defined benefit pension plan in Puerto Rico and in certain European countries. Pension expense for the Baxter-sponsored plans relating to Edwards Lifesciences’ employees was $ 0.4 million for the three months ended March  31 , 2000 , and $ 5 million for the year ended December  31 , 1999 . In addition to pension benefits, Edwards Lifesciences participated in Baxter-sponsored contributory health care and life insurance benefits for substantially all domestic retired employees through the Distribution. Baxter and Edwards Lifesciences froze benefits under these plans as of the Distribution for Edwards Lifesciences employees. Edwards Lifesciences has not established new health care and life insurance plans for employees retiring subsequent to the Distribution. Expense associated with these benefits relating to Edwards Lifesciences employees was less than $ 1 million in each of the years  2000 and  1999 . As of or As of or for the for the Year Ended Period Ended December 31, December 31,  (in millions) 2001 2000 Benefit Obligations Beginning of period $ 23.0 $ 22.2 Service cost 1.5 1.1 Interest cost 1.7 1.1 Participant contributions 0.2 0.1 Actuarial loss 2.6 0.6 Curtailment gains ( 1.6 ) ( 1.1 ) Currency exchange rate changes  and other 0.7 ( 1.0 ) End of year $ 28.1 $ 23.0 Fair value of plan assets Beginning of period $ 17.6 $ 18.4 Actual return on plan assets ( 0.4 ) ( 0.5 ) Employer contributions 2.1 0.4 Participant contributions 0.2 0.1 Currency exchange rate changes  and other 0.8 ( 0.8 ) End of year $ 20.3 $ 17.6 Funded status Funded status at  December  31 , 2001 $ ( 7.7 ) $ ( 5.4 ) Unrecognized net losses 4.6 2.0 Unrecognized prior service cost 2.6 2.8 Net amount recognized $ ( 0.5 ) $ ( 0.6 ) Prepaid benefit cost $ 0.9 $ 1.0 Accrued benefit liability ( 1.4 ) ( 1.6 ) Net amount recognized $ ( 0.5 ) $ ( 0.6 ) 47 Edwards Lifesciences Corporation The Company’s employees in the United States and Puerto Rico are eligible to participate in a qualified  401 (k) and  1165 (e) plan, respectively. Participants may contribute up to  15 % of their annual compensation (subject to tax code limitation) to the plans. Edwards Lifesciences matches the first  3 percent of the participant’s annual eligible compensation contributed to the plan on a dollar-for-dollar basis. Edwards Lifesciences matches the next  2 percent of the participant’s annual eligible compen- sation to the plan on a  50 % basis. Matching contributions relating to Edwards Lifesciences employees were $ 4 million in  2001 and  2000 and $ 3 million in  1999 . The Company has a nonqualified deferred compensation plan for a select group of management that provides the opportunity to defer a specified percentage of their cash compensation. Participants may elect to defer up to  100 % of bonus and  15 % of total annual compensation. The Company’s obligations under this plan are unfunded. The amount accrued under this plan was $ 2 million at December  31 , 2001 and  2000 . The Edwards Lifesciences Corporation Executive Option Plan (the “Executive Plan”) became effective for participation by eligible employees in  2001 . Eligible employees who participate in the Executive Plan may not participate in the Company’s nonqualified deferred compensation plan. Under the Executive Plan, executive officers and certain other key employees may elect to forgo a portion of their annual salary and bonus for an option to purchase shares of mutual funds or the Company’s common stock. The options are granted quarterly with an initial exercise price equal to  25 % of the fair market value per share (as defined in the Executive Plan) of the respective security on the grant date. The number of shares subject to each option is determined such that the difference between the aggregate fair market value (as defined in the Executive Plan) and the aggregate exercise price under the option is equal to the amount of forgone compensation attributable to the option. A total of  95,000 shares of the Company’s common stock has been reserved for issuance under the Executive Plan. Assumptions used in determining benefit obligations are as follows: For certain of the Company’s European pension plans, the accumulated benefit obligation is in excess of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans were $ 2.0 million, $ 1.6 million and $ 0.6 million, respectively, at December  31 , 2001 , and $ 0.8 million, $ 0.7 million and $ 0 , respectively, at December  31 , 2000 . Defined Contribution Plans Net periodic benefit cost Year Ended Period Ended December 31, December 31,  2001 2000 Discount Rate Puerto Rico plan 7.25 % 7.25 % International plans (average) 5.17 % 5.55 % Expected return on plan assets Puerto Rico plan 9.50 % 9.50 % International plans (average) 5.50 % 5.00 % Rate of compensation increase Puerto Rico plan 4.00 % 4.00 % International plans (average) 3.75 % 3.71 % Year Ended Period Ended December 31, December 31,  (in millions) 2001 2000 Service cost $ 1.5 $ 1.1 Interest cost 1.7 1.1 Expected return on plan assets ( 1.5 ) ( 1.0 ) Amortization of prior service cost  and other 0.3 0.2 Net periodic pension benefits cost $ 2.0 $ 1.4