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Prior to the Distribution, Baxter provided to the Edwards Lifesciences Business certain legal, treasury, employee benefit, insurance and administrative services. Charges for these services were based on actual costs incurred by Baxter. The amounts charged to Edwards Lifesciences varied depending on the nature of the service, but generally were determined using headcount, sales, payroll, square footage or other appropriate data, or were determined on actual utilization of services. 

Management believes that the allocation of service charges is reasonable. However, the terms of these transactions may differ from those that would result from transactions with unrelated third parties or had Edwards Lifesciences performed these functions on its own. 

Prior to the Distribution, Edwards Lifesciences partici- pated in a centralized cash management program administered by Baxter. Short-term advances from Baxter or excess cash sent to Baxter were treated as an adjustment to the Investment by Baxter International Inc., net account as of and through March 31 , 2000 . No interest was allocated to Edwards Lifesciences on this balance. 

Effective on the Distribution, Baxter and Edwards Lifesciences entered into a series of administrative services agreements pursuant to which Baxter and Edwards Lifesciences continue to provide certain administrative services (primarily information systems support, payroll, accounting and ware- housing and logistics support) that each entity historically has provided to the other. These agreements require the parties to pay each other a fee that approximates the actual costs of these services and these agreements generally expire by December 31 , 2002 . Additionally, subsequent to March 31 , 2000 , Edwards Lifesciences has continuing relationships with Baxter as a customer and supplier for certain products, and uses Baxter as a distributor of the Company’s products in certain regions of the world. 

## note 10. 

## RELATED PARTY TRANSACTIONS 

The following table summarizes the charges from Baxter for the above-mentioned services prior to the Distribution, as recorded in Edwards Lifesciences’ Consolidated Statements of Operations: 

<img src='content_image/60502.jpg'>

Sales to Baxter, acting in the capacity of the Company’s distributor subsequent to the Distribution, represented 11 % and 12 % of the Company’s total net sales for 2001 and 2000 , respectively. 

In December 2001 , the Company’s chief executive officer received a $ 2.5 million loan pursuant to his employment agreement with the Company as approved by the Board of Directors. The loan was used for the purchase of his primary residence in connection with his relocation and is secured with a first deed of trust on that residence. The loan is non-interest bearing and is due in December 2006 . The loan may become payable sooner upon the occurrence of certain events such as his resignation or termination of employment, except that a termination after a change in control would not accelerate the repayment obligation. 

<img src='content_image/60503.jpg'>

## note 11. 

Edwards Lifesciences’ operations prior to the Distribution were included in the consolidated income tax returns of Baxter. 

The income tax information for periods prior to the Distribution was calculated as if Edwards Lifesciences were a stand-alone affiliated group for those periods. 

The Company’s income (loss) before provision for income taxes was generated from United States and international operations as follows: 

<img src='content_image/60513.jpg'>

The provision for income taxes consists of the following: 

<img src='content_image/60514.jpg'>

## note 12. 

## INCOME TAXES 

The components of deferred tax assets and liabilities are as follows: 

<img src='content_image/60515.jpg'>

Deferred income taxes have not been provided on the undistributed earnings of the Company’s foreign subsidiaries of approximately $ 45 million as of December 31 , 2001 since these amounts are intended to be permanently reinvested in foreign operations. It is not practicable to calculate the deferred taxes associated with these earnings; however, foreign tax credits would likely be available to reduce federal income taxes in the event of distribution. 

