MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  The following discussion and analysis present the factors that had a material effect on the results of operations of Edwards Lifesciences during the three years ended  December 31, 2002. Also discussed is Edwards Lifesciences’ financial position as of December 31, 2002. You should read this discussion in conjunction with the historical consolidated financial statements and related notes included elsewhere in this document. Certain disclosures prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) contained in this discussion are accompanied by disclosures that are not prepared in conformity with GAAP. These non-GAAP disclosures generally: leader in, and has been a pioneer in the development and commercialization of, tissue valves and repair products used to replace or repair a patient’s diseased or defective heart valve. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems used to measure a patient’s heart function, and also provides central venous access products for fluid and drug delivery. Edwards Lifesciences’ vascular portfolio includes a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment, artificial implantable grafts, and an endovascular system used to treat life-threatening abdominal aortic aneurysms less invasively. In the perfusion category, Edwards Lifesciences develops, manufactures and markets, in regions outside the United States and Western Europe, a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices. Effective June 30, 2001, the Company sold its perfusion services business in the United States to an affiliate of Fresenius Medical Care AG (see “Disposition of Assets and Other Non-Recurring Charges, net”). The Company continues to maintain a small perfusion services business in Europe. Lastly, other distributed products include sales of intra-aortic balloon pumps, pacemakers, angioplasty systems and other products sold though the Company’s distribution network in Japan, and miscellaneous pharmaceutical products sold in the United States. The health care marketplace continues to be competitive. There has been consolidation in Edwards Lifesciences’ customer base and among its competitors, which has resulted in pricing and market share pressures. Edwards Lifesciences has experienced increases in its labor and material costs, which are primarily influenced by general inflationary trends. Management expects these trends to conti nue. Edwards Lifesciences is a global provider of products and technologies that are designed to treat advanced cardiovascular disease. Edwards Lifesciences focuses on providing products and technologies to address four main cardiovascular disease states: Joint Venture in Japan The Japanese business is included in the Consolidated Statements of Operations for the three months ended March 31, 2000, consistent with the historical treatment of the Company’s operations while a part of Baxter. Subsequent to the distribution of the Company’s common stock to stockholders of Baxter on March 31, 2000 (referred to as the ‘’Distribution’’), the cardiovascular business in Japan was being operated pursuant to a joint venture under which a Japanese subsidiary of Baxter retained ownership of the Japanese business assets, but a subsidiary of Edwards Lifesciences held a 90% profit interest. Edwards Lifesciences was given an option to purchase the Japanese business assets that was exercisable no earlier than August 1, 2002 Edwards Lifesciences’ cardiac surgery portfolio is com- prised primarily of products relating to heart valve therapy, transmyocardial revascularization, and cannula used during open-heart surgery. Edwards Lifesciences is the world’s The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are  categorized into five main areas: S34 Edwards Lifesciences Corporation ¥ exclude the impacts of foreign exchange; ¥ present Japan on a consolidated basis for all periods (see “Joint Venture in Japan”); and ¥ exclude the impacts of divestitures and other non-recurring charges (see “Disposition of Assets and Other Non- Recurring Charges, net”). Management has determined that inclusion of these non- GAAP disclosures provides a more meaningful comparison of the Company’s operating results for the periods presented in this discussion and better reflects the Company’s ongoing operations. Overview ¥ heart valve disease; ¥ coronary artery disease; ¥ peripheral vascular disease; and ¥ congestive heart failure. ¥ Cardiac Surgery;  ¥ Critical Care;  ¥V ascular;  ¥ Perfusion; and ¥ Other Distributed Products.