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long-lived assets. The Company reviews the carrying value of intangible and other long-lived assets whenever events and circumstances indicate that the carrying amounts of the assets may not be recoverable. If it is determined that the assets are impaired, the carrying value would be reduced to estimated fair market value. During the ninethree months ended September 30, 2011,March 31, 2012, the Company had no impairments related to assets subject to measurement at fair value on a non-recurring basis. In March 2011, the Company acquired Embrella.Embrella Cardiovascular, Inc. This transaction resulted in an increase to "Goodwill" and "Other Intangible Assets, net" of $34.6 million and $12.1 million, respectively. See Note 4 for additional information. During the nine months ended September 30, 2010, the Company recorded a $7.6 million impairment of intangible assets related to the Company'sMONARC transcatheter mitral valve program, which was discontinued due to slow enrollment in the EVOLUTION II trial (see Note 2).

9.6.     DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

        The Company uses derivative financial instruments to manage its currency exchange rate risk as summarized below. Notional amounts are stated in United States dollar equivalents at spot exchange rates at the respective dates.

        The Company uses foreign currency forward exchange contracts and foreign currency option contracts to offset the changes due to currency rate movements in the amount of future cash flows associated with intercompany transactions and certain third-party expenses expected to occur within the next thirteen months. These foreign currency forward exchange contracts and foreign currency option contracts are designated as cash flow hedges. Certain of the Company's locations have assets and liabilities denominated in currencies other than their functional currencies resulting from intercompany and third-party transactions. The Company uses foreign currency forward exchange contracts that are not designated as hedging instruments to offset the transaction gains and losses associated with certain of these assets and liabilities. All foreign currency forward exchange contracts and foreign currency option contracts are denominated in currencies of major industrial countries, principally the Euro and the Japanese yen. It is the Company's policy not to enter into derivative financial instruments for speculative purposes.

        All derivative financial instruments are recognized at fair value in the consolidated condensed balance sheets. The Company reports in "Other Comprehensive Income" ("OCI") the effective portion of the gain or loss on derivative financial instruments that are designated and that qualify as cash flow hedges. The Company reclassifies these gains and losses into earnings in the same period in which the underlying hedged transactions affect earnings. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. For the three months ended March 31, 2012 and 2011, the Company did not record any gains or losses due to hedge ineffectiveness. The gains and losses on derivative financial instruments for which the Company does not elect hedge accounting treatment are recognized in the consolidated condensed statements of operations in each period, based upon the change in the fair value of the derivative financial instrument. Cash flows from derivative financial instruments are reported as operating activities in the consolidated condensed statements of cash flows.

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        Derivative financial instruments involve credit risk in the event the counterparty should default. It is the Company's policy to execute such instruments with global financial institutions that the Company believes to be creditworthy. The Company diversifies its derivative financial instruments among counterparties to minimize exposure to any one of these entities. The Company also uses International Swap Dealers Association master-netting agreements. Under the master-netting agreements, the

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Company's counterparty settlement risk is the net amount of any receipts or payments due between the Company and the counterparty financial institution.

        The following table presents the location and fair value amounts of derivative instruments reported in the consolidated condensed balance sheets (in millions):

        The following tables present the effect of derivative instruments on the consolidated condensed statements of operations and consolidated condensed statements of comprehensive income (in millions):

        The Company expects that during the next twelve months it will reclassify to earnings a $7.5$0.3 million lossgain currently recorded in "Accumulated Other Comprehensive Loss." For the nine months

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ended September 30, 2011 and 2010, the Company did not record any gains or losses due to hedge ineffectiveness.

10.7.     DEFINED BENEFIT PLANS

        The components of net periodic benefit costs for the three and nine months ended September 30,March 31, 2012 and 2011 and 2010 were as follows (in millions):

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8.     STOCK-BASED COMPENSATION

        Stock-based compensation expense related to awards issued under the Company's incentive compensation plans for the three and nine months ended September 30,March 31, 2012 and 2011 and 2010 was as follows (in millions):

        At September 30, 2011,March 31, 2012, the total remaining compensation cost related to nonvested stock options, restricted stock units and employee stock purchase subscription awards amounted to $61.7$52.3 million, which will be amortized on a straight-line basis over the weighted-average remaining requisite service period of 3128 months.

        During the nine months ended September 30, 2011, the Company granted 1.1 million stock options at a weighted-average exercise price of $88.80 and 0.2 million shares of restricted stock units at a weighted-average grant-date fair value of $87.83.

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Fair Value Disclosures

        The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the following periods:

Option Awards

        The Black-Scholes option pricing model was used with the following weighted-average assumptions for employee stock purchase plan ("ESPP") subscriptions granted during the following periods:

ESPP

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9.     ACCELERATED SHARE REPURCHASE

        In February 2012, the Company entered into an accelerated share repurchase ("ASR") agreement with an investment bank to repurchase $54.0 million of the Company's common stock. The ASR agreement provides for the repurchase of the Company's common stock based on the volume-weighted average price ("VWAP") of the Company's common stock during the term of the agreement, less a discount, and is subject to collar provisions that establish minimum and maximum number of shares to be repurchased. In March 2012, the Company paid the $54.0 million purchase price and received an initial delivery of 0.6 million shares, representing the minimum number of shares to be repurchased under the agreement. The initial shares were valued at $72.40 per share based on the VWAP of the Company's common stock on March 1, 2012, which was the date the major terms of the ASR agreement were finalized, and represented approximately 80 percent of the shares expected to be repurchased. At the conclusion of the ASR agreement, the Company may receive additional shares, up to a maximum of 1.0 million shares. If the agreement had been settled on March 31, 2012, the investment bank would have been required to deliver 0.2 million additional shares to the Company based on an average VWAP, less the discount, of $69.45 per share for the period March 1 to March 31, 2012. The ASR agreement has a termination date of May 31, 2012, although the termination date may be accelerated at the investment bank's option.

        The ASR was accounted for as two separate transactions: (a) the $43.2 million value of the initial delivery of shares was recorded as shares of common stock acquired in a treasury stock transaction on the acquisition date and (b) the remaining $10.8 million of the purchase price paid was recorded as a forward contract indexed to the Company's own common stock and was recorded in "Additional Paid-in Capital" on the consolidated condensed balance sheet. The initial delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. The Company determined that the forward contract indexed to the Company's common stock met all the applicable criteria for equity classification and, therefore, was not accounted for as a derivative instrument.

10.   COMMITMENTS AND CONTINGENCIES

        In February 2008, Edwards Lifesciences filed a lawsuit against CoreValve, Inc. ("CoreValve") in the United StatesU.S. District Court for the District of Delaware alleging that its ReValving System infringes three of the Company'sEdwards' U.S. Andersen patents, later narrowed to one patent ("the '552 patent"). CoreValve was acquired by Medtronic, Inc. ("Medtronic") acquired CoreValve, Inc. ("Medtronic CoreValve") in April 2009. In April 2010, a federal jury found thatthe '552 patent to be valid and found that Medtronic CoreValve willfully infringes it. The jury also awarded Edwards $73.9 million in damages. In February 2011, the District Court reaffirmed the jury decision and ruled that Edwards is entitled to recover additional damages due to Medtronic CoreValve's continued infringing sales from the trial through the life of the patent, plus interest. In the same ruling, the court denied Edwards' motions for a permanent injunction, as well as its motion for increased damages relating to Medtronic CoreValve's willful infringement. Both Edwards and Medtronic CoreValve have appealed. The U.S. Court of Appeals for the Federal Circuit heard the appeals in January 2012 and the parties are awaiting its decision. A second lawsuit is pending in the same trial court against Medtronic CoreValve and Medtronic alleging infringement of three of Edwards' U.S. Andersen patents. In September 2010, the United States Patent and Trademark Office ("USPTO") granted Medtronic's third request to reexamine the validity of the claim of the '552 patent and in July 2011 confirmed the validity of that patent. Medtronic has since filed another request for reexamination of the '552 patent.

        In June 2011, Medtronic filed a lawsuit in the United StatesU.S. District Court for the District of Minnesota alleging that certain surgical valve holders and a surgical embolic filter device infringe its patents. Edwards counterclaimed against Medtronic, alleging that the Medtronic Contour 3D annuloplasty ring infringes an Edwards ring patent. By the Order of a Magistrate Judge in January 2012, the lawsuit was

In the California action, Edwards has counterclaimed against Medtronic CoreValve and Medtronic, alleging that the Medtronic CoreValve heart valve infringes Edwards' U.S. Letac-Cribier transcatheter heart valve patent. Edwards' counterclaim was subsequently transferred to the U.S. District Court for the District of Delaware. In April 2012, the USPTO granted Edwards' request to reexamine the validity of the Medtronic CoreValve patent.

        In March 2012, Medtronic filed another lawsuit in the U.S. District Court for the Central District of California alleging that the methods of implanting theEdwards SAPIEN transcatheter heart valve in the United States infringes two Medtronic patents relating to methods of pacing the heart. The Company plans to vigorously defend against this claim.

        In March and September 2010, the Company received grand jury subpoenas for documents from the United States Attorney's Office in the Central District of California in connection with an investigation by the Food and Drug Administration. The subpoenas to the Company seek records relating to the Vigilance I Monitor model with software release 5.3 that was the subject of a voluntary field recall by the Company in June 2006. The Company is cooperating fully with the investigation.

        In addition, Edwards Lifesciences is or may be a party to, or may otherwise be responsible for, pending or threatened lawsuits related primarily to products and services currently or formerly manufactured or performed, as applicable, by Edwards Lifesciences. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Upon resolution of any such legal matter or other claim, Edwards Lifesciences may incur charges in excess of established reserves. The Company is not able to estimate the amount or range of any loss for legal contingencies for which there is no reserve or additional loss for matters already reserved. While any such charge could have a material adverse impact on Edwards Lifesciences' net income or cash flows in the period in which it is recorded or paid, management does not believe that any such charge relating to any currently pending lawsuit would have a material adverse effect on Edwards Lifesciences' financial position, results of operations or liquidity.

        Edwards Lifesciences is subject to various environmental laws and regulations both within and outside of the United States. The operations of Edwards Lifesciences, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of continuing compliance with environmental protection laws, management believes that such compliance will not have a material impact on Edwards Lifesciences' financial position, results of operations or liquidity.

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11.   OTHER COMPREHENSIVE INCOME

        ReconciliationThe tax effect on the components of net income toother comprehensive income is as follows (in millions):

        The tax effect on the unrealized net loss on investments in unconsolidated affiliates was $0.8 million and $1.0 million for the three and nine months ended September 30, 2011, respectively, and $0.1 million for both the three and nine months ended September 30, 2010. The tax effect on the unrealized net gain (loss) on cash flow hedges was $(11.4) million and $(4.7) million for the three and nine months ended September 30, 2011, respectively, and $11.4 million and $2.4 million for the three and nine months ended September 30, 2010, respectively.

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14.12.   EARNINGS PER SHARE

        Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding during a period. Employee equity share options, nonvested shares and similar equity instruments granted by the Company are treated as potential common shares in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of restricted stock units and in-the-money options. The dilutive impact of the restricted stock units and in-the-money options is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation expense for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in "Additional Paid-InPaid-in Capital" when the award becomes deductible are assumed to be used to repurchase shares. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive.

        The table below presents the computation of basic and diluted earnings per share (in millions, except for per share information):

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        Stock options and restricted stock units to purchase 1.31.2 million and 1.70.2 million shares for the three months ended September 30,March 31, 2012 and 2011, and 2010, respectively, and 0.9 million and 1.2 million for the nine months ended September 30, 2011 and 2010, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. Additionally, 0.2 million shares that would have been received if the ASR agreement discussed in Note 9 were settled as of March 31, 2012 were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

15.13.   INCOME TAXES

        The Company's effective income tax rates were 10.4%23.9% and 19.3%24.5% for the three and nine months ended September 30,March 31, 2012 and 2011, respectively, and 27.5% and 22.7% for the three and nine months ended September 30, 2010, respectively. The effective income tax ratesrate for the three and nine months ended September 30, 2011March 31, 2012 included a $6.9$2.3 million and $9.4 millionbenefit from the remeasurement of uncertain tax benefit, respectively, related to rulings made by the tax authorities in Switzerland.positions.

        The effective income tax rates for the three and nine months ended September 30, 2010 were calculated without the benefit of the federal research credit expired on December 31, 2011 and has not been reinstated as it was not reinstated until December 2010. In addition, theof March 31, 2012. The effective income tax rate for the ninethree months ended September 30, 2010 included a $9.8 millionMarch 31, 2012 has been calculated without an assumed benefit for the federal research credit. In 2011, the federal research credit favorably impacted the effective tax benefit resulting from a partial settlement of a prior year tax audit.rate by approximately 2.4%.

        The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for matters it

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believes are more likely than not to require settlement, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated condensed financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues and issuance of new legislation, regulations or case law.

        As of September 30, 2011March 31, 2012 and December 31, 2010,2011, the liability for income taxes associated with uncertain tax positions was $72.2$84.2 million and $55.1$78.0 million, respectively. TheseThe Company estimates that these liabilities couldwould be reduced by $8.0$8.6 million and $4.7$6.8 million, respectively, from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes and timing adjustments. The net amounts of $64.2$75.6 million and $50.4$71.2 million, respectively, if not required, would favorably affect the Company's effective tax rate.

        All material state, local and foreign income tax matters have been concluded for years through 2005.2006. The Internal Revenue Service ("IRS") has completed its examination of the 2007 and 2008 tax years for all matters except for certain transfer pricing issues. The Company has entered the appeals process for those transfer pricing issues.issues is on-going, but is expected to be finalized within the next twelve months. The Company hadIRS began its opening conference with the IRS related to the examination of itsthe 2009 and 2010 tax years during the second quarter of 2011.

16.14.   SEGMENT INFORMATION

        Edwards Lifesciences conducts operations worldwide and is managed in the following geographical regions: United States, Europe, Japan and Rest of World. All regions sell products that are used to treat advanced cardiovascular disease. Net sales by geographic area are based on the location of the customer.

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        The table below presents information about Edwards Lifesciences' reportable segments (in millions):