MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  A summary of all of the Company’s contractual obligations and commercial commitments as of December 31, 2002 were as follows: (a) Contractual development obligations consist primarily of cash that Edwards Lifesciences is obligated to pay to unconsolidated affiliates upon their achievement of product development milestones. Cash flows provided by operating activities for the year 2002 increased $19.4 million from the year 2001 due primarily to higher earnings (before non-cash items), which included a $20.0 million legal settlement (see “Other (income) expense, net”), and decreased inventory levels. These increases in operating cash flows were partially offset by higher net cash outflows from accounts receivable, accounts payable and accrued liabilities. Cash flows provided by operating activities for the year 2001 decreased $36.5 million from the year 2000 due primarily to a $6.2 million payment to unwind an interest rate swap (see “Interest Expense, net”), $5.1 million of incremental personnel and exit costs associated with the Company’s sale of its perfusion product line to Jostra AG (see “Disposition of Assets and Other Non-Recurring Charges, net”), increased corporate costs associated with the Company’s operation as an independent company commencing April 1, 2000 and increased inventory levels. Uses of cash for investing activities during the year 2002 included $19.0 million spent to acquire the Japan business (see “Joint Venture in Japan”) and $12.7 million of investments in various unconsolidated affiliates, investments in patent technology related to the Company’s peripheral stent program and other patent-related investments. Uses of cash for investing activities during the year 2001 included $10.6 million of investments in various unconsolidated affiliates, an investment in peripheral stent patent technology and other patent-related investments. Cash flows provided by investing activities included $45.0 million received from the sale of the Company’s stock of ELCR and $9.7 million of installment payments received against a note receivable from Jostra AG (see “Disposition of Assets and Other Non- Recurring Charges, net”). The application of accounting policies requires the use of judgment and estimates. As it relates to the Company, estimates The Company’s results of operations and financial position are determined based upon the application of the Company’s accounting policies, as discussed in the notes to the consolidated financial statements. Certain of the Company’s accounting policies represent a selection among acceptable alternatives under Generally Accepted Accounting Principles in the United States (“GAAP”). In evaluating the Company’s transactions, management assesses all relevant GAAP and chooses the accounting policy that most accurately reflects the nature of the transactions. Management has not determined how reported amounts would differ based on the application of different accounting policies. Management has also not determined the likelihood that materially different amounts could be reported under different conditions or using different assumptions. Capital expenditures decreased $8.5 million to  $37.5 million in 2001, from $46.0 million in 2000. The reduc- tion in 2001 resulted primarily from the completion during 2000 of the expansion and renovation of the Company’s corporate headquarters and the sale of the perfusion  product line and the perfusion services business. Capital expenditures increased $3.2 million to $40.7 million in 2002 from $37.5 million in 2001. Capital expenditures during 2002 related primarily to support for manufacturing facilities, information systems and monitoring equipment placed at customers. The increase in 2002 resulted primarily from capital investments in information systems in the Company’s Japanese business acquired on October 1, 2002. In 2003, the Company expects capital expenditures to be less than $45 million. Critical Accounting Policies and Estimates S42 Edwards Lifesciences Corporation Payments Due By Period Less Than 1-3 4-5 After 5 Contractual Obligations (in millions) Total 1 Year Years Years Years Long-term debt $ 245.5 $ — $ 245.5 $ — $ — Operating leases 18.5 5.8 8.7 4.0 — Unconditional purchase obligations 23.2 5.8 11.6 5.8 — Contractual development obligations (a) 58.0 13.7 2.3 4.0 38.0 Total contractual cash obligations $ 345.2 $ 25.3 $ 268.1 $ 13.8 $ 38.0