NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS Note 15.  LEGAL PROCEEDINGS S73 Edwards Lifesciences Corporation A reconciliation of the United States federal statutory income tax rate to the Company’s effective income tax rate is as follows:  As of December 31, 2002, the Company has approximately $19.0 million of U.S. federal and state tax net operating losses and $5.5 million of tax credits available for carry- forward that will begin to expire in 2012 if not utilized. The Company also has approximately $38.2 million of foreign tax net operating losses available for carry-forward that will begin to expire in 2005 if not utilized and approximately  $0.9 million of non-expiring tax credits that are available for carry-over. A valuation allowance of $6.1 million has been provided on certain foreign net operating losses and on an investment that would likely be subject to capital loss limitations. On June 29, 2000, Edwards Lifesciences filed a lawsuit for patent infringement against Medtronic, Inc., which, as amended, alleged infringement of three Edwards Lifesciences United States patents. On September 18, 2001, Edwards Lifesciences filed a separate complaint against Medtronic alleging infringement of a fourth Edwards Lifesciences  United States patent. These lawsuits were filed in the United States District Court for the District of Delaware. Effective  April 24, 2002, Edwards Lifesciences entered into an agreement with Medtronic resolving these patent infringe- ment claims and dismissing the two lawsuits. Under the terms of the settlement, Edwards Lifesciences received a  one-time cash payment of $20.0 million (recorded as a gain of $14.7 million, net of legal expenses, in Other (Income) Expense, net) and granted Medtronic a royalty-bearing license on two of the Edwards Lifesciences’ patents. In addition, on July 2, 2002, Edwards Lifesciences and  Medtronic submitted to binding arbitration on another of the patents in dispute. Medtronic prevailed in this arbitration and will not require an additional license. On June 29, 2000, Edwards Lifesciences also filed a lawsuit against St. Jude Medical, Inc. alleging infringement of three Edwards Lifesciences United States patents. This lawsuit was filed in the United States District Court for the Central District of California, seeking monetary damages and injunctive relief. St. Jude has answered and asserted various affirmative defenses and counterclaims with respect to the lawsuits. On April 9, 2002, a fourth Edwards Lifesciences United States patent was added to the lawsuit. Discovery is proceeding. In exchange for the sale of the Novacor mechanical cardiac assist product line to WorldHeart in June 2000, the Company received WorldHeart preferred stock (see Note 4). In 2002, the investment in the WorldHeart preferred stock was deemed to be impaired and written down to its fair market value. Due to the uncertainty of using any potential tax benefit for the loss, a valuation allowance of $13.8 million has been established. As a result of recent tax law developments and the filing of the Company’s 2001 tax return, the Company recorded a $20.1 million tax benefit during 2002 related to the loss on sale of its United States perfusion services business in June 2001. The Company has manufacturing operations outside the United States, primarily in Puerto Rico, Switzerland and The Dominican Republic, which benefit from reductions in local tax rates under various tax incentives.  Years Ended December 31, (in millions) 2002 2001 2000 Income tax expense  (benefit) at U.S. federal statutory rate $ 19.6 $ (2.9) $ (90.4) (Benefit) loss on sale  of perfusion  services business (20.1) 11.0 — Valuation allowance  for loss on  investment 13.8 — — Foreign income tax  at different rates (10.6) (6.8) (8.4) Tax credits (1.9) (1.6) (0.7) State and local  taxes, net of  federal tax benefit (0.1) (3.0) — Nondeductible  charges (Note 4) — — 99.9 Nondeductible  goodwill — 6.0 9.8 Other (0.4) (1.2) 3.1 Income tax expense $ 0.3 $ 1.5 $ 13.3