edX - TXT1x Data
-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7C3UZ3SlmtZKsYkhmCw/OszDGe3brPMg/B7U62fgbxSDgjCcJpN6l3oDITTruP+ZL8nXi8Fux0gkhr9AXiGnpJfA==910<SEC-DOCUMENT>0000897101-04-000533.txt : 2004031511<SEC-HEADER>0000897101-04-000533.hdr.sgml : 2004031512<ACCEPTANCE-DATETIME>2004031517150413ACCESSION NUMBER: 0000897101-04-00053314CONFORMED SUBMISSION TYPE: 10-K15PUBLIC DOCUMENT COUNT: 1116CONFORMED PERIOD OF REPORT: 2003123117FILED AS OF DATE: 200403151819FILER:2021COMPANY DATA:22COMPANY CONFORMED NAME: ST JUDE MEDICAL INC23CENTRAL INDEX KEY: 000020307724STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]25IRS NUMBER: 41127689126STATE OF INCORPORATION: MN27FISCAL YEAR END: 12312829FILING VALUES:30FORM TYPE: 10-K31SEC ACT: 1934 Act32SEC FILE NUMBER: 001-1244133FILM NUMBER: 046704363435BUSINESS ADDRESS:36STREET 1: ONE LILLEHEI PLAZA37CITY: ST PAUL38STATE: MN39ZIP: 5511740BUSINESS PHONE: 65148320004142MAIL ADDRESS:43STREET 1: ONE LILLEHEI PLAZA44CITY: ST PAUL45STATE: MN46ZIP: 5511747</SEC-HEADER>48<DOCUMENT>49<TYPE>10-K50<SEQUENCE>151<FILENAME>stjude041330_10k.htm52<TEXT>53<HTML><HEAD><TITLE>St. Jude Medical, Inc. Form 10-K 12/31/2003</TITLE></HEAD>54<BODY>5556<!-- MARKER FORMAT-SHEET="Page Rule Double" FSL="Default" -->57<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE color=black>58<!-- MARKER FORMAT-SHEET="Page Rule Single" FSL="Default" -->59<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE color=black style=margin-top:-8pt;>60616263<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->64<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>UNITED STATES65SECURITIES AND EXCHANGE COMMISSION<BR>66WASHINGTON, D. C. 20549 </FONT></H1>6768<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->69<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>FORM 10-K </FONT></H1>7071<div align=center>72<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->73<TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>74<TR VALIGN=TOP>75<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>__X__</B> </FONT> </TD>76<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>77<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2">A<B>NNUAL78REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES <BR>EXCHANGE ACT OF 193479FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR</B> </FONT> </TD>80</TR>81</TABLE>82<BR>8384<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->85<TABLE WIDTH=600 CELLPADDING=0 CELLSPACING=0>86<TR VALIGN=TOP>87<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>____</B> </FONT> </TD>88<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>89<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TRANSITION90REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES <BR>EXCHANGE ACT OF 193491FOR THE TRANSITION PERIOD FROM <BR>__________ TO __________.</B> </FONT> </TD>92</TR>93</TABLE>94<BR>95</div>96<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->97<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File No.980-8672 <BR>______________________________ </FONT></H1>99100<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->101<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="4">ST. JUDE MEDICAL, INC.<BR> </FONT>102<FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Exact name of Registrant as specified in its charter) </FONT> </p>103104<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 align=center>105<TR VALIGN=Bottom>106<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Minnesota</B> </FONT></TD>107<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>108<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>109<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>41-1276891</B> </FONT></TD>110<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>111<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>112<TR VALIGN=top>113<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(State or other jurisdiction of <BR>incorporation or organization)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>114<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(I.R.S. Employer Identification No.)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>115</TABLE><BR>116117<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->118<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>One Lillehei119Plaza <BR>St. Paul, Minnesota 55117 </B><BR>(Address of principal executive offices) </FONT>120</P>121122<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->123<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(651) 483-2000</B><BR>124(Registrant's telephone number, including area code)<BR>125______________________________ </FONT> </P>126127<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->128<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SECURITIES REGISTERED129PURSUANT TO SECTION 12(b) OF THE ACT: </FONT></H1>130131<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 align=center>132<TR VALIGN=Bottom>133<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (Title of class)</FONT></TD>134<TD WIDTH="1%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>135<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>136<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Name of exchange on which registered)</FONT></TD>137<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>138<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>139<tr><td> </td></tr>140<TR VALIGN=Bottom>141<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Common Stock ($.10 par value)</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>142<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New York Stock Exchange</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>143<TR VALIGN=Bottom>144<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> Preferred Stock Purchase Rights</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>145<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New York Stock Exchange</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>146</TABLE>147148<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->149<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SECURITIES REGISTERED150PURSUANT TO SECTION 12(g) OF THE ACT: </B>NONE<BR>151______________________________ </FONT> </P>152153<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->154<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the155Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of156the Securities Exchange Act of 1934 during the preceding 12 months; and (2) has157been subject to such filing requirements for the past 90 days. Yes158__X__ No _____ </FONT></P>159160<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->161<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark if disclosure162of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,163and will not be contained, to the best of the Registrant's knowledge, in definitive164proxy or information statements incorporated by reference in Part III of this Form 10-K165or any amendment to this Form 10-K. [ ] </FONT></P>166167<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->168<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the169Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).170Yes __X__ No _____ </FONT></P>171172<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->173<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The aggregate market value of the174voting stock held by non-affiliates of the Registrant was approximately $10.6 billion175at June 27, 2003 (the last trading day of the Registrant's most recently176completed second fiscal quarter), when the closing sale price of such stock, as177reported on the New York Stock Exchange, was $58.57 per share. </FONT></P>178179<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->180<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Registrant had 175,022,856181shares of its $0.10 par value Common Stock outstanding as of March 1, 2004. </FONT></P>182183<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->184<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DOCUMENTS INCORPORATED185BY REFERENCE </FONT></H1>186187<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->188<P style=margin-top:-12pt;><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portions of the Company's Annual189Report to Shareholders for the fiscal year ended December 31, 2003, are190incorporated by reference into Parts I and II. Portions of the Company's definitive191proxy statement dated March 30, 2004, are incorporated by reference into Part III. </FONT></P>192<!-- MARKER FORMAT-SHEET="Page Rule Single" FSL="Default" -->193<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE color=black>194<!-- MARKER FORMAT-SHEET="Page Rule Double" FSL="Default" -->195<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE color=black style=margin-top:-8pt;>196197<BR>198<HR SIZE=2 COLOR=GRAY NOSHADE>199200<!-- *************************************************************************** -->201<!-- MARKER PAGE="sheet: 0; page: 0" -->202203<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->204<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>TABLE OF CONTENTS </FONT></H1>205206207208<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="600" ALIGN=CENTER>209<TR>210<TH WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>ITEM</U> </FONT></TH>211<TH WIDTH="80%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>DESCRIPTION</U> </FONT></TH>212<TH WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>PAGE</U> </FONT></TH></TR>213<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>214<TR vAlign=bottom>215<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART I</FONT></TD>216</TR>217<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>218<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">219<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>1.</FONT></TD>220<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Business</FONT></TD>221<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>1 </FONT></TD></TR>222<TR vAlign=bottom>223<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>2.</FONT></TD>224<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Properties</FONT></TD>225<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>11 </FONT></TD></TR>226<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">227<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>3.</FONT></TD>228<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Legal Proceedings</FONT></TD>229<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>12 </FONT></TD></TR>230<TR vAlign=bottom>231<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>4.</FONT></TD>232<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Submission of Matters to a Vote of Security Holders</FONT></TD>233<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>16 </FONT></TD></TR>234<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">235<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>4A.</FONT></TD>236<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Executive Officers of the Registrant</FONT></TD>237<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>16 </FONT></TD></TR>238<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>239<TR vAlign=bottom>240<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART II</FONT></TD></TR>241<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>242<TR vAlign=bottom>243<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>5.<BR></FONT></TD>244<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Market for Registrant’s Common Equity and Related</FONT></TD></TR>245<TR vAlign=bottom>246<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2> </FONT></TD>247<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2> Stockholder Matters</FONT></TD>248<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>18 </FONT></TD></TR>249<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">250<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>6.</FONT></TD>251<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Selected Financial Data</FONT></TD>252<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>18 </FONT></TD></TR>253<TR vAlign=bottom>254<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>7.<BR><BR></FONT></TD>255<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Management’s Discussion and Analysis of Financial Condition and<BR> Results of Operations</FONT></TD>256<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>18 </FONT></TD></TR>257<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">258<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>7A.</FONT></TD>259<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Quantitative and Qualitative Disclosures About Market Risk</FONT></TD>260<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>19 </FONT></TD></TR>261<TR vAlign=bottom>262<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>8.</FONT></TD>263<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Financial Statements and Supplementary Data</FONT></TD>264<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>19 </FONT></TD></TR>265<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">266<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>9.<BR><BR></FONT></TD>267<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Changes in and Disagreements with Accountants on Accounting <BR> and Financial Disclosure</FONT></TD>268<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>19 </FONT></TD></TR>269<TR vAlign=bottom>270<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>9A.</FONT></TD>271<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Controls and Procedures</FONT></TD>272<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>19 </FONT></TD></TR>273<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>274<TR vAlign=bottom>275<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART III</FONT></TD></TR>276<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>277<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">278<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>10.</FONT></TD>279<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Directors and Executive Officers of the Registrant</FONT></TD>280<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></TD></TR>281<TR vAlign=bottom>282<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>11.</FONT></TD>283<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Executive Compensation</FONT></TD>284<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></TD></TR>285<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">286<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>12.<BR><BR></FONT></TD>287<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Security Ownership of Certain Beneficial Owners and Management <BR> and Related Stockholder Matters</FONT></TD>288<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></TD></TR>289<TR vAlign=bottom>290<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>13.</FONT></TD>291<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Certain Relationships and Related Transactions</FONT></TD>292<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></TD></TR>293<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">294<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>14.</FONT></TD>295<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Principal Accountant Fees and Services</FONT></TD>296<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></TD></TR>297<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>298<TR vAlign=bottom>299<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>300PART IV</FONT></TD></TR>301<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>302<TR vAlign=bottom>303<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>15.</FONT></TD>304<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Exhibits, Financial Statement Schedules and Reports on Form 8-K</FONT></TD>305<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>21 </FONT></TD></TR>306<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>307<TR VALIGN="BOTTOM" BGCOLOR="#C0C0C0">308<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2> </FONT></TD>309<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Signatures</FONT></TD>310<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></TD></TR>311</TABLE>312313314315<BR><BR><BR>316<HR SIZE=2 COLOR=GRAY NOSHADE>317318<!-- *************************************************************************** -->319<!-- MARKER PAGE="sheet: 0; page: 0" -->320321322323<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->324<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I </FONT></H1>325326<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->327<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1. BUSINESS </FONT></H1>328329<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->330<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General </FONT></H1>331332<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->333<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.Jude334Medical, Inc., together with its subsidiaries (collectively St. Jude, St. Jude335Medical or the Company) develops, manufactures and distributes cardiovascular336medical devices for the global cardiac rhythm management (CRM), cardiac surgery337(CS) and cardiology and vascular access (C/VA) therapy areas. The Company’s338principal products in each of these therapy areas are follows: </FONT></P>339340<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->341<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>CRM</I> </FONT> </P>342343<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->344<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>345<TR VALIGN=TOP>346<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>347<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>348<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>349<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>bradycardia350pacemaker systems (pacemakers), </FONT></TD>351</TR>352</TABLE>353354<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->355<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>356<TR VALIGN=TOP>357<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>358<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>359<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>360<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>tachycardia361implantable cardioverter defibrillator systems (ICDs), and </FONT></TD>362</TR>363</TABLE>364365<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->366<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>367<TR VALIGN=TOP>368<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>369<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>370<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>371<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>electrophysiology372(EP) catheters </FONT></TD>373</TR>374</TABLE>375<BR>376377<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->378<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>CS</I> </FONT> </P>379380<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->381<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>382<TR VALIGN=TOP>383<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>384<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>385<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>386<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>mechanical387and tissue heart valves, and </FONT></TD>388</TR>389</TABLE>390391<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->392<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>393<TR VALIGN=TOP>394<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>395<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>396<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>397<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>valve398repair products </FONT></TD>399</TR>400</TABLE>401<BR>402403<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->404<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>C/VA</I> </FONT> </P>405406<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->407<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>408<TR VALIGN=TOP>409<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>410<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>411<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>412<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>vascular413closure devices, </FONT></TD>414</TR>415</TABLE>416417<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->418<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>419<TR VALIGN=TOP>420<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>421<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>422<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>423<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>angiography424catheters, </FONT></TD>425</TR>426</TABLE>427428<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->429<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>430<TR VALIGN=TOP>431<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>432<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>433<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>434<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>guidewires,435and </FONT></TD>436</TR>437</TABLE>438439<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->440<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>441<TR VALIGN=TOP>442<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>443<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> o </FONT></TD>444<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>445<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>hemostasis446introducers </FONT></TD>447</TR>448</TABLE>449<BR>450451452<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->453<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The454Company markets and sells its products through both a direct sales force and independent455distributors. The principal geographic markets for the Company’s products are the456United States, Europe and Japan. St. Jude also sells its products in Canada, Latin457America, Australia, New Zealand and the Asia-Pacific region. </FONT></P>458459<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->460<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On461April 1, 2003, the Company completed its acquisition of Getz Bros. Co., Ltd. (Getz Japan),462a distributor of medical technology products in Japan and the Company’s largest463volume distributor in Japan. The Company paid 26.9 billion Japanese Yen in cash to acquire464100% of the outstanding common stock of Getz Japan. Net consideration paid was $219.2465million, which includes closing costs less $12.0 million of cash acquired. </FONT></P>466467<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->468<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On469April 1, 2003, the Company also acquired the net assets of Getz Bros. & Co. (Aust)470Pty. Limited and Medtel Pty. Limited related to the distribution of the Company’s471products in Australia for $6.2 million in cash, including closing costs. </FONT></P>472473<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->474<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In475May 2003, the Company made a $15 million minority investment in Epicor Medical, Inc.476(Epicor), a development stage company focused on developing products which use high477intensity focused ultrasound (HIFU) to ablate cardiac tissue. In conjunction with this478investment, the Company also agreed to acquire the remaining ownership of Epicor in 2004479for an additional $185 million in cash if Epicor receives approval from the U.S. Food and480Drug Administration (FDA) by June 30, 2004 to begin marketing its device to ablate cardiac481tissue and if Epicor achieves certain success criteria, as defined in the purchase482agreement, in connection with its European clinical study. In addition, the Company has an483option to purchase the remaining ownership of Epicor for $185 million even if FDA approval484is not received and the success criteria are not achieved. This option to purchase Epicor485expires on June 30, 2004. </FONT></P>486487<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->488<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1 </FONT></P>489490<BR><BR><BR>491<HR SIZE=2 COLOR=GRAY NOSHADE>492493<!-- *************************************************************************** -->494<!-- MARKER PAGE="sheet: 0; page: 0" -->495496497<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->498<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The499Company has two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery500(CRM/CS) segment and the Daig segment, which focus on the development and manufacture of501the Company’s products. The primary products produced by each segment are: CRM/CS502— pacemaker and ICD systems, mechanical and tissue heart valves and other cardiac503surgery products; Daig — electrophysiology catheters, vascular closure devices and504other cardiology and vascular access products. </FONT></P>505506<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->507<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The508Company’s reportable segments include end customer revenues from the sale of products509they each develop and manufacture. The costs included in each of the reportable510segments’ operating results include the direct costs of the products sold to end511customers and operating expenses managed by each of the segments. Certain costs of goods512sold and operating expenses managed by the Company’s selling and corporate functions513are not included in segment operating profit. Consequently, segment operating profit514presented below is not representative of the operating profit of the Company’s515products in these segments. </FONT></P>516517<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->518<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The519following table presents certain financial information about the Company’s reportable520segments (in thousands): </FONT></P>521522<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">523<TR>524<TD COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>525<TD COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>CRM/CS</I> </FONT></TD>526<TD COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Daig</I> </FONT></TD>527<TD COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Other</I> </FONT></TD>528<TD COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Total</I> </FONT></TD></TR>529<TR>530<TD COLSPAN=15><HR NOSHADE COLOR=Black SIZE=2></TD></TR>531<TR VALIGN=Bottom>532<TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2003</I> </FONT></TD>533<TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>534<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>535<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>536<TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>537<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>538<TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>539<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>540<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>541<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>542<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>543<TR VALIGN=Bottom>544<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>545<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,499,425</FONT></TD>546<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>547<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 366,433</FONT></TD>548<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>549<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 66,656</FONT></TD>550<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>551<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>552<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>553<TR VALIGN=Bottom>554<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Operating profit<SUP>(a)</SUP> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>555<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>873,904</FONT></TD>556<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>557<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>202,007</FONT></TD>558<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>559<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(619,966</FONT></TD>560<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>561<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>455,945</FONT></TD>562<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>563<TR VALIGN=Bottom>564<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>565<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>639,724</FONT></TD>566<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>567<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147,270</FONT></TD>568<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>569<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,769,100</FONT></TD>570<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>571<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,556,094</FONT></TD>572<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>573<TR>574<TD COLSPAN=15><HR NOSHADE COLOR=Black SIZE=1></TD></TR>575<TR VALIGN=Bottom>576<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2002</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>577<TR VALIGN=Bottom>578<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>579<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,305,750</FONT></TD>580<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>581<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 284,179</FONT></TD>582<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>583<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> –</FONT></TD>584<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>585<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>586<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>587<TR VALIGN=Bottom>588<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Operating profit<SUP>(a)</SUP> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>589<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>713,341</FONT></TD>590<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>591<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>149,592</FONT></TD>592<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>593<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(492,978</FONT></TD>594<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>595<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>369,955</FONT></TD>596<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>597<TR VALIGN=Bottom>598<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>599<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>723,414</FONT></TD>600<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>601<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>134,610</FONT></TD>602<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>603<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,093,355</FONT></TD>604<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>605<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,951,379</FONT></TD>606<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>607<TR>608<TD COLSPAN=15><HR NOSHADE COLOR=Black SIZE=1></TD></TR>609<TR VALIGN=Bottom>610<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2001<SUP>(b)</SUP></I> </FONT> </TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>611<TR VALIGN=Bottom>612<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>613<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,135,833</FONT></TD>614<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>615<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 211,523</FONT></TD>616<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>617<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> –</FONT></TD>618<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>619<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,347,356</FONT></TD>620<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>621<TR VALIGN=Bottom>622<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Operating profit<SUP>(a)</SUP> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>623<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>583,030</FONT></TD>624<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>625<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>105,947</FONT></TD>626<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>627<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(453,161</FONT></TD>628<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>629<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>235,816</FONT></TD>630<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>631<TR>632<TD COLSPAN=15><HR NOSHADE COLOR=Black SIZE=2></TD></TR>633</TABLE><BR>634635<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->636<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>637<TR VALIGN=TOP>638<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(a)</I> </FONT> </TD>639<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>640<TD WIDTH=95%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Other641operating profit includes certain costs of goods sold and operating expenses642managed by the Company's selling and corporate functions. In fiscal year6432001, other also includes special charges and purchased in-process research and644development charges.</I> </FONT></p> </TD>645</TR>646</TABLE>647<BR>648649<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->650<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>651<TR VALIGN=TOP>652<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(b)</I> </FONT> </TD>653<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>654<TD WIDTH="95%"><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>During6552001, the Company completed a reorganization of its global sales activities, which656resulted in changes to its internal management and financial reporting structure.657Due to this restructuring, information relating to 2001 total assets has not been658compiled as it is impracticable to do so.</I> </FONT> </p></TD>659</TR>660</TABLE>661<BR>662663664665<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->666<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2 </FONT></P>667668669<BR><BR><BR>670<HR SIZE=2 COLOR=GRAY NOSHADE>671672<!-- *************************************************************************** -->673<!-- MARKER PAGE="sheet: 0; page: 0" -->674675676<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->677<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net678sales by class of similar products were as follows (in thousands): </FONT></P>679680681<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>682<TR VALIGN=Bottom>683<TD WIDTH=44% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Net Sales</I> </FONT></TD>684<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>685<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>686<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD WIDTH=13% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2003</I> </FONT></TD>687<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>688<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD WIDTH=13% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2002</I> </FONT></TD>689<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>690<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD WIDTH=13% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2001</I> </FONT></TD>691<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD></TR>692<TR>693<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR>694<TR VALIGN=Bottom>695<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cardiac rhythm management</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>696<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,365,212</FONT></TD>697<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>698<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,147,489</FONT></TD>699<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>700<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 965,968</FONT></TD>701<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>702<TR VALIGN=Bottom>703<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cardiac surgery</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>704<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>270,933</FONT></TD>705<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>706<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>250,957</FONT></TD>707<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>708<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>248,045</FONT></TD>709<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>710<TR VALIGN=Bottom>711<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Cardiology and vascular access</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>712<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>296,369</FONT></TD>713<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>714<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>191,483</FONT></TD>715<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>716<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>133,343</FONT></TD>717<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>718<TR>719<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>720<TR VALIGN=Bottom>721<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>722<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>723<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>724<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>725<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>726<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,347,356</FONT></TD>727<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>728<TR>729<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR></table><BR>730731<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->732<P STYLE=margin-left:30pt;><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following733tables present certain geographical information (in thousands): </FONT></P>734735<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>736737<TR VALIGN=Bottom>738<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Net Sales (a)</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>739<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2003</I> </FONT></TD>740<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>741<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2002</I> </FONT></TD>742<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>743<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2001</I> </FONT></TD>744<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD></TR>745<TR>746<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>747<TR VALIGN=Bottom>748<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>749<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,129,055</FONT></TD>750<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>751<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,042,766</FONT></TD>752<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>753<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 880,086</FONT></TD>754<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>755<TR VALIGN=Bottom>756<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>757<TR VALIGN=Bottom>758<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>759<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>465,369</FONT></TD>760<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>761<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>347,936</FONT></TD>762<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>763<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>294,852</FONT></TD>764<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>765<TR VALIGN=Bottom>766<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Japan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>767<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207,431</FONT></TD>768<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>769<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>95,813</FONT></TD>770<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>771<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>83,361</FONT></TD>772<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>773<TR VALIGN=Bottom>774<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Other<I><SUP>(b)</SUP></I> </FONT> </TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>775<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,659</FONT></TD>776<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>777<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>103,414</FONT></TD>778<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>779<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>89,057</FONT></TD>780<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>781<TR>782<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>783<TR VALIGN=Bottom>784<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>785<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>803,459</FONT></TD>786<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>787<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>547,163</FONT></TD>788<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>789<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>467,270</FONT></TD>790<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>791<TR>792<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>793<TR VALIGN=Bottom>794<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>795<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>796<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>797<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>798<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>799<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,347,356</FONT></TD>800<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>801<TR>802<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR></table><BR>803804805<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>806<TR VALIGN=Bottom>807<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Long-Lived Assets (c)</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>808<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2003</I> </FONT></TD>809<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>810<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2002</I> </FONT></TD>811<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>812<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2001</I> </FONT></TD>813<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD></TR>814<TR>815<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR>816<TR VALIGN=Bottom>817<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>818<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 744,445</FONT></TD>819<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>820<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 674,119</FONT></TD>821<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>822<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 626,140</FONT></TD>823<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>824<TR VALIGN=Bottom>825<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>826<TR VALIGN=Bottom>827<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>828<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96,520</FONT></TD>829<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>830<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,194</FONT></TD>831<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>832<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>76,542</FONT></TD>833<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>834<TR VALIGN=Bottom>835<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Japan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>836<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>152,772</FONT></TD>837<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>838<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>267</FONT></TD>839<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>840<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46</FONT></TD>841<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>842<TR VALIGN=Bottom>843<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>844<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,020</FONT></TD>845<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>846<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,213</FONT></TD>847<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>848<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61,215</FONT></TD>849<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>850<TR>851<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>852<TR VALIGN=Bottom>853<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>854<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>319,312</FONT></TD>855<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>856<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150,674</FONT></TD>857<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>858<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>137,803</FONT></TD>859<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>860<TR>861<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>862<TR VALIGN=Bottom>863<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>864<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,063,757</FONT></TD>865<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>866<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 824,793</FONT></TD>867<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>868<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 763,943</FONT></TD>869<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>870<TR>871<TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR>872</TABLE>873<BR>874875876<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->877<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>878<TR VALIGN=TOP>879<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(a)</I> </FONT> </TD>880<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>881<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Net882sales are attributed to geographies based on location of the customer.</I> </FONT> </TD>883</TR>884</TABLE>885886<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->887<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>888<TR VALIGN=TOP>889<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(b)</I> </FONT> </TD>890<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>891<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>No892one geographic market is greater than 2% of consolidated net sales.</I> </FONT> </TD>893</TR>894</TABLE>895896<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->897<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>898<TR VALIGN=TOP>899<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(c)</I> </FONT> </TD>900<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>901<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Long-lived902assets exclude deferred income taxes.</I> </FONT> </TD>903</TR>904</TABLE>905<BR>906907908<!-- MARKER FORMAT-SHEET="Para (List) Indent" FSL="Default" -->909<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St910Jude was incorporated in Minnesota in 1976. </FONT></P>911912<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->913<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Principal Products </FONT></H1>914915<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->916<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>Cardiac917Rhythm Management:</I> The Company’s pacemaker systems treat patients with hearts918that beat too slowly, a condition known as bradycardia. Typically implanted pectorally,919just below the collarbone, pacemakers monitor the heart’s rate and, when necessary,920deliver low-level electrical impulses that stimulate an appropriate heartbeat. The921pacemaker is connected to the heart by one or two leads that carry the electrical impulses922to the heart and information from the heart back to the pacemaker. An external programmer923enables the physician to retrieve diagnostic information from the pacemaker and reprogram924the pacemaker in accordance with the patient’s changing needs. Single-chamber925pacemakers stimulate only one chamber of the heart (atrium or ventricle), while926dual-chamber devices can sense and pace in both the upper and lower chambers. </FONT></P>927928<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->929<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.930Jude Medical’s current pacing products include the new Team ADx™ pacemakers,931a group comprised of the Identity® ADx, Integrity® ADx, and Verity™ ADx932families of devices. The Identity® DR and Identity® XL DR devices were933approved by the FDA in March 2003, with the rest of the Team </FONT></P>934935<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->936<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 </FONT></P>937938939<BR><BR><BR>940<HR SIZE=2 COLOR=GRAY NOSHADE>941942<!-- *************************************************************************** -->943<!-- MARKER PAGE="sheet: 0; page: 0" -->944945946947<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->948<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ADx™949devices receiving FDA approval in May 2003. The Team ADx devices received European CE950Marking in August 2003. The Identity® ADx family models maintain the therapeutic951advancements of previous St. Jude Medical pacemakers, including the AF Suppression™952algorithm and the Beat-by-Beat™ AutoCapture™ Pacing System. This family offers953new AT/AF arrhythmia diagnostics and dual-channel stored electrograms. The new954Integrity® ADx devices also offer dual-channel stored electrograms. These features are955designed to help physicians better manage pacemaker patients suffering from atrial956fibrillation (AF)—the world’s most common cardiac arrhythmia. </FONT></P>957958<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->959<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.960Jude961Medical also offers the Identity<SUP>®</SUP>and Identity<SUP>®</SUP>962µ (Micro) pacemakers with stored electrograms; and963Integrity<SUP>®</SUP>and Integrity<SUP>®</SUP> µ (Micro) pacemaker964models, which build on the Affinity<SUP>®</SUP>platform with its965<I>Beat-by-Beat</I>™ AutoCapture™ Pacing System. Other pacing products966include the Affinity<SUP>®</SUP>pacemakers; the Entity<SUP>®</SUP>family967of pacemakers, containing the Omnisense<SUP>®</SUP> activity-based sensor;968and the Tempo<SUP>®</SUP>pacemaker family, which uses fifth-generation969Minute Ventilation sensor technology. These pacemaker families contain many970advanced features and diagnostic capabilities to optimize cardiac therapy. All971are small and physiologic in shape to enhance patient comfort. The972Microny<SUP>®</SUP>II SR+ and Microny<SUP>®</SUP> K, the world’s973smallest pacemakers, are single-chamber pacemakers available in the United974States. Other single-chamber pacemakers, the Microny<SUP>®</SUP>SR+ and the975Regency<SUP>®</SUP>pacemaker families, are also available outside the United976States. </FONT></P>977978<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->979<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The980Identity<SUP>® </SUP>ADx, Integrity® ADx, Verity™ ADx,981Identity<SUP>®</SUP>, Integrity<SUP>®</SUP>, Affinity<SUP>®</SUP>,982Entity<SUP>®</SUP> and Regency<SUP>® </SUP>families of pacemakers, as well as the983Microny<SUP>® </SUP>SR+ pacemaker, all offer the unique <I>Beat-by-Beat</I>™984AutoCapture™ Pacing System. The AutoCapture™ Pacing System enables the pacemaker985to monitor every paced beat to verify that the heart has been stimulated (known as986capture), deliver a back-up pulse in the event of noncapture, continuously measure987threshold, and make adjustments in energy output to match changing patient needs. In988addition, the Identity<SUP>® </SUP>ADx, Integrity® ADx, Identity<SUP>®</SUP>989and Integrity<SUP>®</SUP> pacemakers include St. Jude Medical’s AF990Suppression™ Algorithm, a therapy designed to suppress atrial fibrillation. </FONT></P>991992<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->993<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Outside994the United States, St. Jude Medical also markets low voltage device-based ventricular995resynchronization systems designed for the treatment of HF and suppression of atrial996fibrillation.<I> </I>These device systems include the Frontier™ 3x2 stimulation997device, designed to enhance cardiac function by resynchronizing the contractions of the998heart’s two ventricles, the Aescula™ and Quicksite™ LV pacing leads, and999the Alliance™, Seal-Away™CS and Apeel™ Catheter Delivery Systems. </FONT></P>10001001<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1002<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1003Jude Medical’s current pacing leads include the Tendril® SDX (models10041688 and 1488), and Tendril® DX active-fixation lead families, and the1005IsoFlex™ S and Passive Plus DX passive-fixation lead families, all1006available worldwide. The Tendril® SDX model 1688T lead received European CE1007Marking and FDA approval in July 2003. The IsoFlex™ S lead received FDA1008approval in April 2003. All these lead families feature steroid elution, which1009helps suppress the body’s inflammatory response to a foreign object. The1010passive fixation Membrane® EX lead family is also currently available1011outside the United States. </FONT></P>10121013<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1014<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ICD1015systems treat patients with hearts that beat inappropriately fast, a condition known as1016tachycardia. ICDs monitor the heartbeat and deliver higher energy electrical impulses, or1017“shocks,” to terminate ventricular tachycardia (VT) and ventricular fibrillation1018(VF). In VT, the lower chambers of the heart contract at an abnormally rapid rate and1019typically deliver less blood to the body’s tissues and organs. VT can progress to VF,1020in which the heart beats so rapidly and erratically that it can no longer pump blood. Like1021pacemakers, ICDs are typically implanted pectorally, connected to the heart by leads, and1022programmed non-invasively. </FONT></P>10231024<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1025<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1026Company’s full ICD product offering includes the Epic™+ VR/DR and Epic™1027VR/DR ICDs, the Atlas®+ VR/DR and Atlas® VR/DR ICDs, Photon® µ (Micro)1028DR/VR ICD, Photon® DR ICD, and Contour® MD ICD. St. Jude Medical received FDA1029approval and European CE Marking of </FONT></P>10301031<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1032<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4 </FONT></P>103310341035<BR><BR><BR>1036<HR SIZE=2 COLOR=GRAY NOSHADE>10371038<!-- *************************************************************************** -->1039<!-- MARKER PAGE="sheet: 0; page: 0" -->1040104110421043<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1044<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the1045Epic™+ VR/DR ICDs in April 2003, and FDA approval and European CE Marking of the1046Atlas®+ VR/DR ICDs in October 2003. The Epic™ ICD family devices are very small1047ICDs that deliver 30 joules of energy. The Atlas® ICD family devices offer high energy1048and small size without compromising charge times, longevity or feature set flexibility.1049The Epic™+ DR ICD and the Atlas®+ DR ICD both contain St. Jude Medical’s AF1050Suppression™ algorithm, which is clinically proven to reduce AF burden. </FONT></P>10511052<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1053<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1054Company’s ICDs are used with the single- and dual-shock electrode Riata®1055defibrillation leads, dual-shock electrode SPL® leads, and single-shock electrode1056TVL® and TVL®-ADX (active fixation) transvenous leads. The Riata® single-shock1057electrode lead received European CE Marking in February 2003 and was FDA approved in March10582003. The Riata® leads are an advanced family of small-diameter, steroid-eluting,1059active or passive fixation defibrillation leads. </FONT></P>10601061<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1062<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1063December 2003, St. Jude Medical announced that it filed with the FDA the final module in1064support of its pre-market approval (PMA) application for the following products: the1065Epic™ HF ICD, the Atlas®+ HF ICD, the Aescula™ 1055K left-heart lead and the1066QuickSite™ 1056K left-heart lead. The Company currently anticipates FDA1067approval of these products during the second quarter of 2004. St. Jude received European1068CE Marking for the QuickSite™ left-ventricular lead in August 2003 and for its1069Atlas®+ HF ICD in October 2003. The Atlas®+ HF ICD offers 36 joules of delivered1070energy, and is designed to treat patients suffering from heart failure (HF) who are also1071at risk of dangerously fast heart rhythms. HF impairs the heart’s ability to pump1072blood efficiently, causing shortness of breath, fatigue, swelling and other debilitating1073symptoms. </FONT></P>10741075<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1076<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1077 The1078Company’s pacemakers and ICDs interact with an external device referred to as a1079programmer. A programmer has two general functions. First, a programmer is used at the1080time of pacemaker and ICD implants to establish the initial therapeutic settings of these1081devices as determined by the physician. A programmer is also used for follow-up patient1082visits, which usually occur every three to 12 months, to download stored diagnostic1083information from the implanted devices and to verify appropriate therapeutic settings. </FONT></P>10841085<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1086<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1087 Programmers are small and mobile, and are maintained predominantly by the1088Company's sales representatives at their homes and transported to the hospitals in their vehicles when1089either implants or follow-up visits are scheduled. In these cases, the Company's sales representatives are1090on site at the hospitals to assist the physicians and nurses or technicians in operating the1091programmers at the time of patient implants or follow-up visits. Programmers are alternatively stored1092at high-volume cardiac centers as a matter of convenience.</FONT></P>109310941095<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1096<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1097 Since1098the introduction of programmable pacemakers in about 1977, all pacemaker manufacturers,1099including the Company, have retained title to their programmers which are used by their1100field sales force or by physicians and nurses or technicians. Although the Company derives no direct revenue1101from the use of its programmers, new pacemakers and ICDs generally require the use of the1102Company’s programmer at the time of implant and follow-up. </FONT></P>11031104<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1105<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1106Jude’s Model 3510 universal pacemaker and ICD programmer is an easy-to-use1107programmer that supports the Company’s pacemakers and ICDs.1108The Model 3510 universal programmer allows1109the physician to utilize the diagnostic and therapeutic capabilities of the1110Company’s pacemakers and ICDs. </FONT></P>111111121113<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1114<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Electrophysiology1115is the study of the electrical activity of the heart, which controls the heart rhythm. EP1116catheters are placed into the human body percutaneously (through the skin) to aid in the1117diagnosis and treatment of cardiac arrhythmias (abnormal heart rhythms). Between two and1118five EP catheters are generally used in each electrophysiology procedure. St. Jude’s1119EP catheters are available in multiple configurations. </FONT></P>11201121<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1122<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 </FONT></P>11231124<BR><BR><BR>1125<HR SIZE=2 COLOR=GRAY NOSHADE>11261127<!-- *************************************************************************** -->1128<!-- MARKER PAGE="sheet: 0; page: 0" -->11291130113111321133<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1134<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1135Jude’s Supreme<SUP>™</SUP> and Response<SUP>™</SUP> fixed-curve1136catheter product lines consist of mapping catheters for the diagnosis of various1137cardiac arrhythmias, including a line of 4 French1138Supreme™<SUP></SUP>diagnostic catheters for standard mapping applications.1139St. Jude also offers Livewire<SUP>™</SUP> and Reflexion™ steerable1140catheters with deflectable tips that are used in a wide variety of diagnostic1141and therapeutic EP procedures, including AF procedures. Finally, St. Jude offers1142Livewire TC<SUP>™</SUP> ablation catheters used in therapeutic radio1143frequency (RF) ablation procedures. </FONT></P>11441145<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1146<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>Cardiac1147Surgery:</I> Heart valve replacement or repair may be necessary because the natural heart1148valve has deteriorated due to congenital defects or disease. Heart valves facilitate the1149one-way flow of blood in the heart and prevent significant backflow of blood into the1150heart and between the heart’s chambers. St. Jude offers both mechanical and tissue1151replacement heart valves and valve repair products. The St. Jude Medical<SUP>®</SUP>1152mechanical heart valve has been implanted in over 1.4 million patients worldwide. The SJM1153Regent™ mechanical heart valve was approved for sale in Europe in December 1999 and1154received FDA approval for U.S. market release in March 2002. In the United States, the1155Company markets the Toronto SPV<SUP>®</SUP> stentless tissue valve, which received FDA1156approval in 1997. Outside the United States, the Company markets the SJM Epic™1157stented tissue heart valve, the SJM Biocor™ stented tissue valve, the Toronto1158SPV<SUP>®</SUP> stentless tissue valve and the Toronto Root™ tissue valve. The1159Toronto Root™ tissue valve is a stentless aortic root bioprosthesis used when aortic1160root disease accompanies valve disease. The Toronto Root™ tissue valve is currently1161in U.S. and Canadian clinical studies. The SJM Epic™ and SJM Biocor™ stented1162tissue heart valves are also currently in U.S. clinical studies. St. Jude anticipates FDA1163approval of the SJM Biocor™ tissue valve by the end of 2004. </FONT></P>11641165<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1166<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1167Company also offers a line of heart valve repair products including the semi-rigid1168SJM<SUP><I>® </I></SUP><I></I>Séguin annuloplasty ring and the fully flexible1169SJM Tailor™ annuloplasty ring. Annuloplasty rings are prosthetic devices used to1170repair diseased or damaged mitral heart valves. </FONT></P>11711172<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1173<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1174addition to prosthetic heart valves, St. Jude markets the Symmetry™ Bypass System1175Aortic Connector (the Aortic Connector), a suture-free device to facilitate coronary1176artery bypass graft aortic anastomoses. St. Jude began marketing this product in Western1177Europe in 2000, in the United States during May 2001, and in Japan during February 2002. </FONT></P>11781179<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1180<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>Cardiology1181and Vascular Access:</I> The Company produces specialized disposable cardiovascular1182devices, including vascular closure devices, angiography catheters, bipolar temporary1183pacing catheters, percutaneous catheter introducers and diagnostic guidewires. </FONT></P>11841185<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1186<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1187Company’s vascular closure devices are used to close femoral artery puncture wounds1188following angioplasty, stenting and diagnostic procedures. St. Jude Medical’s newest1189vascular closure product, the Angio-Seal™ STS Plus, was launched globally in the1190third quarter of 2003. The Angio-Seal™ STS Plus model has incorporated improvements1191to the STS Platform device design to provide customers a device which provides optimal1192product performance, reliability and ease of use. The design changes include a newly1193designed arteriotomy locator that provides a smooth transition from locator to insertion1194sheath, newly positioned blood inlet holes that eliminate the insertion sheath tip from1195having to exit and re-enter the arteriotomy site and a new lock-in hub design. The design1196still incorporates many of the design features of the STS Platform, including the1197self-tightening suture, which eliminates the need for a post-placement spring, allowing1198for completion of the entire procedure in the catheterization lab. It also integrates the1199Secure-Cap™, which facilitates proper deployment through audible, tactile and visual1200confirmations during the closure process. </FONT></P>12011202<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1203<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Angiography1204catheters, such as St. Jude’s Spyglass™ angiography catheters, are used in1205coronary angiography procedures to obtain images of coronary arteries to identify1206structural cardiac diseases. St. Jude’s bipolar temporary pacing catheters are1207inserted percutaneously for temporary use (ranging from less than one hour to a maximum of1208one week) with external pacemakers to provide patient stabilization prior to implantation1209of a permanent pacemaker, following a heart attack, or during surgical procedures. </FONT></P>12101211<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1212<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6 </FONT></P>12131214<BR><BR><BR>1215<HR SIZE=2 COLOR=GRAY NOSHADE>12161217<!-- *************************************************************************** -->1218<!-- MARKER PAGE="sheet: 0; page: 0" -->12191220122112221223<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1224<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company produces and markets1225several designs of bipolar temporary pacing catheters, including its Pacel™ biopolar1226pacing catheters, which are available in both torque control and flow-directed models1227with a broad range of curve choices and electrode spacing options. </FONT></P>12281229<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1230<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Percutaneous1231catheter introducers are used to create passageways for cardiovascular catheters from1232outside the human body through the skin into a vein, artery or other location inside the1233body. St. Jude’s percutaneous catheter introducer products consist primarily of1234peel-away and non peel-away sheaths, sheaths with and without hemostasis valves, dilators,1235guidewires, repositioning sleeves and needles. These products are offered in a variety of1236sizes and packaging configurations. The Ultimum<SUP>TM </SUP>EV introducer, launched in1237the third quarter of 2003, is the latest introducer offered from St. Jude Medical. These1238introducers are intended for use during endovascular Abdominal Aortic Aneurysm (AAA)1239repair procedures in the deployment of stent-graft devices. Diagnostic guidewires, such as1240St. Jude’s GuideRight™ and HydroSteer™ guidewires, are used in conjunction1241with percutaneous catheter introducers to aid in the introduction of intravascular1242catheters. St. Jude’s diagnostic guidewires are available in multiple lengths and1243incorporate a surface finish for lasting lubricity. </FONT></P>12441245<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1246<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Suppliers </FONT></H1>12471248<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1249<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1250Jude purchases raw materials and other products from numerous suppliers. The1251Company’s manufacturing requirements comply with the rules and regulations1252of the FDA, which mandates extensive testing and validation of materials prior1253to use in the Company’s products. St. Jude maintains a one to three year1254supply for a small number of sole-sourced inventory items used in certain1255cardiac surgery products where it would be difficult to quickly establish1256additional or replacement vendors due to these requirements. St. Jude has been1257advised periodically by some suppliers that they may terminate sales of products1258to customers that manufacture implantable medical devices in an effort to reduce1259their potential product liability exposure. Some of these suppliers have1260modified their positions and have indicated a willingness to temporarily1261continue to provide product until an alternative vendor or product can be1262qualified, or to reconsider the supply relationship. While the Company believes1263that alternative sources of raw materials are available and that there is1264sufficient lead time in which to qualify other sources, any supply interruption1265could have a material adverse effect on the Company’s ability to1266manufacture its products. </FONT></P>12671268<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1269<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Competition </FONT></H1>12701271<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1272<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1273medical technology industry is highly competitive and is characterized by rapid product1274development and technological change. Within the medical technology industry, competitors1275range from small start-up companies to companies with significant resources. The1276Company’s customers consider many factors when choosing supplier partners, including1277product reliability, clinical outcomes, product availability, inventory consignment, price1278and product services provided by the manufacturer. St. Jude believes that it competes on1279the basis of all these factors. Market share can shift as a result of technological1280innovation, product recalls and product safety alerts and other business factors. As a1281result, the Company has a need to provide the highest quality products and services. St.1282Jude expects the competition to continue to increase with the use of tactics such as1283consigned inventory, bundled product sales and reduced pricing. </FONT></P>12841285<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1286<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St. Jude1287is one of the three principal manufacturers and suppliers in the global1288bradycardia pacemaker market, with strong bradycardia market share in all major1289developed geographies. The Company’s primary competitors in this market are1290Medtronic, Inc. and Guidant Corporation. St. Jude is also one of three principal1291manufacturers and suppliers in the highly competitive global ICD market. The1292Company’s other two competitors, Medtronic, Inc. and Guidant Corporation,1293account for more than 80% of the worldwide ICD sales. These two competitors are1294larger than St. Jude and have invested substantial amounts in ICD research and1295development. </FONT></P>12961297<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1298<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1299Jude is the world’s leading manufacturer and supplier in the mechanical1300heart valve market, which includes two other principal manufacturers and1301suppliers (Carbomedics (a Sorin Group company) </FONT></P>13021303<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1304<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7 </FONT></P>13051306<BR><BR><BR>1307<HR SIZE=2 COLOR=GRAY NOSHADE>13081309<!-- *************************************************************************** -->1310<!-- MARKER PAGE="sheet: 0; page: 0" -->13111312131313141315<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1316<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>and ATS1317Medical, Inc.) and several smaller manufacturers. The Company also competes against two principal1318tissue heart valve manufacturers (Edwards Lifesciences Corporation and Medtronic, Inc.)1319and many other smaller manufacturers. </FONT></P>13201321<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1322<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1323global cardiology and vascular access therapy area is growing and has numerous1324competitors. Over 70% of the Company’s sales in this area are from vascular closure1325devices. St. Jude currently holds the number one market position in the highly competitive1326vascular closure device market. Other vascular closure device competitors include Abbott1327Laboratories, Datascope Corp. and Vascular Solutions, Inc. We anticipate other large1328companies will enter this market in the coming years, which will likely increase1329competition. </FONT></P>13301331<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1332<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Marketing </FONT></H1>13331334<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1335<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1336Company’s products are sold in more than 120 countries throughout the world. No1337distributor organization or single customer accounted for more than 10% of 2003, 2002 or13382001 consolidated net sales. </FONT></P>13391340<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1341<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1342the United States, St. Jude sells directly to hospitals primarily through a direct sales1343force. In Europe, the Company has direct sales organizations selling in 15 countries. In1344Japan, the Company sells directly to hospitals through a direct sales force due to its1345acquisition of Getz Japan on April 1, 2003, and also continues to use longstanding1346independent distributor relationships. Throughout the rest of the world the Company uses a1347combination of independent distributors and direct sales forces. </FONT></P>13481349<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1350<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Group1351purchasing organizations (GPOs) and independent delivery networks (IDNs) in the United1352States continue to consolidate purchasing decisions for some of the Company’s1353hospital customers. The Company has contracts in place with many of these organizations.1354In some circumstances, the inability of the Company to obtain a contract with a GPO or IDN1355could adversely affect the Company’s efforts to sell its products to that1356organization’s hospitals. </FONT></P>13571358<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1359<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Payment1360terms worldwide are consistent with local country practices. In some developed markets and1361in many emerging markets, payment terms are typically longer than those in the United1362States. Orders are shipped as they are received and, therefore, no material backlog1363exists. </FONT></P>13641365<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1366<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Seasonality </FONT></H1>13671368<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1369<P style=margin-top:-12pt; ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1370Company’s quarterly net sales are influenced by many factors, including new product1371introductions, acquisitions, regulatory approvals, patient holiday schedules and other1372factors. Net sales in the third quarter are typically lower than the other quarters of the1373year as a result of patient tendencies to defer, if possible, cardiac procedures during1374the summer months and from the seasonality of the U.S. and European markets, where summer1375vacation schedules normally result in fewer surgical procedures. Independent distributors1376may also place large orders that can distort the net sales patterns. </FONT></P>13771378<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1379<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and Development </FONT></H1>13801381<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1382<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1383Company is focused on the development of new products and on improvements to existing1384products. Research and development expense reflects the cost of these activities, as well1385as the costs to obtain regulatory approvals of certain new products and processes and to1386maintain the highest quality standards with respect to existing products. The1387Company’s research and development expenses were $241.1 million (12.5% of net sales) in 2003,1388$200.3 million (12.6% of net sales) in 2002 and $164.1 million (12.2% of net sales) in 2001.1389Research and development expense for 2001 excludes $10 million of1390purchased in-process research and development charges relating to the acquisition of1391Vascular Science, Inc. in September 1999. </FONT></P>13921393<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1394<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Government Regulation </FONT></H1>13951396<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1397<P style=margin-top:-12pt; ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1398medical devices manufactured and marketed by the Company are subject to regulation1399by the FDA and foreign governmental authorities or their designated1400representatives. Under the U.S. Federal </FONT></P>1401140214031404<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1405<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8 </FONT></P>14061407<BR><BR><BR>1408<HR SIZE=2 COLOR=GRAY NOSHADE>14091410<!-- *************************************************************************** -->1411<!-- MARKER PAGE="sheet: 0; page: 0" -->1412141314141415<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1416<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Food, Drug1417and Cosmetic Act (FFDCA) and associated regulations, manufacturers of medical devices must1418comply with certain policies and procedures that regulate the composition, labeling,1419testing, manufacturing, packaging and distribution of medical devices. Medical devices are1420subject to different levels of government approval requirements. The most comprehensive1421level requires the completion of an FDA-approved clinical evaluation program and1422submission and approval of a PMA application before a device may be commercially marketed.1423The Company’s mechanical and tissue heart valves, ICDs, certain pacemakers and leads,1424and certain electrophysiology catheter applications are subject to this level of approval1425or as a supplement to a PMA. Other pacemakers and leads, annuloplasty ring products and1426other electrophysiology and cardiology products are currently marketed under the less1427rigorous 510(k) pre-market notification procedure of the FFDCA. </FONT></P>14281429<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1430<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1431addition, the FDA may require testing and surveillance programs to monitor the effects of1432approved products that have been commercialized, and it has the power to prevent or limit1433further marketing of a product based on the results of these post-marketing programs. The1434FDA also conducts inspections prior to approval of a PMA to determine compliance with the1435quality system regulations that cover manufacturing and design. At any time after approval1436of a PMA or granting of a 510(k), the FDA may conduct periodic inspections to determine1437compliance with both quality system regulations and/or current medical device reporting1438regulations. If the FDA were to conclude that St. Jude is not in compliance with1439applicable laws or regulations, it could institute proceedings to detain or seize1440products, issue a recall, impose operating restrictions, assess civil penalties and1441recommend criminal prosecution to the U.S. Department of Justice. Furthermore, the FDA1442could proceed to ban a device, or request recall, repair, replacement or refund of the1443cost of any device previously manufactured or distributed. </FONT></P>14441445<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1446<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1447FDA also regulates recordkeeping for medical devices and reviews hospital and1448manufacturers’ required reports of adverse experiences to identify potential problems1449with FDA- authorized devices. Regulatory actions may be taken by the FDA due to adverse1450experience reports. </FONT></P>14511452<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1453<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Diagnostic-related1454groups (DRG) reimbursement schedules regulate the amount the U.S. government, through the1455Centers for Medicare and Medicaid Services, will reimburse hospitals and doctors for the1456inpatient care of persons covered by Medicare. In response to rising Medicare and Medicaid1457costs, several legislative proposals are under consideration that would restrict future1458funding increases for these programs. Changes in current DRG reimbursement levels could1459have an adverse effect on the Company’s domestic pricing flexibility. </FONT></P>14601461<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1462<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Federal1463and state laws protect the confidentiality of certain patient health information,1464including patient records, and restrict the use and disclosure of such information. In1465particular, in December 2000, the U.S. Department of Health and Human Services published1466patient privacy rules under the Health Insurance Portability and Accountability Act of14671996 (HIPAA privacy rule). This regulation was finalized in October 2002. The HIPAA1468privacy rule governs the use and disclosure of protected health information by1469“covered entities,” which are health care providers that submit electronic1470claims, health plans and health care clearinghouses. Other than to the extent the Company1471self-insures part of its employee health benefits plans, the HIPAA privacy rule affects1472the Company only indirectly. The Company’s policy is to maintain patients’1473privacy and work with customers and business partners in their HIPAA compliance efforts. </FONT></P>14741475<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1476<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1477Jude’s international business is subject to medical device laws in1478individual countries outside the United States. These laws range from extensive1479device approval requirements in some countries for all or some of the1480Company’s products, to requests for data or certifications in other1481countries. Generally, international regulatory requirements are increasing. In1482the European Union, the regulatory systems have been consolidated, and approval1483to market in all European Union countries (represented by the CE Mark) can be1484obtained through one agency. In addition, initiatives to limit the growth of1485healthcare costs, including price regulation, are also underway in other1486countries in which we do business. Implementation </FONT></P>14871488<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1489<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 </FONT></P>14901491<BR><BR><BR>1492<HR SIZE=2 COLOR=GRAY NOSHADE>14931494<!-- *************************************************************************** -->1495<!-- MARKER PAGE="sheet: 0; page: 0" -->1496149714981499<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1500<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>of healthcare1501reforms in significant markets such as Japan, Germany and other countries may limit the1502price of, or the level at which reimbursement is provided for, our products. </FONT></P>15031504<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1505<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Some1506medical device regulatory agencies have begun considering whether to continue to permit1507the sale of medical devices that incorporate any bovine material because of concerns about1508Bovine Spongiform Encephalopathy (BSE), sometimes referred to as “mad cow1509disease.” It is believed that in some instances this disease has been transmitted to1510humans through the consumption of beef. There have been no reported cases of transmission1511of BSE through medical products. Some of the Company’s products (Angio-Seal™ and1512vascular grafts) use bovine collagen, which is derived from the bovine component1513scientifically rated as least likely to transmit the disease. Some of the Company’s1514tissue heart valves incorporate bovine pericardial material. The Company is cooperating1515with the regulatory agencies considering these issues. </FONT></P>15161517<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1518<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Patents and Licenses </FONT></H1>15191520<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1521<P style=margin-top:-12pt; ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1522Company’s policy is to protect its intellectual property rights related to its1523medical devices. Where appropriate, St. Jude applies for U.S. and foreign patents. In1524those instances where the Company has acquired technology from third parties, it has1525sought to obtain rights of ownership to the technology through the acquisition of1526underlying patents or licenses. </FONT></P>15271528<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1529<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> While1530the Company believes design, development, regulatory and marketing aspects of the medical1531device business represent the principal barriers to entry, it also recognizes that the1532Company’s patents and license rights may make it more difficult for competitors to1533market products similar to those produced by the Company. St. Jude can give no assurance1534that any of its patent rights, whether issued, subject to license, or in process, will not1535be circumvented or invalidated. Furthermore, there are numerous existing and pending1536patents on medical products and biomaterials. There can be no assurance that the1537Company’s existing or planned products do not or will not infringe such rights or1538that others will not claim such infringement. No assurance can be given that the Company1539will be able to prevent competitors from challenging the Company’s patents or1540entering markets currently served by the Company. </FONT></P>15411542<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1543<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Insurance </FONT></H1>15441545<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1546<P style=margin-top:-12pt;><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1547Company operates in an industry that is susceptible to significant product liability1548claims. These claims may be brought by individuals seeking relief for themselves or,1549increasingly, by groups seeking to represent a class. In addition, product liability1550claims may be asserted against the Company in the future, relative to events that are not1551known to management at the present time. As a result of the catastrophic events of1552September 11, 2001, enormous losses were sustained by property and casualty insurers which1553substantially reduced their capacity and/or willingness to provide future insurance1554coverage. Consequently, since 2001 the Company’s product liability insurance premiums1555have increased over 450% and the total coverage has been reduced. The Company’s1556current product liability policy (for the period April 1, 2003 through March 31, 2004)1557provides $200 million of insurance coverage, with a $50 million deductible per occurrence.1558In light of the significant self-insured retention, St. Jude’s product liability1559insurance coverage is designed to help protect the Company against a catastrophic claim. </FONT></P>15601561<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1562<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> California1563earthquake insurance is currently difficult to procure, extremely costly, and restrictive1564in terms of coverage. The Company’s earthquake and related business interruption1565insurance for its CRM operations located in Sylmar and Sunnyvale, California provides $251566million of insurance coverage, with a deductible equal to 5% of the total value of the1567facility and contents involved in the claim. Several factors preclude the Company from1568determining the effect an earthquake may have on its business. These factors include, but1569are not limited to, the severity and location of the earthquake, the extent of any damage1570to the Company’s manufacturing facilities, the impact of an earthquake on the1571Company’s California workforce and the infrastructure of the surrounding communities1572and the extent, if any, of damage to the Company’s inventory and work in process.1573While the Company’s exposure to significant losses from a California earthquake would1574be partially mitigated by its ability to manufacture some of its </FONT></P>15751576<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1577<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 </FONT></P>15781579<BR><BR><BR>1580<HR SIZE=2 COLOR=GRAY NOSHADE>15811582<!-- *************************************************************************** -->1583<!-- MARKER PAGE="sheet: 0; page: 0" -->1584158515861587<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1588<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CRM products1589at its Swedish manufacturing facility, the losses could have a material adverse effect on1590the Company for a period of time that cannot be predicted. The Company has expanded the1591manufacturing capabilities at its Swedish facility and has constructed a pacemaker1592component manufacturing facility in Arizona. In addition, the Company has moved1593significant finished goods inventory to locations outside California. These facilities and1594inventory transfers would further mitigate the adverse impact of a California earthquake. </FONT></P>15951596<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1597<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Employees </FONT></H1>15981599<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1600<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As1601of December 31, 2003, the Company had 7,391 full-time employees. St. Jude’s employees1602are not represented by any labor organizations, with the exception of the Company’s1603employees in Sweden and certain employees in France. St. Jude has never experienced a work1604stoppage as a result of labor disputes. The Company believes that its relationship with1605its employees is generally good. </FONT></P>16061607<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1608<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>International Operations </FONT></H1>16091610<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1611<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1612Company’s international business is subject to such special risks as currency1613exchange controls and fluctuations, the imposition or increase of import or export duties1614and surtaxes, and international credit, financial or political problems. Currency exchange1615rate fluctuations relative to the U.S. dollar can affect reported consolidated revenues1616and net earnings. The Company may hedge a portion of this exposure from time to time to1617reduce the effect of foreign currency rate fluctuations on net earnings. See the1618“Market Risk” section of “Management’s Discussion and Analysis of1619Financial Condition and Results of Operations,” incorporated herein by reference from1620the Financial Report included in the Company’s 2003 Annual Report to Shareholders.1621Operations outside the United States also present complex tax and cash management issues1622that necessitate sophisticated analysis and diligent monitoring to meet the Company’s1623financial objectives. </FONT></P>16241625<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1626<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Availability of SEC1627Reports </FONT></H1>16281629<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1630<P STYLE="margin-top:-12pt;" ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1631Company makes available free of charge its annual reports on Form 10-K, quarterly reports1632on Form 10-Q, current reports on Form 8-K and any amendments filed or furnished pursuant1633to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably1634practical after they are filed or furnished to the Securities and Exchange Commission.1635Such reports are available on the Company’s website (http://www.sjm.com) under the1636Investor Relations section or can be obtained by contacting the Company’s Investor1637Relations group at 1.800.552.7664 or at St. Jude Medical, Inc., One Lillehei Plaza, St.1638Paul, Minnesota 55117. Information included on the Company’s website is not deemed to1639be incorporated into this Annual Report on Form 10-K. </FONT></P>16401641<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1642<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2. PROPERTIES </FONT></H1>16431644<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1645<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> St.1646Jude’s principal executive offices are located in St. Paul, Minnesota.1647These facilities are owned by the Company. Manufacturing facilities are located1648in California, Minnesota, Arizona, South Carolina, Canada, Brazil, Puerto Rico1649and Sweden. The Company owns approximately 54%, or 338,000 square feet, of its1650total manufacturing space. The remaining manufacturing space is leased. </FONT></P>16511652<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1653<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1654Company also maintains sales and administrative offices in the United States at 181655locations in 10 states and outside the United States at 68 locations in 25 countries. With1656the exception of two locations, all of these locations are leased. </FONT></P>16571658<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1659<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1660management’s opinion, all buildings, machinery and equipment are in good condition,1661suitable for their purposes and are maintained on a basis consistent with sound1662operations. The Company believes that it has sufficient space for its current operations1663and for foreseeable expansion in the next few years. </FONT></P>1664<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1665<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11 </FONT></P>166616671668<BR><BR><BR>1669<HR SIZE=2 COLOR=GRAY NOSHADE>16701671<!-- *************************************************************************** -->1672<!-- MARKER PAGE="sheet: 0; page: 0" -->1673167416751676<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1677<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3. LEGAL PROCEEDINGS </FONT></H1>16781679<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1680<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Silzone®1681Litigation:</I></B><I></I> In July 1997, the Company began marketing mechanical heart1682valves which incorporated a Silzone® coating. The Company later began marketing heart1683valve repair products incorporating a Silzone® coating. The Silzone® coating was1684intended to reduce the risk of endocarditis, a bacterial infection affecting heart tissue,1685which is associated with replacement heart valves. </FONT></P>16861687<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1688<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1689January 2000, the Company voluntarily recalled all field inventories of Silzone®1690devices after receiving information from a clinical study that patients with a Silzone®1691valve had a small, but statistically significant, increased incidence of explant due to1692paravalvular leak compared to patients in that clinical study with non-Silzone® heart1693valves. </FONT></P>16941695<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1696<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Subsequent1697to the Company’s voluntary recall, the Company has been sued in the United States,1698Canada, and United Kingdom by some patients who received a Silzone® device. Some of1699these claims allege bodily injuries as a result of an explant or other complications,1700which they attribute to the Silzone® devices. Others, who have not had their device1701explanted, seek compensation for past and future costs of special monitoring they allege1702they need over and above the medical monitoring all replacement heart valve patients1703receive. Some of the lawsuits seeking the cost of monitoring have been initiated by1704patients who are asymptomatic and who have no apparent clinical injury to date.<I>1705</I>Some of these cases have been settled, some have been dismissed and others are1706on-going. Some of these cases, both in the United States and Canada, are seeking class1707action status. A summary of the number of Silzone® cases by jurisdiction as of January170826, 2004 follows: </FONT></P>17091710<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1711<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>U.S. Cases</U> </FONT> </P>17121713<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->1714<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1715<TR VALIGN=TOP>1716<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1717<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1718<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1719<TD WIDTH=94%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Multi-District1720Litigation (“MDL”) and federal district court in Minnesota: </FONT></p></TD>1721</TR>1722</TABLE>1723<BR>17241725<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->1726<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1727<TR VALIGN=TOP>1728<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1729<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1730<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1731<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1732<TD WIDTH=89%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Eight1733original class action complaints have been consolidated into one case seeking1734certification of two separate classes. The first complaint seeking class action status1735was served upon the Company on April 27, 2000 and all eight original complaints seeking1736class action status were consolidated into one case on October 22, 2001. One proposed1737class in the consolidated complaint seeks injunctive relief in the form of medical1738monitoring. A second class in the consolidated complaint seeks an unspecified amount of1739money damages. </FONT></p></TD>1740</TR>1741</TABLE>1742<BR>17431744<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->1745<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1746<TR VALIGN=TOP>1747<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1748<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1749<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1750<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1751<TD WIDTH=89%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>391752individual cases have been filed. The first individual complaint that was transferred to1753the MDL court was served upon the Company on November 28, 2000, and the most recent1754individual complaint that was transferred to the MDL court was served upon the Company on1755June 27, 2003. The complaints in these cases each request damages ranging from an1756unspecified amount to $120.5 million. </FONT></p></TD>1757</TR>1758</TABLE>1759<BR>17601761<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->1762<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1763<TR VALIGN=TOP>1764<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1765<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1766<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1767<TD WIDTH=94%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>251768individual state court suits involving 42 patients have been filed. Cases are venued in1769the following states: California, Florida, Illinois, Minnesota, Nevada, New York, South1770Carolina, Tennessee and Texas. The first individual state court complaint was served upon1771the Company on March 1, 2000 and the most recent individual state court complaint was1772served upon the Company on November 24, 2003. The complaints in these cases each request1773damages ranging from an unspecified amount to $70,000. </FONT></p></TD>1774</TR>1775</TABLE>1776<BR>17771778<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->1779<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1780<TR VALIGN=TOP>1781<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1782<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1783<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1784<TD WIDTH=94%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Two1785cases involving 70 patients were dismissed in Texas by the trial court on April 25, 20021786and February 14, 2003, respectively; the plaintiffs in these two cases have appealed.1787The first of these cases were served on the Company on October 29, 2001, and the second1788case was served upon the Company on November 8, 2002. The complaints in these cases1789request damages in an unspecified amount. </FONT></p></TD>1790</TR>1791</TABLE>1792<BR>1793<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1794<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12 </FONT></P>179517961797<BR><BR><BR>1798<HR SIZE=2 COLOR=GRAY NOSHADE>17991800<!-- *************************************************************************** -->1801<!-- MARKER PAGE="sheet: 0; page: 0" -->1802180318041805<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1806<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Non-U.S. Cases</U> </FONT> </P>18071808<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1809<P style=margin-bottom:-3pt; ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Canada: </FONT></P>18101811<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->1812<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1813<TR VALIGN=TOP>1814<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1815<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1816<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1817<TD WIDTH=97%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Four1818class action cases involving five named plaintiffs are pending (cases are venued in the1819provinces of British Columbia, Ontario and Quebec); in one case, class action status has1820been granted by the court. The first complaint in Canada was served upon the Company on1821August 18, 2000, and the most recent Canadian complaint was served upon the Company on1822December 12, 2002. The complaints in these cases each request damages ranging from 1.51823million to 500 million Canadian dollars. </FONT></p></TD>1824</TR>1825</TABLE>1826<BR>18271828<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1829<P style=margin-bottom:-3pt; ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UK: </FONT></P>18301831<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->1832<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1833<TR VALIGN=TOP>1834<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1835<TD WIDTH=1%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1836<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1837<TD WIDTH=97%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> One1838case involving one plaintiff has been filed. This complaint was filed on August 28,18392003, but has yet to be served upon the Company. The complaint in this case requests1840damages of an unspecified amount. </FONT></p></TD>1841</TR>1842</TABLE>1843<BR>18441845<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1846<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1847Silzone® litigation reserves established by the Company are not based on the amount of1848the claims because, based on our experience in these types of cases, the amount ultimately1849paid, if any, often does not bear any relationship to the amount claimed by the plaintiffs1850and is often significantly less than the amount claimed by plaintiffs. </FONT></P>18511852<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1853<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In18542001, the U.S. Judicial Panel on Multi-District Litigation ruled that certain lawsuits1855filed in U.S. federal district court involving products with Silzone® coating should1856be part of Multi-District Litigation proceedings under the supervision of U.S. District1857Court Judge John Tunheim in Minnesota. As a result, actions in federal court involving1858products with Silzone® coating have been and will likely continue to be transferred to1859Judge Tunheim for coordinated or consolidated pretrial proceedings. </FONT></P>18601861<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1862<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Certain1863plaintiffs requested Judge Tunheim to allow some cases to proceed as class actions. Judge1864Tunheim issued a ruling on plaintiffs’ motions for class certification on March 27,18652003. In his ruling, Judge Tunheim certified one class of plaintiffs under the Minnesota1866consumer statutes. </FONT></P>18671868<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1869<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On1870January 5, 2004, Judge Tunheim ruled on two motions brought by the Company in the1871Silzone® class action litigation pending in federal district court in Minnesota. In1872one order, Judge Tunheim ruled on the ability of certain claims to proceed as class1873actions. He declined to grant class action status to personal injury claims. He also1874granted class action status to medical monitoring claims of patients from 13 states and1875the District of Columbia where the law permits a certain type of medical monitoring claim,1876and yet invited further briefing on exactly which states fall into this category and how a1877class involving such claims would proceed. </FONT></P>18781879<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1880<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Judge1881Tunheim also ruled against the Company in a separate order on the issue of preemption and1882held that the plaintiff’s causes of action were not preempted by the U.S. Food and1883Drug Act. The Company is reviewing its options for the appeal of this decision. </FONT></P>18841885<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1886<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1887the meantime, the cases involving Silzone® products not seeking class action status1888which are consolidated before Judge Tunheim are proceeding in accordance with the1889scheduling orders he has rendered. There are also other actions involving products with1890Silzone® coating in various state courts that may or may not be coordinated with the1891matters presently before Judge Tunheim. </FONT></P>18921893<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1894<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On1895January 16, 2004, the court in Ontario, Canada certified a class of Silzone® patients1896in a class action suit against the Company. </FONT></P>18971898<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1899<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1900Company is not aware of any unasserted claims related to Silzone® devices. </FONT></P>19011902<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1903<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13 </FONT></P>19041905<BR><BR><BR>1906<HR SIZE=2 COLOR=GRAY NOSHADE>19071908<!-- *************************************************************************** -->1909<!-- MARKER PAGE="sheet: 0; page: 0" -->19101911191219131914<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1915<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Company1916management believes that the final resolution of the Silzone® cases will take several1917years. At this time, management cannot reasonably estimate the time frame in which any1918potential settlements or judgments would be paid out. The Company accrues for contingent1919losses when it is probable that a loss has been incurred and the amount can be reasonably1920estimated. The Company has recorded an accrual for probable legal costs that it will incur to defend1921the various cases involving Silzone® devices, and the Company has recorded a receivable from its1922product liability insurance carriers for amounts expected to be recovered1923(see Note 7 to the Consolidated Financial Statements). The Company has not accrued for any1924amounts associated with probable settlements or judgments because management cannot1925reasonably estimate such amounts. However, management believes that no significant claims1926will ultimately be allowed to proceed as class actions in the United States and,1927therefore, that all settlements and judgments will be covered under the Company’s1928remaining product liability insurance coverage (approximately $170 million at December 31,19292003), subject to the insurance companies’ performance under the policies (see Note 71930to the Consolidated Financial Statements for further discussion on the Company’s1931insurance carriers). As such, management believes that any costs (the material components1932of which are settlements, judgments and legal fees) not covered by its product liability1933insurance policies or existing reserves will not have a material adverse effect on the1934Company’s statement of financial position or liquidity, although such costs may be1935material to the Company’s consolidated results of operations of a future period. </FONT></P>19361937<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1938<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Guidant19391996 Patent Litigation:</I></B><I> </I>In November 1996, Guidant Corporation1940(“Guidant”) sued St. Jude Medical in federal district court for the Southern1941District of Indiana alleging that the Company did not have a license to certain patents1942controlled by Guidant covering ICD products and alleging that the Company was infringing1943those patents. St. Jude Medical’s contention was that it had obtained a license from1944Guidant to the patents in issue when it acquired certain assets of Telectronics in1945November 1996. In July 2000, an arbitrator rejected St. Jude Medical’s position, and1946in May 2001, a federal district court judge also ruled that the Guidant patent license1947with Telectronics had not transferred to St. Jude Medical. </FONT></P>19481949<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1950<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Guidant’s1951suit originally alleged infringement of four patents by St. Jude Medical. Guidant later1952dismissed its claim on one patent and a court ruled that a second patent was invalid. This1953determination of invalidity was appealed by Guidant, and the Court of Appeals upheld the1954lower court’s invalidity determination. In a jury trial involving the two remaining1955patents (the ‘288 and ‘472 patents), the jury found that these patents were1956valid and that St. Jude Medical did not infringe the ‘288 patent. The jury also found1957that the Company did infringe the ‘472 patent, though such infringement was not1958willful. The jury awarded damages of $140 million to Guidant. In post-trial rulings,1959however, the judge overseeing the jury trial ruled that the ‘472 patent was invalid1960and also was not infringed by St. Jude Medical, thereby eliminating the $140 million1961verdict against the Company. The trial court also made other rulings as part of the1962post-trial order, including a ruling that the ‘288 patent was invalid on several1963grounds. </FONT></P>19641965<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1966<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In1967August 2002, Guidant commenced an appeal of certain of the trial judge’s post-trial1968decisions pertaining to the ‘288 patent. Guidant did not appeal the trial1969court’s finding of invalidity and non-infringement of the ‘472 patent. As part1970of its appeal, Guidant requested that the monetary damages awarded by the jury pertaining1971to the ‘472 patent ($140 million) be transferred to the ‘288 patent infringement1972claim. The Company maintains that such a request is not supported by the facts or law.<I>1973</I>After the briefing for this appeal was completed, oral argument before the Court of1974Appeals occurred on September 4, 2003. The Company expects that the Appellate Court will1975issue a decision concerning Guidant’s appeal sometime later in 2004.<I> </I>While it1976is not possible to predict the outcome of the appeal process, the Company believes the1977decision of the trial court in its post-trial rulings, which is publicly available, was1978correct. </FONT></P>19791980<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->1981<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The1982‘288 patent expired in December 2003. Accordingly, the final outcome of the appeal1983process cannot involve an injunction precluding the Company from selling ICD products in1984the future. Sales of the Company’s ICD products which Guidant asserts infringed the1985‘288 patent were </FONT></P>19861987<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1988<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14 </FONT></P>19891990<BR><BR><BR>1991<HR SIZE=2 COLOR=GRAY NOSHADE>19921993<!-- *************************************************************************** -->1994<!-- MARKER PAGE="sheet: 0; page: 0" -->1995199619971998<!-- MARKER FORMAT-SHEET="test" FSL="Default" -->1999<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>approximately200018%, 16% and 13% of the Company’s consolidated net sales during the fiscal years2001ended December 31, 2003, 2002 and 2001, respectively. </FONT></P>20022003<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2004<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2005 The2006Company has not accrued any amounts for losses related to the Guidant 1996 patent2007litigation. Although the Company believes that the assertions and claims in these matters2008are without merit, potential losses arising from this litigation are possible, but not2009estimable, at this time. The range of such losses could be material to the operations,2010financial position and liquidity of the Company. </FONT></P>20112012<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2013<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2014 <B><I>Guidant 2004 Patent2015Litigation:</I></B><I></I> In February 2004, Guidant sued the Company in federal2016district court in Delaware alleging that the Company’s Epic™ HF ICD,2017Atlas®+ HF ICD and Frontier™ device infringe U.S Patent No. RE 38,119E2018(the ‘119 patent). Guidant also sued the Company in February 2004 alleging2019that the Company’s QuickSite™ 1056K pacing lead infringes U.S. Patent2020No. 5,755,766 (the ‘766 patent). This second suit was initiated in federal2021district court in Minnesota. Guidant is seeking an injunction against the2022manufacture and sale of these devices by the Company in the United States2023and compensation for what it claims are infringing sales of these products up2024through the effective date of the injunction. Sales of the above St. Jude2025Medical devices in the United States were not material during fiscal years 2003,20262002 and 2001, although it is anticipated that once FDA approval is received,2027sales of these devices could become material in the future. The Company has not2028submitted a substantive response to Guidant's claims at this time. Another2029competitor of the Company, Medtronic, Inc., which has a license to the ‘1192030patent, is contending in a separate lawsuit with Guidant that the ‘1192031patent is invalid. </FONT></P>20322033<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2034<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2035 The2036Company has not accrued any amounts for losses related to the Guidant 2004 patent2037litigation. Potential losses arising from this litigation are possible, but not2038estimable, at this time. The range of such losses could be material to the operations,2039financial position and liquidity of the Company. </FONT></P>20402041<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2042<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2043<B><I>Symmetry™ Litigation:</I></B><I> </I>The Company has been sued in six2044cases in the United States alleging that its Symmetry<I>™</I> Bypass System2045Aortic Connector (Symmetry™ device) caused bodily injury or might cause2046bodily injury. The first such suit as filed against the Company on August 5,20472003, in federal district court for the Western District of Tennessee, and the2048most recently initiated case was served upon the Company on January 28, 2004.2049The six cases are venued in state court in Minnesota, federal court for the2050District of Minnesota, federal court in the Western District of Tennessee and2051federal court for the Northern District of Illinois. Each of the complaints in2052these cases request damages ranging from an unspecified amount to $100,000.2053Three of the six cases are seeking class-action status. One of the cases seeking2054class-action status has been dismissed but the dismissal is being appealed by2055the plaintiff. The Company believes that those cases seeking class-action status2056will request damages for injuries and monitoring costs. </FONT></P>20572058<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2059<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2060Company’s Symmetry™ device was cleared through a 510(K) submission to the FDA,2061and therefore, is not eligible for the defense under the doctrine of federal preemption2062that such suits are prohibited. Given the Company’s self-insured retention levels2063under its product liability insurance policies, the Company expects that it will be solely2064responsible for these lawsuits, including any costs of defense, settlements and judgments.2065Company management believes that class action status is not appropriate for the claims2066asserted based on existing facts and case law. Discovery is in the very early stages in these cases.2067</FONT></P>20682069<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2070<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2071Company has not accrued any amounts for losses related to the Symmetry<I>™</I>2072litigation. Potential losses arising from this litigation are possible, but not2073estimable, at this time. The range of such losses could be material to the operations,2074financial position and liquidity of the Company. At this time, Company management cannot2075reasonably estimate the time frame in which this litigation will be resolved, including2076when potential settlements or judgments would be paid out, if any. </FONT></P>20772078<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2079<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15 </FONT></P>20802081<BR><BR><BR>2082<HR SIZE=2 COLOR=GRAY NOSHADE>20832084<!-- *************************************************************************** -->2085<!-- MARKER PAGE="sheet: 0; page: 0" -->2086208720882089<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2090<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B><I>Other2091Litigation Matters:</I></B><I></I> The Company is involved in various other product2092liability lawsuits, claims and proceedings that arise in the ordinary course of business. </FONT></P>20932094<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2095<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4. SUBMISSION OF2096MATTERS TO A VOTE OF SECURITY HOLDERS </FONT></H1>20972098<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2099<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> There2100were no matters submitted to a vote of security holders during the fourth quarter of 2003. </FONT></P>21012102<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2103<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4A. EXECUTIVE2104OFFICERS OF THE REGISTRANT </FONT></H1>21052106<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">2107<TR>2108<TD WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Name</FONT></td>2109<TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Age</FONT></td>2110<TD WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Position*</FONT></td></TR>2111<tr><TD COLSPAN="3" WIDTH="25%"><hr size=1 color=black></td></tr>2112<TR VALIGN=Bottom>2113<TD WIDTH="25%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2114<TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2115<TD WIDTH="65%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2116<TR VALIGN=Bottom>2117<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Terry L. Shepherd **</FONT></TD>2118<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51 </FONT></TD>2119<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chairman (2002) and Chief Executive Officer (1999)</FONT></TD></TR>2120<TR VALIGN=Bottom>2121<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2122<TR VALIGN=Bottom>2123<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Daniel J. Starks **</FONT></TD>2124<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49 </FONT></TD>2125<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President and Chief Operating Officer (2001)</FONT></TD></TR>2126<TR VALIGN=Bottom>2127<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2128<TR VALIGN=Bottom>2129<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>David W. Adinolfi</FONT></TD>2130<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48 </FONT></TD>2131<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Daig (2001)</FONT></TD></TR>2132<TR VALIGN=Bottom>2133<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2134<TR VALIGN=Bottom>2135<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael J. Coyle</FONT></TD>2136<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41 </FONT></TD>2137<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Cardiac Rhythm Management (2001)</FONT></TD></TR>2138<TR VALIGN=Bottom>2139<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2140<TR VALIGN=Bottom>2141<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Peter L. Gove</FONT></TD>2142<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>56 </FONT></TD>2143<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Corporate Relations (1994)</FONT></TD></TR>2144<TR VALIGN=Bottom>2145<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2146<TR VALIGN=top>2147<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John C. Heinmiller</FONT></TD>2148<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49 </FONT></TD>2149<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Finance, Chief Financial Officer <BR>and Treasurer (1998)</FONT></TD></TR>2150<TR VALIGN=Bottom>2151<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2152<TR VALIGN=top>2153<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jeri L. Lose</FONT></TD>2154<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46 </FONT></TD>2155<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Information Technology (1999) <BR>and Chief Information Officer (2000)</FONT></TD></TR>2156<TR VALIGN=Bottom>2157<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2158<TR VALIGN=Bottom>2159<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Joseph H. McCullough</FONT></TD>2160<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54 </FONT></TD>2161<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, International (2001)</FONT></TD></TR>2162<TR VALIGN=Bottom>2163<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2164<TR VALIGN=Bottom>2165<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Thomas R. Northenscold</FONT></TD>2166<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46 </FONT></TD>2167<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Administration (2003)</FONT></TD></TR>2168<TR VALIGN=Bottom>2169<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2170<TR VALIGN=Bottom>2171<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kevin T. O'Malley</FONT></TD>2172<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52 </FONT></TD>2173<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, General Counsel and Secretary (1994)</FONT></TD></TR>2174<TR VALIGN=Bottom>2175<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2176<TR VALIGN=Bottom>2177<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael T. Rousseau</FONT></TD>2178<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48 </FONT></TD>2179<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, U.S. Sales (2001)</FONT></TD></TR>2180<TR VALIGN=Bottom>2181<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2182<TR VALIGN=Bottom>2183<TD ALIGN="LEFT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jane J. Song</FONT></TD>2184<TD ALIGN="CENTER" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41 </FONT></TD>2185<TD ALIGN="LEFT" WIDTH="65%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Cardiac Surgery (2002)</FONT></TD></TR>2186</TABLE>2187218821892190<!-- MARKER FORMAT-SHEET="Cutoff Rule" FSL="Default" -->2191<P>_________________ </P>21922193<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->2194<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2195<TR VALIGN=TOP>2196<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* </FONT></TD>2197<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2198<TD WIDTH=98%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Dates2199in parentheses indicate year during which each named executive officer began serving in2200such capacity. </FONT></p></TD>2201</TR>2202</TABLE>2203<BR>22042205<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->2206<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2207<TR VALIGN=TOP>2208<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>** </FONT></TD>2209<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2210<TD WIDTH=98%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2211Shepherd will retire as Chief Executive Officer of the Company and Chairman of the Board2212of Directors in May 2004. He will be succeeded by the Company’s President and Chief2213Operating Officer, Mr. Starks. </FONT></p></TD>2214</TR>2215</TABLE>2216<BR>22172218<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2219<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Executive2220officers serve at the pleasure of the Board of Directors. </FONT></P>22212222<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2223<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2224Shepherd joined the Company in 1994 as President of Cardiac Surgery. In May22251999, he was appointed President and Chief Executive Officer of St. Jude, and2226since February 2001 he has been the Company’s Chief Executive Officer. Mr.2227Shepherd has also served on St. Jude’s Board of Directors since May 1999,2228and in May 2002 was elected Chairman of the Board of Directors. </FONT></P>22292230<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2231<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16 </FONT></P>22322233<BR><BR><BR>2234<HR SIZE=2 COLOR=GRAY NOSHADE>22352236<!-- *************************************************************************** -->2237<!-- MARKER PAGE="sheet: 0; page: 0" -->22382239224022412242<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2243<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2244Starks joined St. Jude in 1996 as a result of the Company’s acquisition of2245Daig Corporation, where he continued as Chief Executive Officer. In 1997, he was2246also appointed Chief Executive Officer of Cardiac Rhythm Management, and in2247April 1998 also became President of Cardiac Rhythm Management. He was appointed2248President and Chief Operating Officer of St. Jude in February 2001. Mr. Starks2249has also served on the Company’s Board of Directors since 1996. Mr. Starks2250serves on the Board of Directors of Urologix, Inc. </FONT></P>22512252<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2253<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2254Adinolfi joined St. Jude in 1994 as a result of the Company’s acquisition2255of Pacesetter, Inc. He served as Vice President, CRM Global Product Planning and2256Identification from June 1996 to March 1998. In April 1998, he became Senior2257Vice President, CRM Global Marketing, and in March 1999 became Senior Vice2258President of CRM Product Portfolio Management. In February 2001, Mr. Adinolfi2259was appointed President of Daig. Prior to joining Pacesetter in 1989 as Director2260of Marketing, Mr. Adinolfi worked for Cordis Corporation and Telectronics, Inc.,2261both medical technology companies, in a variety of marketing, sales and2262management positions. </FONT></P>22632264<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2265<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2266Coyle joined St. Jude in 1994 as Director, Business Development. He served as2267President and Chief Operating Officer of Daig from 1997 to 2001 and was2268appointed President, Cardiac Rhythm Management in February 2001. Prior to2269joining St. Jude, he spent nine years with Eli Lilly & Company, a2270pharmaceutical products company, in a variety of technical and business2271management roles in both its Pharmaceutical and Medical Device Divisions. </FONT></P>22722273<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2274<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2275Gove joined the Company in 1994 as Vice President, Corporate Relations. Prior2276to joining the Company, Mr. Gove was Vice President, Marketing and2277Communications of Control Data Systems, Inc., a computer services company, from22781991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions with2279Control Data Corporation. From 1970 to 1981, Mr. Gove held various management2280positions with the State of Minnesota and the U.S. Government. Mr. Gove serves2281on the Board of Directors of QRS Diagnostic, LLC and Information for Public2282Affairs, Inc. </FONT></P>22832284<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2285<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2286Heinmiller joined the Company in May 1998 as Vice President of Corporate2287Business Development. In September 1998 he was appointed Vice President,2288Finance and Chief Financial Officer. Prior to joining the Company, Mr.2289Heinmiller was president of F3 Corporation, a privately held asset management2290company, from 1997 to 1998, and was Vice President of Finance and2291Administration for Daig Corporation from 1995 to 1997. Mr. Heinmiller is also a2292former audit partner in the Minneapolis office of Grant Thornton LLP, a2293national public accounting firm. Mr. Heinmiller serves on the Board of Directors of2294Lifecore Biomedical, Inc. </FONT></P>22952296<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2297<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Ms.2298Lose joined St. Jude in 1999 as Vice President, Information Technology, and was2299also appointed Chief Information Officer in 2000. Prior to joining the Company,2300Ms. Lose was Vice President of Systems Development at U.S. Bancorp, a2301multi-state financial services holding company, from 1993 to 1999. From 1990 to23021993, Ms. Lose was a Senior Manager in Information Technology Consulting with2303Ernst & Young LLP, an international public accounting firm. From 1979 to23041990, she held several positions in Accounting and then Information Technology2305with General Mills, Inc, a consumer food products company. Ms. Lose serves on2306the Board of Directors of Apria Healthcare, Inc. </FONT></P>23072308<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2309<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2310McCullough joined St. Jude in 1994 as a CRM Regional Sales Director. He became2311Director of CRM Marketing in 1996 and was named Vice President of CRM Marketing2312in January 1997. In December 1997, Mr. McCullough was appointed CRM Business2313Unit Director. He became Vice President, CRM Europe and Managing Director of2314the Company’s manufacturing operations in Veddesta, Sweden in January23151999, and Senior Vice President, CRM Europe in August 1999. He was named2316President, International in July 2001. Prior to joining the Company, Mr.2317McCullough worked for several medical technology companies for more than 202318years. </FONT></P>23192320<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2321<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17 </FONT></P>23222323<BR><BR><BR>2324<HR SIZE=2 COLOR=GRAY NOSHADE>23252326<!-- *************************************************************************** -->2327<!-- MARKER PAGE="sheet: 0; page: 0" -->2328232923302331<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2332<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2333Northenscold joined St. Jude in 2001 as Vice President, Finance and2334Administration of Daig. On March 3, 2003, he was appointed Vice President,2335Administration. Prior to joining the Company, Mr. Northenscold worked at PPT2336Vision, Inc., an industrial technology and automation company, where he served2337as Chief Financial Officer from February 1995 to January 1999, and Division2338General Manager from January 1999 to September 2001. Prior to 1995, Mr.2339Northenscold worked for Cardiac Pacemakers, Inc., a medical technology company2340that is now part of Guidant Corporation, in various finance and operations2341positions. </FONT></P>23422343<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2344<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2345O’Malley joined the Company in 1994 as Vice President and General Counsel.2346Since December 1996, he has also served as the Company’s Corporate2347Secretary. Prior to joining St. Jude, Mr. O’Malley was employed by Eli2348Lilly & Company, a pharmaceutical products company, for 15 years in various2349positions, including General Counsel of the Medical Device and Diagnostics2350Division. </FONT></P>23512352<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2353<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Mr.2354Rousseau joined the Company in 1999 as Senior Vice President, CRM Global2355Marketing. In August 1999, CRM Marketing and Sales were combined under his2356leadership. In January 2001, he was named President, U.S. CRM Sales, and in2357July 2001 he was named President, U.S. Sales. Prior to joining St. Jude, Mr.2358Rousseau worked for Sulzer Intermedics, Inc., a medical device company, for 112359years. At Sulzer, he served as Vice President, Tachycardia, in 1997 and was2360appointed Vice President, U.S. Sales and Marketing in 1998. </FONT></P>23612362<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2363<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif"2364SIZE=2> Ms. Song joined St. Jude2365in 1998 as Senior Vice President, CRM Operations. In May 2002 she was appointed2366President, Cardiac Surgery. Prior to joining the Company, Ms. Song was employed2367by Perkin Elmer (formerly EG&G, Inc.), a global technology company, from23681992 to 1998 where she held executive positions in global operations and2369business development. Prior to her tenure at Perkin Elmer, she was employed by2370Coopers & Lybrand LLP, an international public accounting firm, and Texas2371Instruments Inc., a global semiconductor company. </FONT></P>23722373<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2374<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II </FONT></H1>23752376<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2377<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Item 5. MARKET FOR REGISTRANT’S2378COMMON EQUITY AND RELATED <BR> STOCKHOLDER MATTERS</B> </FONT> </P>23792380<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2381<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2382information set forth under the captions “Dividends” and “Stock Exchange2383Listings” in the Financial Report included in the Company’s 2003 Annual Report2384to Shareholders is incorporated herein by reference. </FONT></P>23852386<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2387<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Item 6. SELECTED FINANCIAL DATA</B> </FONT> </P>23882389<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2390<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2391information set forth under the caption “Five-Year Summary Financial Data” in2392the Financial Report included in the Company’s 2003 Annual Report to Shareholders is2393incorporated herein by reference. </FONT></P>23942395<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2396<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Item 7. MANAGEMENT’S DISCUSSION2397AND ANALYSIS OF FINANCIAL CONDITION<BR> AND RESULTS OF OPERATIONS</B> </FONT> </P>23982399<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2400<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2401information set forth under the caption “Management’s Discussion and Analysis of2402Financial Condition and Results of Operations” in the Financial Report included in2403the Company’s 2003 Annual Report to Shareholders is incorporated herein by reference. </FONT></P>24042405<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2406<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18 </FONT></P>24072408<BR><BR><BR>2409<HR SIZE=2 COLOR=GRAY NOSHADE>24102411<!-- *************************************************************************** -->2412<!-- MARKER PAGE="sheet: 0; page: 0" -->2413241424152416<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2417<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 7A. QUANTITATIVE2418AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </FONT></H1>24192420<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2421<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2422information appearing under the caption “Market Risk” in the Financial Report2423included in the Company’s 2003 Annual Report to Shareholders is incorporated herein2424by reference. </FONT></P>24252426<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2427<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 8. FINANCIAL2428STATEMENTS AND SUPPLEMENTARY DATA </FONT></H1>24292430<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2431<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2432following Consolidated Financial Statements of the Company and Report of Independent2433Auditors set forth in the Financial Report included in the Company’s 2003 Annual2434Report to Shareholders are incorporated herein by reference: </FONT></P>24352436<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2437<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2438<TR VALIGN=TOP>2439<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2440<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2441Report2442of Independent Auditors </FONT></TD>2443</TR>2444</TABLE>2445<BR>24462447<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2448<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2449<TR VALIGN=TOP>2450<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2451<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2452Consolidated2453Statements of Earnings – Fiscal Years ended December 31, 2003, 2002 and 2001 </FONT></TD>2454</TR>2455</TABLE>2456<BR>24572458<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2459<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2460<TR VALIGN=TOP>2461<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2462<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2463Consolidated2464Balance Sheets – December 31, 2003 and 2002 </FONT></TD>2465</TR>2466</TABLE>2467<BR>24682469<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2470<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2471<TR VALIGN=TOP>2472<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2473<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2474Consolidated2475Statements of Shareholders’ Equity – Fiscal Years ended December 31, 2003, 20022476and 2001 </FONT></TD>2477</TR>2478</TABLE>2479<BR>24802481<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2482<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2483<TR VALIGN=TOP>2484<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2485<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2486Consolidated2487Statements of Cash Flows – Fiscal Years ended December 31, 2003, 2002 and 2001 </FONT></TD>2488</TR>2489</TABLE>2490<BR>24912492<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2493<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2494<TR VALIGN=TOP>2495<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2496<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2497Notes2498to Consolidated Financial Statements </FONT></TD>2499</TR>2500</TABLE>2501<BR>25022503<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2504<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Item 9. CHANGES IN AND DISAGREEMENTS2505WITH ACCOUNTANTS ON ACCOUNTING <BR> AND FINANCIAL DISCLOSURE</B> </FONT> </P>25062507<!-- MARKER FORMAT-SHEET="Head Sub 2 Left" FSL="Default" -->2508<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> None.</FONT></P>25092510<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2511<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 9A. CONTROLS AND2512PROCEDURES </FONT></H1>25132514<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2515<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> As2516of December 31, 2003, the Company carried out an evaluation, under the supervision and2517with the participation of the Company’s management, including the Chief Executive2518Officer (“CEO”) and Chief Financial Officer (“CFO”), of the2519effectiveness of the design and operation of its disclosure controls and procedures (as2520defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange2521Act”)). Based on that evaluation, the CEO and CFO concluded that the Company’s2522disclosure controls and procedures were effective as of December 31, 2003 to ensure that2523information required to be disclosed by the Company in reports that it files or submits2524under the Exchange Act is recorded, processed, summarized and reported within the time2525periods specified in Securities and Exchange Commission rules and forms. </FONT></P>25262527<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2528<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> During2529the fiscal quarter ended December 31, 2003, there were no changes in the Company’s2530internal controls over financial reporting (as defined in Rule 13a-15(f) under the2531Exchange Act) that have materially affected, or are reasonably likely to materially2532affect, the Company’s internal controls over financial reporting. </FONT></P>2533<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2534<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></P>253525362537<BR><BR><BR>2538<HR SIZE=2 COLOR=GRAY NOSHADE>25392540<!-- *************************************************************************** -->2541<!-- MARKER PAGE="sheet: 0; page: 0" -->254225432544<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2545<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART III </FONT></H1>25462547<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2548<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Item 10. DIRECTORS AND EXECUTIVE2549OFFICERS OF THE REGISTRANT</B> </FONT> </P>25502551<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2552<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2553information set forth under the captions “Board of Directors,” “Section255416(a) Beneficial Ownership Reporting Compliance” and “Audit Committee Financial2555Experts” in the Company’s definitive proxy statement dated March 30, 2004, is2556incorporated herein by reference. Information on executive officers under Item 4A of this2557Form 10-K is incorporated herein by reference. </FONT></P>25582559<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2560<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2561Company has adopted a Code of Business Conduct for its Principal Executive Officer,2562Principal Financial Officer, Principal Accounting Officer and all other employees. The2563Company has made its Code of Business Conduct available on its website2564(http://www.sjm.com) under the Company Information section “About Us.” The2565Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding2566an amendment to, or waiver from, a provision of its Code of Business Conduct by posting2567such information on its website at the address and location specified above. </FONT></P>25682569<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2570<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2571 The2572Company has also made available on its website its Principles of Corporate Governance and2573the charters for each Committee of its Board of Directors. Such materials are also available in print to any2574shareholder who submits a request to St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, MN 55117, Attention: Corporate Secretary.</FONT></P>25752576<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2577<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Information2578included on the Company’s website is not deemed to be incorporated into this Annual2579Report on Form 10-K. </FONT></P>25802581<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2582<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 11. EXECUTIVE2583COMPENSATION </FONT></H1>25842585<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2586<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2587information set forth under the caption “Executive Compensation” in the2588Company’s definitive proxy statement dated March 30, 2004, is incorporated herein by2589reference. </FONT></P>25902591<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2592<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 12. SECURITY2593OWNERSHIP OF CERTAIN BENEFICIAL OWNERS<BR> AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS </FONT></H1>25942595<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2596<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2597information set forth under the caption “Share Ownership of Management and Directors2598and Certain Beneficial Owners” and “Equity Compensation Plan Information”2599in the Company’s definitive proxy statement dated March 30, 2004, is incorporated2600herein by reference. </FONT></P>26012602<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2603<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 13. CERTAIN2604RELATIONSHIPS AND RELATED TRANSACTIONS </FONT></H1>26052606<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2607<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2608information set forth under the caption “Related Party Transactions” in the2609Company’s definitive Proxy Statement dated March 30, 2004, is incorporated herein by2610reference. </FONT></P>26112612<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2613<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 14. PRINCIPAL2614ACCOUNTANT FEES AND SERVICES </FONT></H1>26152616<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2617<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The2618information set forth under the caption “Proposal to Ratify the Appointment of2619Auditors – Independent Accountant’s Fees” in the Company’s definitive2620proxy statement dated March 30, 2004, is incorporated herein by reference. </FONT></P>26212622<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2623<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20 </FONT></P>26242625<BR><BR><BR>2626<HR SIZE=2 COLOR=GRAY NOSHADE>26272628<!-- *************************************************************************** -->2629<!-- MARKER PAGE="sheet: 0; page: 0" -->263026312632<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2633<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART IV </FONT></H1>26342635<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2636<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 15. EXHIBITS,2637FINANCIAL STATEMENT SCHEDULES AND REPORTS<BR> ON FORM 8-K</FONT></H1>263826392640<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->2641<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2642<TR VALIGN=TOP>2643<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2644<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)</FONT></TD>2645<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2646<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>List2647of documents filed as part of this Report</I> </FONT></TD>2648</TR>2649</TABLE>2650<BR>26512652<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2653<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2654<TR VALIGN=TOP>2655<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2656<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2657<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>2658<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2659<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Financial2660Statements</I> </FONT> </TD>2661</TR>2662</TABLE>2663<BR>26642665<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2666<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2667<TR VALIGN=TOP>2668<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2669<TD WIDTH=85%><P ALIGN=JUSTIFY><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2670The2671following Consolidated Financial Statements of the Company and Report of Independent2672Auditors as set forth in the Financial Report included in the Company’s 2003 Annual2673Report to Shareholders are incorporated herein by reference from Exhibit 13 attached2674hereto: </FONT></P></TD>2675</TR>2676</TABLE>2677<BR>26782679<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2680<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2681<TR VALIGN=TOP>2682<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2683<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2684Report2685of Independent Auditors </FONT></TD>2686</TR>2687</TABLE>2688<BR>26892690<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2691<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2692<TR VALIGN=TOP>2693<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2694<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2695Consolidated2696Statements of Earnings – Fiscal Years ended December 31, 2003, 2002 and 2001 </FONT></TD>2697</TR>2698</TABLE>2699<BR>27002701<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2702<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2703<TR VALIGN=TOP>2704<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2705<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2706Consolidated2707Balance Sheets — December 31, 2003 and 2002 </FONT></TD>2708</TR>2709</TABLE>2710<BR>27112712<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2713<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2714<TR VALIGN=TOP>2715<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2716<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2717Consolidated2718Statements of Shareholders’ Equity – Fiscal Years ended December 31, 2003, 20022719and 2001 </FONT></TD>2720</TR>2721</TABLE>2722<BR>27232724<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2725<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2726<TR VALIGN=TOP>2727<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2728<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2729Consolidated2730Statements of Cash Flows – Fiscal Years ended December 31, 2003, 2002 and 2001 </FONT></TD>2731</TR>2732</TABLE>2733<BR>27342735<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2736<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2737<TR VALIGN=TOP>2738<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2739<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2740Notes2741to Consolidated Financial Statements </FONT></TD>2742</TR>2743</TABLE>2744<BR>27452746<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2747<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2748<TR VALIGN=TOP>2749<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2750<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2751<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>2752<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2753<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Financial2754Statement Schedule</I> </FONT> </TD>2755</TR>2756</TABLE>2757<BR>27582759<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2760<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2761<TR VALIGN=TOP>2762<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2763<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2764Schedule2765II, Valuation and Qualifying Accounts, is filed as part of this Annual Report on Form 10-K2766(see Item 15(d)). </FONT></TD>2767</TR>2768</TABLE>2769<BR>27702771<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2772<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2773<TR VALIGN=TOP>2774<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2775<TD WIDTH=85%><P ALIGN=JUSTIFY><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2776The2777Report of Independent Auditors with respect to this financial statement schedule is2778incorporated herein by reference from Exhibit 23 attached hereto. </FONT></P></TD>2779</TR>2780</TABLE>2781<BR>27822783<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->2784<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> All2785other financial statements and schedules not listed above have been omitted because the2786required information is included in the consolidated financial statements or the notes2787thereto, or is not applicable. </FONT></P>27882789<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2790<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2791<TR VALIGN=TOP>2792<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2793<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2794<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>2795<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2796<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Exhibits</I> </FONT> </TD>2797</TR>2798</TABLE>2799<BR>28002801<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2802<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2803<TR VALIGN=TOP>2804<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2805<TD WIDTH=85%><P ALIGN=JUSTIFY><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2806Pursuant2807to Item 601(b)(4)(iiii) of Regulation S-K, copies of certain instruments defining the2808rights of holders of certain long-term debt of the Company are not filed, and in lieu2809thereof, the Company agrees to furnish copies thereof to the Securities and Exchange2810Commission upon request. </FONT></P></TD>2811</TR>2812</TABLE>2813<BR>28142815<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2816<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21 </FONT></P>28172818<BR><BR><BR>2819<HR SIZE=2 COLOR=GRAY NOSHADE>28202821<!-- *************************************************************************** -->2822<!-- MARKER PAGE="sheet: 0; page: 0" -->2823282428252826<PRE>2827Exhibit Exhibit Index2828- ---------------- -------------------------------------------------------------------28292.1 Stock Purchase Agreement among St. Jude Medical, Inc., St. Jude2830Medical Japan K.K., Getz Bros. & Co. Zug Inc., Getz2831International, Inc. and Muller & Phipps (Japan) Ltd. dated as of2832September 17, 2002 (USA). #283328342.2 Amendment, dated as of February 20, 2003, to Stock Purchase2835Agreement among St. Jude Medical, Inc., St. Jude Medical Japan2836K.K., Getz Bros. & Co. Zug Inc., Getz International, Inc. and2837Muller & Phipps (Japan) Ltd. dated as of September 17, 20022838(USA). #283928403.1 Articles of Incorporation are incorporated by reference from2841Exhibit 3(a) of the Company's Form 8 filed on August 20, 1987,2842amending the Company's Quarterly Report on Form 10-Q for the2843quarter ended June 30, 1987.284428453.2 Articles of Amendment dated September 5, 1996, to Articles of2846Incorporation are incorporated by reference from Exhibit 3.2 of2847the Company's Annual Report on Form 10-K for the year ended2848December 31, 1996.284928503.3 Bylaws are incorporated by reference from Exhibit 3(ii) of the2851Company's Quarterly Report on Form 10-Q for the quarter ended2852September 30, 1997.285328544.1 Rights Agreement dated as of June 16, 1997, between the Company2855and American Stock Transfer and Trust Company, as Rights Agent,2856including the Certificate of Designation, Preferences and Rights2857of Series B Junior Preferred Stock is incorporated by reference2858from Exhibit 4 of the Company's Quarterly Report on Form 10-Q for2859the quarter ended June 30, 1997.286028614.2 Amendment, dated as of December 20, 2002, to Rights Agreement,2862dated as of June 16, 1997, is incorporated by reference from2863Exhibit 1 of the Company's Current Report on Form 8-K filed on2864March 21, 2003.286528664.3 Multi-Year $350,000,000 Credit Agreement, dated as of September286711, 2003, among St. Jude Medical, Inc., as the Borrower, Bank of2868America, N.A., as Administrative Agent, L/C Issuer and Lender,2869the Bank of Tokyo-Mitsubishi, Ltd. and ABN Amro Bank N.V., as2870Co-Syndication Agents, Bank One, N.A. and Wells Fargo Bank,2871National Association, as Co-Documentation Agents, and the Other2872Lenders Party Hereto is incorporated by reference from Exhibit28734.1 of the Company's Quarterly Report on Form 10-Q for the2874quarter ended September 30, 2003.28752876</PRE>2877<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2878<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></P>28792880<BR><BR><BR>2881<HR SIZE=2 COLOR=GRAY NOSHADE>28822883<!-- *************************************************************************** -->2884<!-- MARKER PAGE="sheet: 0; page: 0" -->28852886<PRE>288710.1 Form of Indemnification Agreement that the Company has entered2888into with officers and directors is incorporated by reference2889from Exhibit 10(d) of the Company's Annual Report on Form 10-K2890for the year ended December 31, 1986. *2891289210.2 St. Jude Medical, Inc. Management Incentive Compensation Plan is2893incorporated by reference from Exhibit 10.2 of the Company's2894Annual Report on Form 10-K for the year ended December 31, 2001.*2895289610.3 Management Savings Plan dated February 1, 1995, is incorporated2897by reference from Exhibit 10.7 of the Company's Annual Report on2898Form 10-K for the year ended December 31, 1994. *2899290010.4 Retirement Plan for members of the Board of Directors, as amended2901on March 15, 1995, is incorporated by reference from Exhibit 10.62902of the Company's Annual Report on Form 10-K for the year ended2903December 31, 1994. *2904290510.5 St. Jude Medical, Inc. 1991 Stock Plan is incorporated by2906reference from the Company's Registration Statement on Form S-82907filed June 28, 1991 (Commission File No. 33-41459). *2908290910.6 St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by2910reference from Exhibit 4(a) of the Company's Registration2911Statement on Form S-8 filed July 1, 1994 (Commission File No.291233-54435). *2913291410.7 St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by2915reference from Exhibit 4.1 of the Company's Registration2916Statement on Form S-8 filed December 22, 1997 (Commission File2917No. 333-42945). *2918291910.8 St. Jude Medical, Inc. 2000 Stock Plan is incorporated by2920reference from Exhibit 10.9 of the Company's Annual Report on2921Form 10-K for the year ended December 31, 2001. *2922292310.9 St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan2924is incorporated by reference from Exhibit 10.10 of the Company's2925Annual Report on Form 10-K for the year ended December 31, 2001.*2926</PRE>2927<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2928<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23 </FONT></P>29292930<BR><BR><BR>2931<HR SIZE=2 COLOR=GRAY NOSHADE>29322933<!-- *************************************************************************** -->2934<!-- MARKER PAGE="sheet: 0; page: 0" -->29352936<PRE>293710.10 Amended and Restated Employment Agreement dated as of March 25,29382001, between the Company and Daniel J. Starks is incorporated by2939reference from Exhibit 10.17 of the Company's Annual Report on2940Form 10-K for the year ended December 31, 2000. *2941294210.11 Form of Severance Agreement that the Company has entered into2943with officers relating to severance matters in connection with a2944change in control is incorporated by reference from Exhibit 10.182945of the Company's Annual Report on Form 10-K for the year ended2946December 31, 2000. *2947294810.12 Amended and Restated Employment Agreement dated as of March 25,29492001, between the Company and Terry L. Shepherd is incorporated2950by reference from Exhibit 10.19 of the Company's Annual Report on2951Form 10-K for the year ended December 31, 2000. *2952295310.13 St. Jude Medical, Inc. 2002 Stock Plan, as Amended, is2954incorporated by reference from Exhibit 10.14 of the Company's2955Quarterly Report on Form 10-Q for the quarter ended June 30,29562002. *2957295813 Portions of the Company's 2003 Annual Report to Shareholders. #2959296021 Subsidiaries of the Registrant. #2961296223 Consent of Independent Auditors. #2963296424 Power of Attorney. #2965296631.1 Certification of Chief Executive Officer Pursuant to Section 3022967of the Sarbanes-Oxley Act of 2002. #2968296931.2 Certification of Chief Financial Officer Pursuant to Section 3022970of the Sarbanes-Oxley Act of 2002. #2971297232.1 Certification of Chief Executive Officer Pursuant to Section 9062973of the Sarbanes-Oxley Act of 2002. #2974297532.2 Certification of Chief Financial Officer Pursuant to Section 9062976of the Sarbanes-Oxley Act of 2002. #29772978</PRE>2979<!-- MARKER FORMAT-SHEET="Cutoff Rule" FSL="Default" -->2980<P>_________________ </P>29812982<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2983<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2984<TR VALIGN=TOP>2985<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2986<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2987*2988Management contract or compensatory plan or arrangement. <BR># Filed as an exhibit to this2989Annual Report on Form 10-K. </FONT></TD>2990</TR>2991</TABLE>2992<BR>29932994<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2995<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24 </FONT></P>29962997<BR><BR><BR>2998<HR SIZE=2 COLOR=GRAY NOSHADE>29993000<!-- *************************************************************************** -->3001<!-- MARKER PAGE="sheet: 0; page: 0" -->300230033004<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->3005<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3006<TR VALIGN=TOP>3007<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3008<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) </FONT></TD>3009<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3010<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Reports3011on Form 8-K filed during the quarter ended December 31, 2003:</I> </FONT> </TD>3012</TR>3013</TABLE>3014<BR>30153016<!-- MARKER FORMAT-SHEET="Para Indent Level 2" FSL="Default" -->3017<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3018<TR VALIGN=TOP>3019<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3020<TD WIDTH=90%><P ALIGN=JUSTIFY><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The3021Company filed a Form 8-K on October 15, 2003 to furnish pursuant to Item 12 its press3022release issued on October 15, 2003 to report earnings for the third quarter of 2003. </FONT></P>3023</TD>3024</TR>3025</TABLE>3026<BR>30273028<!-- MARKER FORMAT-SHEET="Para Indent Level 2" FSL="Default" -->3029<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3030<TR VALIGN=TOP>3031<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3032<TD WIDTH=90%><P ALIGN=JUSTIFY><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The3033Company also filed a Form 8-K on December 10, 2003 to announce that the Company’s3034Chief Executive Officer and Chairman of the Board of Directors, Terry L. Shepherd, will3035retire in May 2004. Daniel J. Starks, President and Chief Operating Officer, will succeed3036Mr. Shepherd as Chief Executive Officer and Chairman. </FONT></P>3037</TD>3038</TR>3039</TABLE>3040<BR>30413042<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->3043<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3044<TR VALIGN=TOP>3045<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3046<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) </FONT></TD>3047<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3048<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Exhibits:3049</I>Reference is made to Item 15(a)(3). </FONT> </TD>3050</TR>3051</TABLE>3052<BR>30533054<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->3055<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3056<TR VALIGN=TOP>3057<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3058<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) </FONT></TD>3059<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3060<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Schedules:</I> </FONT> </TD>3061</TR>3062</TABLE>3063<BR>30643065<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->3066<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SCHEDULE II —3067VALUATION AND QUALIFYING ACCOUNTS <BR>(In thousands) </FONT></H1>30683069<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">3070<TR>3071<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>COL. A</FONT></TH><td> </td>3072<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>COL. B</FONT></TH><td> </td>3073<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>COL. C</FONT></TH><td> </td>3074<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>COL. D</FONT></TH><td> </td>3075<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>COL. E</FONT></TH></TR>3076<TR>3077<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3078<TH COLSPAN=2><hr color=black size=1></TH><td> </td>3079<TH COLSPAN=5><hr color=black size=1></TH><td> </td>3080<TH COLSPAN=5><hr color=black size=1></TH><td> </td>3081<TH COLSPAN=2><hr color=black size=1></TH></TR>3082<TR>3083<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH><td> </td>3084<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH><td> </td>3085<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additions</FONT></TH><td> </td>3086<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Deductions</FONT></TH><td> </td>3087<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>3088<TR>3089<TH COLSPAN=2></TH><td> </td>3090<TH COLSPAN=2></TH><td> </td>3091<TH COLSPAN=5><hr color=black size=1></TH><td> </td>3092<TH COLSPAN=5><hr color=black size=1></TH><td> </td>3093<TH COLSPAN=2></TH></TR>3094<TR VALIGN=Bottom>3095<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Description</FONT></TH><td> </td>3096<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance<BR>3097at Beginning<BR>3098of Year</FONT></TH><td> </td>3099<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Charged to<BR>3100Expense</FONT></TH><td> </td>3101<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other (1)</FONT></TH><td> </td>3102<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Write-offs (2)</FONT></TH><td> </td>3103<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other (1)</FONT></TH><td> </td>3104<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>3105End of Year</FONT></TH></TR>31063107<TR>3108<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3109<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3110<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3111<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3112<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3113<TH COLSPAN=2><hr color=black size=1> </TH><td> </td>3114<TH COLSPAN=2><hr color=black size=1> </TH><td> </td></tr>31153116311731183119<TR VALIGN=Bottom>3120<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Allowance for doubtful accounts</FONT></TD>3121<TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3122<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3123<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3124<TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3125<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3126<TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3127<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3128<TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3129<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3130<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3131<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3132<TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3133<TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3134<TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3135<TR VALIGN=Bottom>3136<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fiscal Year Ended:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3137<TR VALIGN=Bottom>3138<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3139<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 24,078</FONT></TD>3140<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3141<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,497</FONT></TD>3142<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3143<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,564</FONT></TD>3144<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3145<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,234</FONT></TD>3146<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3147<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> –</FONT></TD>3148<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3149<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31,905</FONT></TD>3150<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3151<TR VALIGN=Bottom>3152<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3153<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17,210</FONT></TD>3154<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3155<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,188</FONT></TD>3156<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3157<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,752</FONT></TD>3158<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3159<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,072</FONT></TD>3160<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3161<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>–</FONT></TD>3162<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3163<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,078</FONT></TD>3164<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3165<TR VALIGN=Bottom>3166<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2001</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3167<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,831</FONT></TD>3168<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3169<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,468</FONT></TD>3170<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3171<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>–</FONT></TD>3172<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3173<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,738</FONT></TD>3174<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3175<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(351</FONT></TD>3176<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3177<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17,210</FONT></TD>3178<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3179</TABLE><BR>31803181<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->3182<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3183<TR VALIGN=TOP>3184<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>3185<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3186<TD WIDTH=97%><p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In31872003, $3,622 of this amount represents the balance recorded as part of our 20033188acquisition of Getz Japan, and the remainder represents the effects of changes in3189foreign currency translation. In 2002 and 2001, all amounts represent the effects3190of changes in foreign currency translation. </FONT></p></TD>3191</TR>3192</TABLE>3193<BR>3194319531963197<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->3198<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3199<TR VALIGN=TOP>3200<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>3201<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3202<TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Uncollectible3203accounts written off, net of recoveries. </FONT></TD>3204</TR>3205</TABLE>3206<BR>320732083209<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->3210<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25 </FONT></P>32113212<BR><BR><BR>3213<HR SIZE=2 COLOR=GRAY NOSHADE>32143215<!-- *************************************************************************** -->3216<!-- MARKER PAGE="sheet: 0; page: 0" -->321732183219<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->3220<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></P>322132223223<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->3224<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Pursuant3225to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934,3226the Registrant has duly caused this report to be signed on its behalf by the undersigned,3227thereunto duly authorized. </FONT></P>32283229<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>3230<TR VALIGN=Bottom>3231<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3232<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ST. JUDE MEDICAL, INC.</FONT></TD></TR>3233<Tr><td> </td></tr>3234<TR VALIGN=Bottom>3235<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: March 12, 2004</FONT></TD>3236<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">By <U>/s/ TERRY L. SHEPHERD</U> </FONT></TD></TR>3237<TR VALIGN=Bottom>3238<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3239<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Terry L. Shepherd</FONT></TD></TR>3240<TR VALIGN=Bottom>3241<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3242<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Chairman and Chief Executive Officer</I> </FONT></TD></TR>3243<TR VALIGN=Bottom>3244<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3245<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Executive Officer)</I> </FONT></TD></TR>3246<Tr><td> </td></tr>3247<TR VALIGN=Bottom>3248<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3249<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">By <U>/s/ JOHN C. HEINMILLER</U> </FONT></TD></TR>3250<TR VALIGN=Bottom>3251<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3252<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John C. Heinmiller</FONT></TD></TR>3253<TR VALIGN=Bottom>3254<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3255<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Vice President, Finance and</I> </FONT></TD></TR>3256<TR VALIGN=Bottom>3257<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3258<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Chief Financial Officer</I> </FONT></TD></TR>3259<TR VALIGN=Bottom>3260<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3261<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Financial and Accounting Officer)</I> </FONT></TD></TR>3262</TABLE>32633264<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->3265<P ALIGN="JUSTIFY"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Pursuant3266to the requirements of the Securities Exchange Act of 1934, this report has been3267signed below by the following persons on behalf of the Registrant and in the capacities3268indicated, on the 12th day of March, 2004. </FONT></P>326932703271<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=300>3272<TR VALIGN=Bottom>3273<TD WIDTH=77% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>/s/ TERRY L. SHEPHERD</U> </FONT></TD>3274<TD WIDTH=23% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3275<TR VALIGN=Bottom>3276<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Terry L. Shepherd</FONT></TD></TR>3277<TR VALIGN=Bottom>3278<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ KEVIN T. O’MALLEY</U> </FONT></TD>3279<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Directors</FONT></TD></TR>3280<TR VALIGN=Bottom>3281<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kevin T. O’Malley</FONT></TD></TR>3282</TABLE>32833284<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->3285<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>as attorney-in-fact for: <BR>Richard R.3286Devenuti, <BR>Stuart M. Essig, <BR>Thomas H. Garrett III, <BR>Michael A. Rocca,<BR>Daniel J. Starks, <BR>David A. Thompson,3287<BR>Stefan K. Widensohler, <BR>Wendy L. Yarno, and <BR>Frank C-P Yin </FONT></P>328832893290329132923293<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->3294<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26 </FONT></P>3295329632973298<BR><BR><BR>3299<HR SIZE=2 COLOR=GRAY NOSHADE>3300330133023303</BODY>3304</HTML>33053306</TEXT>3307</DOCUMENT>3308<DOCUMENT>3309<TYPE>EX-2.13310<SEQUENCE>33311<FILENAME>stjude041330_ex2-1.txt3312<DESCRIPTION>STOCK PURCHASE AGREEMENT3313<TEXT>331433153316Exhibit 2.133173318================================================================================3319332033213322STOCK PURCHASE AGREEMENT33233324AMONG33253326ST. JUDE MEDICAL, INC.,33273328ST. JUDE MEDICAL JAPAN K.K.,33293330GETZ BROS. & CO. ZUG INC.,33313332GETZ INTERNATIONAL, INC.33333334AND33353336MULLER & PHIPPS (JAPAN) LTD.33373338DATED AS OF33393340SEPTEMBER 17, 2002 (USA)334133423343================================================================================33443345<PAGE>33463347I. PURCHASE AND SALE OF SHARES AND CLOSING.............................1334833491.1 The Tender Offer...........................................133501.2 Shareholder Meeting and Stock Transfer.....................233511.3 Purchase and Sale..........................................333521.4 Purchase Price.............................................333531.5 Purchase Price Adjustment..................................333541.6 The Closing................................................433551.7 Transfer by Getz Zug Following Tender Offer................533563357II. REPRESENTATIONS AND WARRANTIES OF SELLERS...........................5335833592.1 Title to Shares............................................533602.2 Incorporation; Power and Authority.........................533612.3 Valid and Binding Agreement................................633622.4 No Breach..................................................633632.5 Getz Intl Balance Sheet....................................633643365III. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY................6336633673.1 Incorporation; Power and Authority.........................633683.2 No Breach..................................................633693.3 Capitalization.............................................733703.4 Subsidiaries...............................................733713.5 Financial Statements.......................................733723.6 Absence of Certain Developments............................733733.7 Property...................................................833743.8 Tax Matters................................................933753.9 Material Contracts.........................................933763.10 Litigation................................................1033773.11 Insurance.................................................1033783.12 Compliance with Laws; Governmental Authorizations.........1033793.13 Environmental Matters.....................................1133803.14 Warranties................................................1233813.15 Employees.................................................1333823.16 Employee Benefits.........................................1333833.17 Suppliers.................................................1333843.18 Brokerage.................................................1333853.19 Securities Law Compliance.................................1433863387IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND ST. JUDE...............14338833894.1 Incorporation; Power and Authority........................1433904.2 Valid and Binding Agreement...............................1433914.3 No Breach.................................................1433924.4 Brokerage.................................................1433933394V. AGREEMENTS OF SELLERS..............................................14339533965.1 Conduct of the Business...................................1433975.2 Access; Updating of Disclosure Schedule...................1633985.3 Waivers; Payment of Indebtedness..........................1633995.4 Conditions................................................1734003401340223403<PAGE>3404340534065.5 Consents and Authorizations...............................1734075.6 Nondisparagement..........................................1734085.7 Non-Hire..................................................1734095.8 Litigation Support........................................1734105.9 Confidentiality...........................................1834115.10 Transfer of Certain Trademark Rights......................1834125.11 No Encumbrance of Shares..................................1934135.12 Getz Intl Net Worth.......................................1934143415VI. AGREEMENTS OF BUYER AND ST. JUDE...................................19341634176.1 Filings and Submissions...................................1934186.2 Buyer Shareholders Meeting................................1934196.3 Inspection................................................1934206.4 Section 338 Election......................................1934213422VII. CONDITIONS TO CLOSING..............................................20342334247.1 Conditions to Buyer's Obligations........................2034257.2 Conditions to Sellers' Obligations.......................2034263427VIII. TERMINATION........................................................21342834298.1 Termination...............................................2134308.2 Contract Extension........................................2134318.3 Effect of Termination.....................................2234323433IX. INDEMNIFICATION....................................................22343434359.1 Indemnification by Sellers................................2234369.2 Third Party Actions.......................................2334379.3 Tax Adjustment............................................2434389.4 Sellers' Representative...................................2434393440X. ARBITRATION........................................................253441344210.1 Disputes..................................................25344310.2 Arbitration...............................................25344410.3 Remedies..................................................2634453446XI. DEFINITIONS........................................................2634473448XII. GENERAL............................................................293449345012.1 Press Releases and Announcements..........................29345112.2 Expenses..................................................29345212.3 Further Assurances........................................29345312.4 Cooperation...............................................29345412.5 Notices...................................................29345512.6 Assignment................................................31345612.7 No Third Party Beneficiaries..............................31345712.8 Severability..............................................31345812.9 Complete Agreement........................................31345912.10 English Language..........................................31346012.11 Signatures; Counterparts..................................31346112.12 Governing Law.............................................3134623463346433465<PAGE>3466346712.13 Amendment and Waiver......................................32346812.14 Construction..............................................3234693470XIII. GUARANTY BY ST. JUDE...............................................323471347234733474<PAGE>347534763477STOCK PURCHASE AGREEMENT34783479This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of3480September 17, 2002, in the United States of America by and among St. Jude3481Medical Japan K.K., a company organized under the laws of Japan ("BUYER"), St.3482Jude Medical, Inc., a Minnesota corporation ("ST. JUDE"), Getz Bros. & Co. Zug3483Inc., a company organized under the laws of Switzerland ("GETZ ZUG"), Getz3484International, Inc., a Delaware corporation ("GETZ INTL"), and Muller & Phipps3485(Japan) Ltd., a company organized under the laws of Japan ("M&P", and together3486with Getz Zug and Getz Intl., "SELLERS"). Certain capitalized terms used but not3487defined when first used herein are defined in Article XI.34883489RECITALS34903491WHEREAS, Getz Zug, a wholly owned subsidiary of Getz Intl, owns 72.18%3492of the outstanding capital stock of Getz Bros. Co., Ltd., a company organized3493under the laws of Japan (the "COMPANY").34943495WHEREAS, the remaining 27.82% of the Company's outstanding capital3496stock is publicly held and registered with the Japan Securities Dealers3497Association (the "JASDA").34983499WHEREAS, Sellers desire to sell, and Buyer desires to buy, 100% of the3500outstanding capital stock of the Company (the "SHARES") on the terms and subject3501to the conditions set forth in this Agreement (the "ACQUISITION").35023503WHEREAS, as a first step in the Acquisition, M&P, a wholly owned3504subsidiary of Getz Intl, will initiate a cash tender offer for the issued and3505outstanding Shares not owned by Getz Zug (the "TENDER OFFER").35063507WHEREAS, to complete the Acquisition, Sellers will cause the Company,3508by exercising their voting rights at a general shareholders meeting of the3509Company, to create a newly formed holding company of the Company organized under3510the laws of Japan ("NEWCO") by means of a stock transfer (KABUSHIKI ITEN) (the3511"STOCK TRANSFER"), whereby, subject to shareholder approval and compliance with3512applicable legal procedures, all issued and outstanding Shares, including Shares3513not tendered to and purchased by M&P pursuant to the Tender Offer, will also be3514exchanged for shares of Newco, following which Sellers will use their reasonable3515efforts to cause Newco to sell the Shares to Buyer pursuant to the terms and3516conditions of this Agreement.35173518NOW, THEREFORE, the following agreement is made:35193520I. PURCHASE AND SALE OF SHARES AND CLOSING352135221.1 The Tender Offer.35233524(a) M&P, as promptly as practicable, shall commence the Tender Offer3525whereby M&P will offer to purchase for cash all of the Shares not otherwise held3526by Sellers. M&P expressly reserves the right to increase the price per share3527payable in the Tender Offer and to make any352835293530<PAGE>35313532other change or changes in the terms or conditions of the Tender Offer,3533including without limitation extending the expiration date.35343535(b) M&P shall, on the terms of the Tender Offer, accept for payment3536Shares validly tendered as soon as practicable, and pay for accepted Shares as3537promptly thereafter as reasonably practicable.35383539(c) On the date of commencement of the Tender Offer, M&P shall file3540with the Kanto Local Financial Bureau a registration statement for the Tender3541Offer (KOUKAI KAITSUKE TODOKEDESHO) and all other disclosure documents and3542related public notices as are required to be filed by M&P with the Kanto Local3543Financial Bureau in connection with the Tender Offer in accordance with3544applicable securities Laws (collectively, the "TENDER OFFER Documents"). Sellers3545will take all steps necessary to ensure that the Tender Offer Documents comply3546in all material respects with the provisions of applicable Japanese Laws from3547the date filed with the Kanto Local Financial Bureau until the completion of the3548Tender Offer. Buyer shall provide M&P with such information on Buyer and its3549parent company to the extent required by applicable Japanese Laws for inclusion3550in the Tender Offer Documents and shall take all steps necessary to ensure that3551all information provided by Buyer for inclusion in the Tender Offer Documents is3552accurate.35533554(d) Sellers will use all reasonable efforts to cause the Board of3555Directors of the Company to issue an opinion supporting the Tender Offer and to3556take all steps necessary to file all documents required to be filed with the3557Kanto Local Financial Bureau and the JASDA in connection with the Tender Offer3558in accordance with applicable securities Laws.355935601.2 Shareholder Meeting and Stock Transfer. Sellers shall cause the3561Company to, as promptly as practicable following the acceptance for payment and3562purchase of Shares by M&P pursuant to the Tender Offer:35633564(a) use all reasonable efforts to duly call, give notice of, convene3565and hold a general shareholders meeting (the "SHAREHOLDERS MEETING"), to be held3566as soon as practicable after the completion of the Tender Offer for the purpose3567of considering and taking action upon the Stock Transfer;35683569(b) use all reasonable efforts to cause the Board of Directors of the3570Company to recommend to the shareholders of the Company that they vote in favor3571of the Stock Transfer; and35723573(c) use all reasonable efforts to promptly obtain the necessary3574approvals by its shareholders of the Stock Transfer.35753576At such meeting, Sellers will vote all Shares owned by them in favor of approval3577of the Stock Transfer. As promptly as practicable following the Shareholders3578Meeting, Sellers shall, and shall cause the Company to, take all action3579necessary to consummate the Stock Transfer, including without limitation the3580filing of an extraordinary report (RINJI HOUKOKUSHO) with the Kanto Local3581Financial Bureau, notification with the JASDA and the purchase of any Shares3582held by a shareholder who notifies the Company of its objection to the Stock3583Transfer prior to the Shareholders Meeting and requests the purchase of such3584Shares in accordance with applicable Law. Buyer and St. Jude agree that when the3585Stock Transfer takes effect the registration of the35863587235883589<PAGE>35903591Shares with the JASDA shall be revoked and the Company will become a private3592company. As promptly as practicable after the Stock Transfer takes effect,3593Sellers shall use all reasonable efforts to (i) cause the Company to apply for3594an exemption from its continuous disclosure obligations to the Prime Minister of3595Japan pursuant to applicable securities Laws and (ii) cause the Board of3596Directors of Newco to approve and adopt this Agreement, at which time Newco and3597the parties hereto will execute an amendment to this Agreement whereby Newco3598will become a party to this Agreement and be included within the definition of3599"SELLERS".360036011.3 Purchase and Sale. Promptly following (i) the Tender Offer; (ii)3602the Stock Transfer; (iii) revocation of registration of the Shares with the3603JASDA; and (iv) the grant to the Company of an exemption from its continuous3604disclosure obligations, Sellers shall use all reasonable efforts to cause Newco3605to, and Newco shall, convene a general shareholders meeting to approve the3606Acquisition on the terms and subject to the conditions set forth in this3607Agreement. At such meeting, Sellers will vote all shares of Newco owned by them3608in favor of approval of the Acquisition. Subject to the approval of the3609shareholders of Newco, Newco shall sell to Buyer, and Buyer agrees to purchase3610from Newco for the Purchase Price, all of the issued and outstanding Shares.3611Each Seller waives any co-sale rights, rights of first refusal or similar rights3612that such Seller may have relating to Buyer's purchase of the Shares, whether3613conferred by the Company's Organizational Documents, by Contract or otherwise.361436151.4 Purchase Price.36163617(a) The aggregate purchase price (the "PURCHASE PRICE") for the Shares3618is U.S.$220,000,000 payable on the Closing Date in Japanese yen at an exchange3619rate equal to 122.2480 Japanese yen to one (1) U.S. dollar.36203621(b) If the Inspector (as defined in Section 6.3) submits an opinion to3622the Buyer shareholders meeting to be held in accordance with Section 6.2 that3623the Acquisition is unfair to Buyer but would be fair to Buyer at a purchase3624price that is less than the Purchase Price set forth in Section 1.4(a) (the3625"REDUCED BUYER PRICE"), or if the Inspector is unable to complete the inspection3626and to submit an opinion to the Buyer shareholders meeting prior to the Closing3627Date, then at the Closing (i) Buyer shall pay to Newco the Reduced Buyer Price3628or, if the Inspector's opinion shall not have been issued to the Buyer3629shareholders meeting, 499,999 Japanese yen and (ii) St. Jude and Buyer shall3630cause St. Jude Medical Puerto Rico Holding B.V. to pay to Newco the deficiency3631amount such that, at the Closing, Newco will receive the full Purchase Price set3632forth in Section 1.4(a) and the Acquisition will not be voidable under Japanese3633law as a result of the Inspector's opinion or lack of the Inspector's opinion.3634All such payments will be made in accordance with Section 1.6(a)(ii)(A).363536361.5 Purchase Price Adjustment. Except to the extent caused by or in any3637way arising out of any act of Buyer or St. Jude, or any affiliate of either of3638them (whether under the Distribution Agreement (as defined in Section 8.2) or3639otherwise), if, between the date of this Agreement and the date of Closing3640(inclusive), there is a change, effect, event or condition, which is not in the3641Ordinary Course of Business and which results or is reasonably likely to result3642in either (i) a material loss or decrease in the value of the Company or the3643business of the Company or (ii) a material gain or increase in the value of the3644Company or the business of the Company, Buyer and Sellers shall negotiate in3645good faith an appropriate decrease or increase, as applicable, in the36463647336483649<PAGE>36503651Purchase Price for the Shares. If all of the conditions set forth in Article VII3652have been fulfilled or waived in accordance with this Agreement but the parties3653cannot agree on such appropriate decrease or increase before Closing in3654accordance with Section 1.6, the Closing shall proceed and the Purchase Price3655shall be paid at the Closing, subject to the appropriate decrease or increase to3656be subsequently determined by arbitration conducted pursuant to provisions of3657Article X.365836591.6 The Closing. If all of the conditions set forth in Article VII have3660been fulfilled or waived in accordance with this Agreement, the closing of the3661purchase and sale of the Shares from Newco to Buyer contemplated by this3662Agreement (the "Closing") will take place at the offices of Mori Sogo on the3663later of (i) the first business day following the later of (A) the date on which3664the shareholders of Newco agree at a general meeting of Newco shareholders to3665sell all of the Shares to Buyer or (B) the date on which the shareholders of3666Buyer approve the acquisition of the Shares from Newco, or (ii) March 31, 2003,3667or at such other place and on such other date as may be mutually agreed by Buyer3668and Sellers' Representative (as defined in Section 9.4(a)). The date on which3669the Closing occurs is referred to herein as the "Closing Date." On the Closing3670Date:36713672(a) Subject to the conditions set forth in this Agreement:36733674(i) Sellers will deliver or cause to be delivered to Buyer:36753676(A) certificates representing all of the issued and3677outstanding Shares, free and clear of all Encumbrances, duly3678endorsed, in accordance with applicable Japanese Laws;36793680(B) a certificate of Sellers dated the Closing Date3681stating that the conditions set forth in Section 7.1(a) have3682been satisfied;36833684(C) a copy of the text of the resolutions adopted by3685the Board of Directors (or similar body) of each Seller3686authorizing the execution, delivery and performance of this3687Agreement, certified by an appropriate officer of such Seller;36883689(D) the minute books, stock or equity records,3690corporate seal and other materials related to the corporate3691administration of the Company or any Subsidiary;36923693(E) resignations in writing (effective as of the3694Closing Date) from such of the officers and directors of each3695of the Company and the Subsidiaries as Buyer may have3696requested prior to the Closing Date; and36973698(F) any instruments and documents necessary to effect3699the Trademark Assignment (as defined in Section 5.10).37003701(ii) Buyer will deliver or cause to be delivered to Sellers or3702Newco, as appropriate:370337043705370643707<PAGE>37083709(A) the Purchase Price by wire transfer of3710immediately available funds to accounts that shall be3711designated by Sellers to Buyer no later than three (3)3712business days prior to the Closing Date;37133714(B) a certificate of Buyer dated the Closing Date3715stating that the conditions set forth in Section 7.2(b) have3716been satisfied; and37173718(C) a copy of the text of the resolutions adopted by3719the Board of Directors of Buyer and St. Jude authorizing the3720execution, delivery and performance of this Agreement,3721certified by an appropriate officer of Buyer or St. Jude, as3722appropriate.37233724(b) All items delivered by the parties at the Closing will be deemed to3725have been delivered simultaneously, and no items will be deemed delivered or3726waived until all have been delivered.37273728(c) Notwithstanding any investigation made by or on behalf of any of3729the parties to this Agreement or the results of any such investigation, and3730notwithstanding the fact of, or the participation of any of the parties to this3731Agreement in, the Closing, the representations, warranties and agreements in3732this Agreement will survive the Closing.37333734(d) The Confidentiality Agreement will terminate effective as of the3735Closing Date.37363737(e) All actions to be taken by Buyer or Sellers in connection with3738consummation of the transactions contemplated by this Agreement and all3739certificates, opinions, instruments and other documents required to effect the3740transactions contemplated by this Agreement will be in form and substance3741reasonably satisfactory to the other.374237431.7 Transfer by Getz Zug Following Tender Offer. Buyer acknowledges3744that after completion of the Tender Offer Getz Zug may transfer its Shares or,3745after the Stock Transfer, its shares in Newco, to Getz Intl. Such transfer shall3746not be deemed a breach of any provision of this Agreement.37473748II. REPRESENTATIONS AND WARRANTIES OF SELLERS37493750Each Seller represents and warrants to Buyer as of the date of this3751Agreement and as of the Closing Date that, as to such Seller, except as3752described in the corresponding section of the Disclosure Schedule:375337542.1 Title to Shares. As of the date hereof and subject to Section 1.7,3755such Seller owns, of record and beneficially, the number of Shares listed3756opposite such Seller's name on SCHEDULE 2.1, free and clear of any Encumbrance.3757At the Closing, Buyer will obtain good and valid title to all Shares owned, of3758record and beneficially, by such Seller as of the date hereof, free and clear of3759any Encumbrance.376037612.2 Incorporation; Power and Authority. Such Seller is duly organized,3762validly existing and, if applicable, in good standing under the laws of the3763jurisdiction of its organization. Such Seller has all necessary power and3764authority to execute, deliver and perform this Agreement, and,37653766537673768<PAGE>37693770to the extent applicable, to perform the Tender Offer and to perform its3771obligations under this Agreement in relation to the Stock Transfer.377237732.3 Valid and Binding Agreement. The execution, delivery and3774performance of this Agreement, and, to the extent applicable, the performance of3775the Tender Offer and the performance of its obligations under this Agreement in3776relation to the Stock Transfer, by such Seller has been duly and validly3777authorized by all necessary corporate or equivalent action. This Agreement has3778been duly executed and delivered by such Seller and constitutes the valid and3779binding obligation of such Seller, enforceable against it in accordance with its3780terms, subject to the Remedies Exception.378137822.4 No Breach. The execution, delivery and performance of this3783Agreement and, to the extent applicable, the performance of the Tender Offer and3784the performance of its obligations under this Agreement in relation to the Stock3785Transfer, by such Seller will not (a) contravene any provision of the3786Organizational Documents of such Seller; (b) violate or conflict with any Law,3787Governmental Order or Governmental Authorization; (c) result in the creation of3788any Encumbrance upon the Shares held by such Seller; or (d) require any3789Governmental Authorization other than the filing of the Tender Offer Documents3790with the Kanto Local Financial Bureau, except, with respect to clauses (a) and3791(b), where such contravention, violation or conflict would not, individually or3792in the aggregate, prevent such Seller from performing its obligations under this3793Agreement.379437952.5 Getz Intl Balance Sheet. Getz Intl has furnished Buyer with a true3796and correct copy of its unaudited consolidated balance sheets as of December 31,37972001 and 2000, which balance sheets are accurate in all material respects.37983799III. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY38003801Sellers, jointly and severally, represent and warrant to Buyer as of3802the date of this Agreement and as of the Closing Date that, except as described3803in the corresponding section of the Disclosure Schedule:380438053.1 Incorporation; Power and Authority.38063807(a) Each of the Company and the Subsidiaries is a legal entity duly3808organized, validly existing and, if applicable, in good standing under the laws3809of the jurisdiction of its organization, and has all necessary power and3810authority necessary to own, lease and operate its assets and to carry on its3811business as now conducted and presently proposed to be conducted.38123813(b) Each of the Company and the Subsidiaries is in material compliance3814with all provisions of its Organizational Documents.381538163.2 No Breach. The performance of the Stock Transfer will not (a)3817contravene any provision of the Organizational Documents of the Company or any3818Subsidiary; (b) violate or conflict with any Law, Governmental Order or3819Governmental Authorization; (c) result in the creation of any material3820Encumbrance upon the Company or any Subsidiary or any of the assets of the3821Company or any Subsidiary; or (d) require any Governmental Authorization,3822except, with respect to clauses (a) and (b), where such contravention, violation3823or conflict would not,3824382563826<PAGE>38273828individually or in the aggregate, prevent Sellers from performing their3829obligations under this Agreement.383038313.3 Capitalization. The authorized capital stock of the Company3832consists solely of 148,962,000 shares of common stock ("Company Common Stock"),3833of which, as of June 30, 2002, 38,202,500 shares are issued and outstanding, 5603834shares of which are held in treasury. All issued and outstanding shares of3835Company Common Stock are duly authorized, validly issued, fully paid and3836non-assessable, free of preemptive rights or any other third-party rights and in3837certificated form, and have been offered, sold and issued by the Company in3838compliance with applicable securities and corporate Laws. There is no option,3839warrant, call, subscription, convertible security, right (including preemptive3840right) or Contracts of any character to which the Company is a party or by which3841it is bound obligating the Company to issue, exchange, transfer, sell,3842repurchase, redeem or otherwise acquire any shares of capital stock of the3843Company or obligating the Company to grant, extend, accelerate the vesting of or3844enter into any such option, warrant, call, subscription, convertible security,3845right or Contract.384638473.4 Subsidiaries. Except as listed on SCHEDULE 3.4, neither the Company3848nor any Subsidiary owns any Subsidiary. For each of the Company's Subsidiaries,3849SCHEDULE 3.4 shows the equity interests owned by the Company or any Subsidiary,3850the names of the Persons owning such equity interests and the percentage of the3851outstanding equity interests so owned. All issued and outstanding equity3852interests of each Subsidiary of the Company are duly authorized, validly issued,3853fully paid and non-assessable, free of preemptive rights or any other3854third-party right except for those statutory preemptive rights arising, granted3855or existing pursuant to the Japanese Commercial Code, free and clear of all3856Encumbrances, and in certificated form and have been issued by such Subsidiary3857in compliance with applicable securities and corporate Laws. There is no option,3858warrant, call, subscription, convertible security, right (including preemptive3859right except for statutory preemptive rights) or Contracts of any character to3860which the Company or any Subsidiary is a party or by which it is bound3861obligating any Subsidiary of the Company to issue, exchange, transfer, sell,3862repurchase, redeem or otherwise acquire any equity interest of such Subsidiary3863or obligating the Company or such Subsidiary to grant, extend, accelerate the3864vesting of or enter into any such option, warrant, call, subscription,3865convertible security, right or Contract.386638673.5 Financial Statements. The Company has furnished Buyer with true and3868correct copies of the unaudited balance sheets as of June 30, 2002 of each of3869the Company, Medtechnica Co., Ltd., Vital Link Co., Ltd. and TechnoMed Co. Ltd.3870(the "Latest Balance Sheets") and unaudited statements of earnings of each of3871the Company, Medtechnica Co., Ltd., Vital Link Co., Ltd. and TechnoMed Co. Ltd.3872for the six-month period then ended and unaudited shareholders' equity and cash3873flows of the Company for the six-month period then ended (such statements and3874the Latest Balance Sheets, the "Latest Financial Statements") and the3875consolidated English-language balance sheets of the Company translated from the3876audited consolidated Japanese-language balance sheets of the Company, as of3877December 31, 2001 and December 31, 2000 (collectively, the "Annual Balance3878Sheets"). The Latest Financial Statements and the Annual Balance Sheets are3879accurate in all material respects. TechnoMed Co. Ltd. has no material3880liabilities.388138823.6 Absence of Certain Developments. Since December 31, 2001:3883388473885<PAGE>38863887(a) neither the Company nor any Subsidiary has sold, leased,3888transferred or assigned any of its assets, tangible or intangible, involving3889more than (Y)50,000,000 other than for a fair consideration in the Ordinary3890Course of Business;38913892(b) neither the Company nor any Subsidiary has entered into any3893Contract (or series of related Contracts) involving more than (Y)50,000,0003894other than in the Ordinary Course of Business;38953896(c) no party (including the Company or any Subsidiary) has accelerated,3897suspended, terminated, modified or canceled any Contract (or series of related3898Contracts) involving more than (Y)50,000,000, to which the Company or any3899Subsidiary is a party or by which any of them is bound other than in the3900Ordinary Course of Business;39013902(d) neither the Company nor any Subsidiary has declared, set aside or3903paid any dividend or made any distribution with respect to its capital stock or3904equity interests, whether in cash or in kind (other than routine interim or3905annual dividends to all shareholders of the Company consistent with past3906practices and dividends or distributions from a Subsidiary to the Company or3907another Subsidiary) or, except as listed on SCHEDULE 3.6 or as may be required3908in connection with the Stock Transfer, redeemed, purchased or otherwise acquired3909any of its capital stock or split, combined or reclassified any outstanding3910shares of its capital stock;39113912(e) the Company has not loaned any funds, paid any money or transferred3913any assets to any affiliate (other than among the Company and the Subsidiaries),3914except for (i) payments of dividends or distributions permitted under Section39153.6(d), (ii) payments to affiliates for goods or services purchased or obtained3916in the Ordinary Course of Business in arms' length transactions, and (iii)3917payments required under the Contracts listed on SCHEDULE 3.6(E); and39183919(f) the Company has not made any material change in accounting3920principles or practices from those utilized in the preparation of the Annual3921Financial Statements.392239233.7 Property.39243925(a) The real properties owned by the Company or any Subsidiary or3926demised by the leases listed on SCHEDULE 3.7 constitute all of the real property3927owned, leased (whether or not occupied and including any leases assigned or3928leased premises sublet for which the Company remains liable), used or occupied3929by the Company or any Subsidiary.39303931(b) The leases of real property listed on SCHEDULE 3.7 as being leased3932by the Company or any Subsidiary (the "Leased Real Property") are in full force3933and effect, and the Company has used the Leased Real Property undisturbed.39343935(c) The Company and, to Sellers' Knowledge, each Subsidiary owns good3936and marketable title to each parcel of real property identified on SCHEDULE 3.73937as being owned by the Company or a Subsidiary (the "Owned Real Property" and,3938together with the Leased Real Property, the "Real Property").3939394083941<PAGE>39423943(d) Neither the Company nor any Subsidiary has received any written3944notice of any violation of any applicable zoning ordinance or other Law relating3945to the Real Property, which violation has or reasonably could be expected to3946have a Material Adverse Effect.39473948(e) Sellers have no Knowledge of material improvements made or3949contemplated to be made by any Governmental Entity, the costs of which are to be3950assessed as special Taxes or charges against any of the Real Property, and there3951are no present assessments.39523953(f) Each of the Company and the Subsidiaries has good and marketable3954title to, or a valid leasehold interest in, the buildings, machinery, equipment3955and other tangible assets and properties shown in the Latest Balance Sheets or3956acquired after the date thereof, free and clear of all Encumbrances, except for3957Encumbrances listed on SCHEDULE 3.7 or disclosed in the Latest Financial3958Statements and properties and assets disposed of in the Ordinary Course of3959Business since the date of the Latest Balance Sheets.396039613.8 Tax Matters.39623963(a) Each of the Company and any Tax Affiliate has (i) timely filed all3964Returns required to be filed by it in respect of any Taxes, all which were3965correct and complete in all material respects; (ii) timely paid all Taxes shown3966to be due and payable on such Returns; (iii) established on the Latest Balance3967Sheets reserves that are adequate for the payment of any Taxes accrued but not3968yet due and payable through the date thereof; and (iv) complied with all Laws3969relating to the withholding of Taxes and the payment thereof.39703971(b) SCHEDULE 3.8 lists all national, prefectural, provincial, state,3972local and foreign income Returns filed with respect to the Company or any Tax3973Affiliate for taxable periods ended on or after December 31, 2000, indicates3974those Returns that have been audited and indicates those Returns that currently3975are the subject of audit.39763977(c) No deficiency for any Taxes has been proposed, asserted or assessed3978against the Company or any Tax Affiliate that has not been resolved and paid in3979full.398039813.9 Material Contracts.39823983(a) SCHEDULE 3.9 lists the following written Contracts to which the3984Company or any Subsidiary is a party or by which it is bound (the "Material3985Contracts"):39863987(i) all employment, agency or consulting Contracts;39883989(ii) all stock purchase, stock option and stock incentive3990plans (other than Plans listed on SCHEDULE 3.16(A));39913992(iii) all distributor, reseller, dealer, manufacturer's3993representative, sales agency or advertising agency and finder's3994Contracts;39953996(iv) all franchise agreements;3997399893999<PAGE>40004001(v) all leases of real or personal property (excluding any4002lease with aggregate annual payments of (Y)50,000,000 or less);40034004(vi) any Contract for the sale of any capital assets valued in4005excess of (Y)50,000,000;40064007(vii) any Contract for the sale of any minority equity4008investments;40094010(viii) any Contract for capital expenditures in excess of4011(Y)50,000,000;40124013(ix) all Contracts relating to the borrowing of money or to4014mortgaging, pledging or otherwise placing an Encumbrance on any of the4015assets of the Company or any Subsidiary;40164017(x) each warranty, guaranty or other similar undertaking with4018respect to contractual performance extended by the Company or any4019Subsidiary other than in the Ordinary Course of Business;40204021(xi) all Contracts relating to any surety bond or letter of4022credit required to be maintained by the Company or any Subsidiary;40234024(xii) all license agreements, transfer or joint-use agreements4025or other agreements related to Intellectual Property;40264027(xiii) any Contract for a partnership or joint venture;40284029(xiv) any and all other Contracts of the Company or any4030Subsidiary that both were not entered into in the Ordinary Course of4031Business and are material to the business, financial condition, results4032of operations or prospects of the Company and the Subsidiaries taken as4033a whole; and40344035(xv) any Contracts not listed above that contain4036non-competition or non-solicitation provisions or that would otherwise4037prohibit the Company or any Subsidiary from freely engaging in business4038anywhere in the world or prohibiting the solicitation of the employees4039or contractors of any other entity.404040413.10 Litigation. SCHEDULE 3.10 lists all Litigation pending or, to the4042Knowledge of any Seller, threatened against the Company or any Subsidiary and4043each material Governmental Order to which the Company or any Subsidiary is4044presently subject.404540463.11 Insurance. SCHEDULE 3.11 lists all policies of insurance carried4047by each of the Company and the Subsidiaries.404840493.12 Compliance with Laws; Governmental Authorizations.40504051(a) To Sellers' Knowledge, each of the Company and the Subsidiaries4052has:40534054104055<PAGE>40564057(i) complied in all material respects with all material Laws4058and Governmental Orders, and40594060(ii) neither the Company nor any Subsidiary is relying on any4061exemption from or deferral of any Law, Governmental Order or4062Governmental Authorization that would not be available to it after the4063Closing.40644065(b) To Sellers' Knowledge, each of the Company and the Subsidiaries has4066in full force and effect all material Governmental Authorizations necessary to4067conduct its business and own and operate its properties (including, but not4068limited to, SHONIN issued by the Japan Ministry of Health for each product4069distributed by the Company or any Subsidiary). To Sellers' Knowledge, each of4070the Company and the Subsidiaries has complied in all material respects with all4071Governmental Authorizations applicable to it.40724073(c) To Sellers' Knowledge, since the date one (1) year prior to the4074date of this Agreement, neither the Company nor any Subsidiary has, in violation4075of any applicable Law, offered, authorized, promised, made or agreed to make4076gifts of money, other property or similar benefits (other than incidental gifts4077of articles of nominal value) to any actual or potential customer, supplier,4078governmental employee, political party, political party official or candidate,4079official of a public international organization or any other Person in a4080position to assist or hinder the Company or any Subsidiary in connection with4081any actual or proposed transaction.408240833.13 Environmental Matters.40844085(a) As used in this Section 3.13, the following terms have the4086following meanings:40874088(i) "ENVIRONMENTAL COSTS" means any and all reasonable costs4089and expenditures, including but not limited to any fees and expenses of4090attorneys and of environmental consultants or engineers incurred in4091connection with investigating, defending, remediating or otherwise4092responding to any Release of Hazardous Materials, any violation or4093alleged violation of Environmental Laws, any fees, fines, penalties or4094charges associated with any Governmental Authorization, or any actions4095necessary to comply with any Environmental Laws.40964097(ii) "ENVIRONMENTAL LAWS" means any Law, Governmental4098Authorization or Governmental Order relating to pollution,4099contamination, Hazardous Materials or protection of the environment in4100effect at the time of execution of the Agreement.41014102(iii) "HAZARDOUS MATERIALS" means any dangerous, toxic or4103hazardous pollutant, contaminant, chemical, waste, material or4104substance as defined in or governed by any Law relating to such4105substance or otherwise relating to the environment or human health or4106safety, including without limitation any waste, material, substance,4107pollutant or contaminant that subjects the owner or operator of the4108Property to any Environmental Costs or liability under any4109Environmental Law in effect at the time of execution of this Agreement.41104111(iv) "PROPERTY" means real property now owned, leased,4112controlled or occupied by the Company or any Subsidiary.41134114114115<PAGE>41164117(v) "REGULATORY ACTIONS" means any Litigation with respect to4118the Company or any Subsidiary brought or instigated by any Governmental4119Entity in connection with any Environmental Costs, Release of Hazardous4120Materials or any Environmental Law.41214122(vi) "RELEASE" means the spilling, leaking, disposing,4123discharging, emitting, depositing, ejecting, leaching, escaping or any4124other release or threatened release, however defined, whether4125intentional or unintentional, of any Hazardous Material.41264127(vii) "THIRD-PARTY ENVIRONMENTAL CLAIMS" means any Litigation4128(other than a Regulatory Action) based on negligence, trespass, strict4129liability, nuisance, toxic tort or any other cause of action or theory4130relating to any Environmental Costs, Release of Hazardous Materials or4131any violation of Environmental Law.41324133(b) No Third-Party Environmental Claims or Regulatory Actions are4134pending against the Company or any Subsidiary, and, to the Knowledge of Sellers,4135no Third-Party Environmental Claims or Regulatory Actions are threatened against4136the Company or any Subsidiary.41374138(c) Since the date two (2) years prior to the date of this Agreement,4139to Sellers' Knowledge, the transfer, transportation or disposal of Hazardous4140Materials by the Company or any Subsidiary to properties not owned, leased or4141operated by the Company or any Subsidiary has been in compliance with applicable4142Environmental Laws at the time of such transfer, transport or disposal.41434144(d) To Sellers' Knowledge, the Property is used and operated in4145material compliance with all material Environmental Laws applicable to it.41464147(e) Each of the Company and the Subsidiaries has obtained all material4148Governmental Authorizations relating to the Environmental Laws, to Sellers'4149Knowledge, necessary for operation of the Company, each of which is listed on4150SCHEDULE 3.13(E).41514152(f) The Company has delivered to Buyer all environmental reports and4153investigations, if any, that any Sellers, the Company or any Subsidiary has4154obtained or ordered with respect to the Company or any Subsidiary, or the4155Property.41564157(g) No Encumbrance has been attached or filed against the Company or4158any Subsidiary in favor of any Person for (i) any liability under or violation4159of any applicable Environmental Law, (ii) any Release of Hazardous Materials or4160(iii) any imposition of Environmental Costs.416141623.14 Warranties. SCHEDULE 3.14 lists all material claims pending or, to4163the Knowledge of any Sellers, threatened for breach of any warranty relating to4164any products sold or services performed by the Company or any Subsidiary prior4165to the date of this Agreement. Except as listed on SCHEDULE 3.14, none of the4166products sold, leased or delivered by the Company or any Subsidiary has been the4167subject of any product recall or return (whether voluntary or involuntary)4168during the past five (5) years.41694170124171<PAGE>417241733.15 Employees.41744175(a) To Sellers' Knowledge, each of the Company and the Subsidiaries has4176complied at all times in all material respects with all applicable Laws relating4177to employment and employment practices.41784179(b) Except as set forth in SCHEDULE 3.15(B), none of the employees of4180the Company or any Subsidiary is covered by any collective bargaining agreement,4181no collective bargaining agreement is currently being negotiated and, to4182Sellers' Knowledge, no attempt is currently being made or threatened or during4183the past five (5) years has been made to organize any employees of the Company4184or any Subsidiary to form or enter into any labor union, employee association or4185similar organization. There are no strikes or work stoppages pending or, to the4186Knowledge of any Seller, threatened against or otherwise affecting the employees4187or facilities of the Company or any Subsidiary. None of the Company or any4188Subsidiary has experienced any labor strike or work stoppage involving its4189employees within the past two (2) years.41904191(c) Each of the Company and the Subsidiaries has paid in full to all4192employees all wages, salaries, bonuses and commissions due and payable to such4193employees and have fully reserved on the Latest Financial Statements all amounts4194for wages, salaries, bonuses and commissions due but not yet payable to such4195employees as of the date thereof.419641973.16 Employee Benefits.41984199(a) Except as set forth in SCHEDULE 3.16(A), with respect to all4200employees and former employees of the Company or its Subsidiaries and all4201dependents and beneficiaries of such employees and former employees, neither the4202Company nor any Subsidiary maintains or contributes to any plan, fund, contract4203program or arrangement (written or verbal) intended to provide: (i) medical,4204surgical, health care, hospitalization, dental, vision, workers compensation,4205life insurance, death, disability, legal services, severance, sickness or4206accident benefits; (ii) pension, profit sharing, retirement, supplemental4207retirement or deferred compensation benefits; (iii) bonus, incentive4208compensation, stock option, stock appreciation rights, phantom stock or stock4209purchase benefits or change in control benefits; or (iv) salary continuation,4210unemployment, supplemental unemployment, termination pay, vacation or holiday4211benefits (each a "PLAN").42124213(b) For the last two (2) years, neither the Company nor any Subsidiary4214has incurred any liability for any Tax or civil penalty or any disqualification4215of any employee benefit plan imposed by the Law of any jurisdiction in which the4216Company or any Subsidiary does business.421742183.17 Suppliers. SCHEDULE 3.17 lists the eight largest suppliers (other4219than St. Jude Medical, Inc. and its affiliates) of the Company and the4220Subsidiaries on a consolidated basis for each of the last two (2) fiscal years4221and for the interim period ended on the date of the Latest Balance Sheets and4222sets forth opposite the name of each such supplier the amount of purchases by4223the Company and the Subsidiaries attributable to such supplier for each such4224period.422542263.18 Brokerage. Except for Goldman, Sachs & Co., the Tender Offer agent4227and KPMG Corporate Finance K.K., no Person will be entitled to receive any4228brokerage commission, finder's fee, fee for financial advisory services or4229similar compensation in connection with the423042314232134233<PAGE>42344235transactions contemplated by this Agreement based on any Contract made by or on4236behalf of the Company for which Buyer or the Company is or could become liable4237or obligated.423842393.19 Securities Law Compliance. Since January 1, 2000 and through the4240Closing Date, the Company has filed or will file, with the appropriate Japanese4241regulatory authorities, including the Financial Services Agency, the Kanto Local4242Financial Bureau, the Japan Securities Dealers Association and any other4243applicable stock exchange, the forms and documents required to be filed by it4244under Japanese securities Laws. These filings, including any financial4245statements or schedules included therein, have complied or will comply in all4246material respects with the applicable requirements of Japanese securities Laws.42474248IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND ST. JUDE42494250Each of Buyer and St. Jude represents and warrants to Sellers as of the4251date hereof and as of the Closing Date that:425242534.1 Incorporation; Power and Authority. Each of Buyer and St. Jude is a4254legal entity duly organized, validly existing and, if applicable, in good4255standing under the laws of its jurisdiction of organization, with all necessary4256power and authority to execute, deliver and perform this Agreement.425742584.2 Valid and Binding Agreement. The execution, delivery and4259performance of this Agreement by Buyer and St. Jude have been duly and validly4260authorized by all necessary corporate action. This Agreement has been duly4261executed and delivered by Buyer and St. Jude and constitutes the valid and4262binding obligation of Buyer and St. Jude, enforceable against each in accordance4263with its terms, subject to the Remedies Exception.426442654.3 No Breach. The execution, delivery and performance of this4266Agreement by Buyer and St. Jude will not (a) contravene any provision of the4267Organizational Documents of Buyer or St. Jude; (b) violate or conflict with any4268Law, Governmental Order or Governmental Authorization; or (c) require any4269Governmental Authorization, except, with respect to clauses (a) and (b), where4270such contravention, violation or conflict would not, individually or in the4271aggregate, prevent Buyer or St. Jude, respectively, from performing its4272obligations under this Agreement.427342744.4 Brokerage. Except for Goldman, Sachs & Co., no Person will be4275entitled to receive any brokerage commission, finder's fee, fee for financial4276advisory services or similar compensation in connection with the transactions4277contemplated by this Agreement based on any Contract made by or on behalf of4278Buyer for which any Sellers is or could become liable or obligated.42794280V. AGREEMENTS OF SELLERS42814282Sellers, jointly and severally, agree with Buyer that:428342845.1 Conduct of the Business. Unless otherwise consented to by Buyer in4285writing, Sellers will cause the Company (which, for purposes of this Section42865.1, shall mean the Company and428742884289144290<PAGE>42914292the Subsidiaries taken as a whole) to observe the following provisions from the4293date of this Agreement to and including the Closing Date:42944295(a) The Company will conduct its business in all material4296respects in the Ordinary Course of Business and in accordance with4297applicable Law;42984299(b) The Company will (i) use reasonable efforts to preserve4300its business organization and goodwill, keep available the services of4301its officers, employees and consultants and maintain satisfactory4302relationships with vendors, customers and others having business4303relationships with it, and (ii) confer on a regular and frequent basis4304with representatives of Buyer to report operational matters and the4305general status of ongoing operations as requested by Buyer;43064307(c) The Company will not materially change any of its methods4308of accounting in effect on the date of the Latest Balance Sheets, other4309than changes required by GAAP;43104311(d) The Company will provide Buyer with its monthly4312controller's reports promptly following the distribution of each such4313report to the Company's management;43144315(e) The Company will not cancel or terminate its current4316insurance policies or allow any of the coverage thereunder to lapse,4317unless simultaneously with such termination, cancellation or lapse4318replacement policies providing coverage equal to or greater than the4319coverage under the canceled, terminated or lapsed policies for4320substantially similar premiums are in full force and effect;43214322(f) The Company will file (or cause to be filed) at its own4323expense, on or prior to the due date, all Returns for all Tax periods4324ending on or before the Closing Date where the due date for such4325Returns (taking into account valid extensions of the respective due4326dates) falls on or before the Closing Date, prepared on a basis4327consistent with the Returns of the Company prepared for prior Tax4328periods, and will provide Buyer with copies of each income Tax Return4329or election of the Company at least ten (10) days before filing such4330Return or election; provided, however, that the Company will not file4331any Return, election, claim for refund or information statement or4332consent to any adjustment or otherwise compromise or settle any matters4333with respect to Taxes to which Buyer reasonably objects;43344335(g) The Company will not (i) make or rescind any express or4336deemed election or take any other discretionary position relating to4337Taxes, (ii) amend any Return, (iii) settle or compromise any Litigation4338relating to Taxes or (iv) change any of its methods of reporting income4339or deductions for income Tax purposes from those employed in the4340preparation of the last filed income Tax Returns unless there is a4341change in applicable Laws;43424343(h) The Company will not declare, set aside or pay any4344dividend or make any distribution with respect to its capital stock or4345equity interests, whether in cash or in kind (other than routine4346interim or annual dividends to all shareholders of the Company4347consistent with past practices and dividends or distributions from a4348Subsidiary to the Company or another Subsidiary); and43494350154351<PAGE>43524353(i) The Company will not loan any funds, pay any money or4354transfer any assets to any affiliate (other than among the Company and4355the Subsidiaries), except for (i) payments of dividends or4356distributions permitted under Section 5.1(h), (ii) payments to4357affiliates for goods or services purchased or obtained in the Ordinary4358Course of Business in arms' length transactions, and (iii) payments4359required under the Contracts listed on SCHEDULE 5.1(I).436043615.2 Access; Updating of Disclosure Schedule.43624363(a) From the date of this Agreement through the Closing Date, Sellers4364will cause the Company (which, for purposes of this Section 5.2, shall mean the4365Company and the Subsidiaries taken as a whole) to afford to Buyer and its4366authorized representatives coordinated access at all reasonable times and upon4367reasonable notice to the facilities, offices, properties, technology, processes,4368books, business and financial records, officers, employees, business plans,4369budget and projections, customers, suppliers and other information of each of4370the Company and the Subsidiaries, and the work papers of Ernst & Young LLP, the4371Company's independent accountants, to provide for an orderly transition4372following the Closing; provided, however, that prior to the Closing Date Buyer4373and its authorized representatives will not have access to information relating4374to products distributed or proposed to be distributed by the Company other than4375products distributed under the Distribution Agreement. In addition, Sellers will4376cause each of the Company and the Subsidiaries, and their officers and4377employees, to cooperate as appropriate (including providing introductions where4378necessary) with Buyer to enable Buyer to contact third parties, including4379suppliers, customers and prospective customers of the Company. The4380Confidentiality Agreement, dated May 21, 2002 (the "CONFIDENTIALITY AGREEMENT"),4381between an affiliate of the Company and St. Jude will apply with respect to4382information obtained by Buyer under this Section 5.2. To implement this4383Subsection 5.2(a), Sellers and Buyer will each appoint a due diligence4384coordinator (the "COORDINATORS"). The initial Coordinators shall be Joe4385McCullough for Buyer and Ray Simkins for Sellers. Each party may change its4386Coordinator from time to time at its discretion by providing notice to the other4387party. Any access will be arranged through the Coordinators as they may mutually4388determine.43894390(b) After the Closing Date, Sellers will afford to Buyer, its4391accountants and counsel, during normal business hours, upon reasonable request,4392full access to the books and records of Sellers pertaining to each of the4393Company and the Subsidiaries.43944395(c) No later than three (3) business days before the Closing, Sellers4396may deliver to Buyer an updated Disclosure Schedule reflecting items arising or4397changes occurring in connection with the operation of the business of the4398Company and the Subsidiaries between the date of this Agreement and the Closing4399Date (the "UPDATED DISCLOSURE SCHEDULE"). No additional disclosure made in the4400Updated Disclosure Schedule shall be deemed to be a breach of any representation4401or warranty of Sellers contained in this Agreement unless the item disclosed4402results from conduct in violation of Section 5.1; PROVIDED, HOWEVER, that no4403disclosure set forth in the Updated Disclosure Schedule will be deemed to cure4404any inaccuracy or misrepresentation in the Disclosure Schedule that existed as4405of the date of this Agreement.440644075.3 Waivers; Payment of Indebtedness. To assure that Buyer obtains the4408full benefit of this Agreement, effective as of the Closing Date, each Seller4409will waive any claim it might have441044114412164413<PAGE>44144415against the Company or any Subsidiary, whether arising out of this Agreement or4416otherwise, and irrevocably offers to terminate any Contract between such Seller4417and the Company or any Subsidiary at no cost to the Company or any Subsidiary.4418Sellers will cause each Seller and any Person controlled by any Seller to repay,4419in full, prior to the Closing, all indebtedness owed to the Company or any4420Subsidiary by such Person.442144225.4 Conditions. Sellers will use their reasonable efforts to cause the4423conditions set forth in Section 7.1 to be satisfied and to consummate the4424transactions contemplated by this Agreement, including without limitation the4425Tender Offer and Stock Transfer, as soon as reasonably possible and in any event4426prior to the Closing Date. Such efforts may include taking action as required to4427change the Company's fiscal year end in order to permit the revocation of the4428registration of the Shares with the JASDA. Any such action shall not be deemed a4429breach of any provision of this Agreement.443044315.5 Consents and Authorizations. Sellers will cooperate with Buyer to4432enable Buyer to obtain all Consents and Governmental Authorizations required for4433the consummation of the transactions contemplated by this Agreement or which4434could, if not obtained, adversely affect the conduct of the business of the4435Company or any Subsidiary as it is presently conducted. Without limiting the4436foregoing, Sellers will make or cause to be made all filings and submissions4437required by them or the Company under any Law applicable to Sellers or the4438Company required for the consummation of the transactions contemplated by this4439Agreement.444044415.6 Nondisparagement. No Seller will take any action that is designed4442or intended to have the effect of discouraging any lessor, licensor, customer,4443supplier or other business associate of the Company or any Subsidiary from4444maintaining the same business relationships with each of the Company and the4445Subsidiaries after the Closing as it maintained with each of the Company and the4446Subsidiaries prior to the Closing. Each Seller will refer all customer inquiries4447relating to the businesses of the Company or any Subsidiary to the Buyer from4448and after the Closing.444944505.7 Non-Hire.44514452(a) During the period that commences on the Closing Date and ends on4453the second anniversary of the Closing Date, no Seller will knowingly employ (or4454attempt to employ or interfere with any employment relationship with) any4455employee of the Company or any Subsidiary.44564457(b) Except as otherwise permitted under the Distribution Agreement,4458from and after the date of this Agreement until the later of (i) two years from4459the Closing Date or (ii) two years from the date this Agreement is terminated,4460neither St. Jude nor Buyer or any Subsidiary of either of them will knowingly4461employ (or attempt to employ or interfere with any employment relationship with)4462any employee of Sellers or any Subsidiary of Sellers (excluding any employee of4463the Company or the Subsidiaries after the Closing Date).446444655.8 Litigation Support. In the event and for so long as Buyer, the4466Company or any Subsidiary is actively contesting or defending against any4467Litigation in connection with any fact, situation, circumstance, status,4468condition, activity, practice, plan, occurrence, event, incident,44694470174471<PAGE>44724473action, failure to act or transaction existing or occurring on or prior to the4474Closing Date involving the Company or any Subsidiary, each Seller will cooperate4475in the contest or defense, make available its personnel and provide such4476testimony and access to its books and records as may be necessary in connection4477with the contest or defense, all at the sole cost and expense of Buyer (unless4478and to the extent Buyer is entitled to indemnification therefor under Article4479IX).448044815.9 Confidentiality.44824483(a) From and after the Closing, Sellers will keep confidential and4484protect, and will not disclose to any third party, (i) Intellectual Property4485Rights, including product specifications, formulae, compositions, processes,4486designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,4487past, current and planned research and development, current and planned4488manufacturing and distribution methods and processes, customer lists, current4489and anticipated customer requirements, price lists, market studies, business4490plans, software, database technologies, systems, structures, architectures and4491data (and related processes, formulae, compositions, improvements, devices,4492know-how, inventions, discoveries, concepts, ideas, designs, methods and4493information), (ii) any and all information concerning the business and affairs4494(including historical financial statements, financial projections and budgets,4495historical and projected sales, capital spending budgets and plans, the names4496and backgrounds of key personnel, personnel training and techniques and4497materials, however documented), and (iii) any and all notes, analyses,4498compilations, studies, summaries and other material containing or based, in4499whole or in part, on any information included in the foregoing ("Confidential4500Information") of the Company or any Subsidiary. Sellers acknowledge that such4501Confidential Information constitutes a unique and valuable asset of the Company4502or a Subsidiary and represents a substantial investment of time and expense by4503the Company or a Subsidiary, and that any disclosure of such Confidential4504Information other than for the sole benefit of the Company or a Subsidiary would4505be wrongful and could cause irreparable harm to the Company or a Subsidiary. The4506foregoing obligations of confidentiality will not apply to any Confidential4507Information that (i) is now or subsequently becomes generally publicly known,4508other than as a direct or indirect result of the breach of this Agreement by4509Sellers; (ii) is or becomes known to Sellers or their affiliates as a result of4510contracts or business relationships between Sellers or their affiliates (other4511than the Company and the Subsidiaries) and third parties; or (iii) is4512independently developed by Sellers or their affiliates (other than the Company4513and the Subsidiaries) without using Confidential Information of the Company or4514the Subsidiaries.45154516(b) In the event that any Seller is requested or required (by Law, oral4517question or request for information or documents in any legal proceeding,4518interrogatory, subpoena, civil investigative demand or similar process) to4519disclose any Confidential Information, that Seller will notify Buyer promptly of4520the request or requirement so that Buyer may seek an appropriate protective4521order or waive compliance with the provisions of this Section 5.9. If, in the4522absence of a protective order or the receipt of a waiver hereunder, any Seller4523is, on the advice of counsel, compelled to disclose any Confidential Information4524to any tribunal or else stand liable for contempt, that Seller may disclose the4525Confidential Information to the tribunal.452645275.10 Transfer of Certain Trademark Rights. Concurrently with the4528Closing, Sellers shall cause to be transferred to the Company or Buyer, as Buyer4529shall designate, all of their rights453045311845324533<PAGE>45344535to use the trademarks, trade names and logos identified on SCHEDULE 5.10 solely4536in connection with the sale of medical products in Japan (the "TRADEMARK4537ASSIGNMENT").453845395.11 No Encumbrance of Shares. Sellers shall not take any action to4540encumber any Shares acquired by M&P in the Tender Offer or acquired by Newco in4541the Stock Transfer.454245435.12 Getz Intl Net Worth. Getz Intl agrees not to take any action to4544cause its net worth to be less than $50,000,000 for a period of one (1) year4545after the Closing Date and, thereafter, such amount as is reasonably necessary4546to satisfy any indemnification claims that have been properly asserted by Buyer4547under Article IX but remain unresolved at the end of such one year period until4548the same are finally resolved.45494550VI. AGREEMENTS OF BUYER AND ST. JUDE455145526.1 Filings and Submissions. Buyer agrees with Sellers that Buyer will4553make or cause to be made all filings and submissions required by it under any4554Law applicable to Buyer required for the consummation of the transactions4555contemplated by this Agreement; PROVIDED, that neither Buyer nor St. Jude will4556be required to dispose of, hold separately or make any change in, any portion of4557its business or assets (or the business or assets of the Company or any4558Subsidiary).455945606.2 Buyer Shareholders Meeting. Buyer shall use all reasonable efforts4561to convene a general shareholders meeting to approve the Acquisition on the4562terms and subject to the conditions set forth in this Agreement on or prior to4563the date of the Newco shareholders meeting set forth in Section 1.3 but in any4564event no later than April 30, 2003. At such meeting, St. Jude shall cause the4565parent entity of Buyer to vote all shares of Buyer owned by it in favor of4566approval of the Acquisition.456745686.3 Inspection. Promptly following the incorporation of Newco, Buyer4569shall apply to the court for appointment of an inspector to undertake an4570inspection of the Acquisition pursuant to Article 246 of the Commercial Code of4571Japan (the "INSPECTOR"). Buyer shall use all reasonable efforts to cause the4572Inspector to submit the final opinion that the Acquisition is not unfair for the4573purposes of Article 246 of the Commercial Code of Japan to the Buyer4574shareholders meeting set forth in Section 6.2.457545766.4 Section 338 Election.45774578(a) Buyer agrees that no election will be made under Section 338(g) of4579the Code or any comparable provision of prefectural, provincial, state, local or4580foreign Law (A "SECTION 338 ELECTION"), with respect to Buyer's acquisition of4581the Shares unless and until Buyer has first obtained the written consent of4582Sellers to such election; PROVIDED, HOWEVER, that Sellers agree to consent to a4583Section 338 Election proposed by Buyer if Sellers determine, in their sole4584discretion and based upon Buyer's proposed allocation of the Purchase Price and4585assumed liabilities among the assets of the Company and the Subsidiaries (the4586"ALLOCATION"), that such Section 338 Election will not have any adverse effect4587upon Sellers. If Sellers grant their advance written consent with respect to a4588request by Buyer to make a Section 338 Election, and Buyer thereafter makes the4589Section 338 Election, Buyer (and its affiliates, including St. Jude) and Sellers4590(and their affiliates) will file their Tax Returns in a manner consistent with4591the Allocation.45924593194594<PAGE>45954596(b) In the event that the Stock Transfer does not occur on or prior to4597December 31, 2002, and no Section 338 (g) Election is made for United States4598income tax purposes, then from the Closing Date through and including the last4599day of the taxable year of the Company within which the Closing occurs (as4600determined for purposes of the Code), the Company shall not, without the prior4601written consent of Sellers (which consent will be granted unless Sellers4602determine in their sole discretion, that such action will have an adverse effect4603on Sellers), (i) distribute as a dividend any cash or other property, or (ii)4604undertake any transaction that would cause the Company to be deemed to hold4605"United States property" as of the close of any quarter of such taxable year4606(within the meaning of Section 956 of the Code).46074608VII. CONDITIONS TO CLOSING460946107.1 Conditions to Buyer's Obligations. The obligation of Buyer to take4611the actions required to be taken by it at the Closing is subject to the4612satisfaction or waiver, in whole or in part, in Buyer's sole discretion (but no4613such waiver will waive any right or remedy otherwise available under this4614Agreement), of each of the following conditions at or prior to the Closing:46154616(a) Newco shall have acquired all of the issued and outstanding Shares,4617the register of the Shares with the JASDA shall have been revoked, an exemption4618from its continuous disclosure obligations shall have been granted to the4619Company by the Prime Minister of Japan, and the sale of the Shares pursuant to4620this Agreement shall have been duly approved by the shareholders of Newco in4621accordance with applicable Law;46224623(b) The acquisition of the Shares pursuant to this Agreement shall have4624been duly approved by the shareholders of Buyer in accordance with applicable4625Law, PROVIDED that Buyer shall not be entitled to invoke this condition if, in4626breach of their obligations contained in this Agreement, Buyer or St. Jude shall4627have been the cause of the failure of this condition;46284629(c) No Law or Governmental Order shall have been enacted, entered,4630enforced, promulgated, issued or deemed applicable to the transactions4631contemplated by this Agreement by any Governmental Entity that prohibits the4632Closing; and46334634(d) There shall have been no substantial impairment of the business of4635the Company, except to the extent caused by or in any way arising out of any act4636of Buyer or St. Jude, or any affiliate of either of them, whether pursuant to4637the Distribution Agreement or otherwise.463846397.2 Conditions to Sellers' Obligations. The obligation of Sellers to4640take the actions required to be taken by them at the Closing is subject to the4641satisfaction or waiver, in whole or in part, in Sellers' sole discretion (but no4642such waiver will waive any rights or remedy otherwise available under this4643Agreement), of each of the following conditions at or prior to the Closing:46444645(a) Newco shall have acquired all of the issued and outstanding Shares,4646the register of the Shares with the JASDA shall have been revoked, the exemption4647from its continuous disclosure obligations shall have been granted to the4648Company by the Prime Minister of Japan, and the sale of the Shares pursuant to4649this Agreement shall have been duly approved by the shareholders of Newco in4650accordance with applicable Law, PROVIDED that Sellers shall not be entitled to4651invoke this condition if, in breach of their obligations contained in this4652Agreement, they shall have been the cause of the failure of this condition;46534654204655<PAGE>46564657(b) The acquisition of the Shares pursuant to this Agreement shall have4658been duly approved by the shareholders of Buyer in accordance with applicable4659Law; and46604661(c) No Law or Governmental Order shall have been enacted, entered,4662enforced, promulgated, issued or deemed applicable to the transactions4663contemplated by this Agreement by any Governmental Entity that prohibits the4664Closing.46654666VIII. TERMINATION466746688.1 Termination. This Agreement may be terminated prior to the Closing:46694670(a) by the mutual written consent of Buyer and Sellers' Representative;46714672(b) by Sellers' Representative, if46734674(i) any of the conditions set forth in Section 7.2 have become4675impossible to satisfy through no fault of Sellers; or46764677(ii) the transactions contemplated by this Agreement have not4678been consummated on or before June 30, 2003; PROVIDED that Sellers'4679Representative will not be entitled to terminate this Agreement4680pursuant to this Section 8.1(b)(ii) if Sellers' failure to comply fully4681with their obligations under this Agreement has prevented the4682consummation of the transactions contemplated by this Agreement.46834684(c) by Buyer, if46854686(i) the Tender Offer shall have terminated or expired in4687accordance with its terms without M&P having accepted for payment in4688accordance with the terms of the Tender Offer any Shares properly4689tendered;46904691(ii) the Stock Transfer shall not have been approved and4692adopted at the Shareholders Meeting;46934694(iii) the Acquisition shall not have been approved and adopted4695at the Newco general shareholder meeting;46964697(iv) the transactions contemplated by this Agreement have not4698been consummated on or before June 30, 2003; PROVIDED that Buyer will4699not be entitled to terminate this Agreement pursuant to this Section47008.1(c)(iv) if Buyer's failure to comply fully with its obligations4701under this Agreement has prevented the consummation of the transactions4702contemplated by this Agreement; or47034704(v) any of the conditions set forth in Section 7.1 have become4705impossible to satisfy through no fault of Buyer.470647078.2 Contract Extension. On January 7, 2001, the Company and St. Jude4708entered into an International Sales Agreement--Japan ("Distribution Agreement")4709for the distribution of heart valves and cardiac pacing products by the Company4710in Japan. The Distribution Agreement471147124713214714<PAGE>47154716currently expires on December 31, 2009, and St. Jude has the right, at its4717option, to terminate the Distribution Agreement, in whole or in part, as early4718as June 30, 2004. Given the importance of the distribution of heart valves and4719cardiac pacing products to the Company, if not for these negotiations for an4720Acquisition of the Shares by Buyer, the Company would be taking steps to seek4721potential replacements for the St. Jude lines of products covered by the4722Distribution Agreement and to otherwise provide for a transition at the4723conclusion of the Distribution Agreement. Because of these negotiations for an4724Acquisition, Sellers and the Company have delayed taking steps to seek potential4725replacement product lines or provide for a transition at the conclusion of the4726Distribution Agreement. If this Agreement is terminated for any reason and the4727Acquisition does not occur, St. Jude acknowledges that Sellers and the Company4728could suffer a material financial loss because of their forbearance in taking4729action to find other product lines or provide for a transition. Therefore, if4730this Agreement is terminated for any reason without the completion of the4731Acquisition, St. Jude agrees that each of the dates in the definition of "Term"4732in Section 1, Sections 19.1 and 21.1, and Schedule B of the Distribution4733Agreement will be extended for a period equal to the number of days between June473413, 2002, and the date this Agreement is terminated.473547368.3 Effect of Termination. The right of termination under Section 8.14737is in addition to any other rights Buyer or Sellers may have under this4738Agreement or otherwise, and the exercise of a right of termination will not be4739an election of remedies and will not preclude an action for breach of this4740Agreement. If this Agreement is terminated pursuant to Section 8.1, and provided4741Buyer is not otherwise in material breach of this Agreement, Buyer, upon written4742notice to Sellers given within thirty (30) days after Sellers' Representative,4743on the one hand, or Buyer, on the other hand, notifies the other of its4744intention to terminate this Agreement, shall have the right to purchase from4745Sellers, and Sellers shall be obligated to sell to Buyer, all of the Shares4746owned beneficially or of record by Sellers for a prorated Purchase Price4747determined by multiplying the Purchase Price by a fraction, the numerator of4748which is the number of Shares purchased by Buyer and the denominator of which is4749the total number of Shares. The sale and purchase of such Shares shall take4750place as soon as practically possible and shall be consummated subject to the4751applicable Law. If this Agreement is terminated, all continuing obligations of4752the parties under this Agreement will terminate except that Article X, this4753Section 8.3 and Sections 12.1 (press releases), 12.2 (expenses), 12.124754(governing law), and the Confidentiality Agreement will survive indefinitely4755unless sooner terminated or modified by the parties in writing.47564757IX. INDEMNIFICATION475847599.1 Indemnification by Sellers.47604761(a) Sellers agree, jointly and severally, to indemnify in full Buyer,4762St. Jude, and each of the Company and the Subsidiaries (collectively, for4763purposes of this Article IX only, "BUYER") and hold it harmless against any Loss4764arising from, relating to or constituting (i) any breach or inaccuracy in any of4765the representations and warranties of Sellers contained in this Agreement as the4766same may be brought down to the Closing Date, or (ii) any breach of any of the4767agreements of any Sellers contained in this Agreement (collectively, "BUYER4768LOSSES"). In calculating the dollar amount attributable to any Buyer Loss, any4769materiality qualifications included in the representations and warranties in4770this Agreement shall be disregarded.47714772224773<PAGE>47744775(b) Sellers will be liable to Buyer for Buyer Losses only if the4776aggregate amount of all Buyer Losses exceeds U.S.$2,500,000 (the "BASKET4777AMOUNT"), in which case Sellers will be liable for the Buyer Losses that exceed4778the Basket Amount; PROVIDED, HOWEVER, that Buyer Losses attributable to any4779misrepresentation or inaccuracy in Section 2.1 or any intentional breach of any4780of the agreements of any Sellers contained in this Agreement shall not be4781subject to the Basket Amount but shall be indemnified in full, subject to4782Section 9.1(c).47834784(c) Sellers will not be required to pay Buyer for aggregate Buyer4785Losses in excess of U.S.$50,000,000 (the "CAP"); PROVIDED, HOWEVER, that Buyer4786Losses attributable to any misrepresentation or inaccuracy in Section 2.1 or any4787intentional breach of any of the agreements of any Sellers contained in this4788Agreement shall not be subject to the Cap but shall be indemnified in full.47894790(d) If Buyer has a claim for indemnification under this Section 9.1,4791Buyer will deliver to Sellers' Representative one or more written notices of4792Buyer Losses prior to the first anniversary of the Closing Date, except for4793Buyer Losses arising from a breach or inaccuracy in the representations and4794warranties made in Section 3.8 for which Buyer will deliver written notice of4795Buyer Losses prior to three months after the expiration of the applicable4796statute of limitations. Sellers will have no liability under this Section 9.14797unless the written notices required by the preceding sentence are given in a4798timely manner. Any written notice will state in reasonable detail the basis for4799such Buyer Losses to the extent then known by Buyer and the nature of the Buyer4800Loss for which indemnification is sought, and it may state the amount of the4801Buyer Loss claimed. Sellers' Representative will notify Buyer whether it4802disputes a claim within ninety (90) days after receipt of Buyer's written4803notice. If Sellers' Representative does not timely dispute the claim, Sellers4804will pay the amount of the Buyer Loss specified in Buyer's notice within ten4805(10) days thereafter or, if the amount thereof is not specified in Buyer's4806notice, within ten (10) days after the amount thereof is determined. If Sellers'4807Representative has timely disputed the liability of Sellers with respect to such4808claim, Sellers' Representative and Buyer will proceed in good faith to negotiate4809a resolution of such dispute. If a written notice does not state the amount of4810the Buyer Loss claimed, such omission will not preclude Buyer from recovering4811from Sellers the amount of the Buyer Loss with respect to the claim described in4812such notice if any such amount is promptly provided after it is determined. In4813order to assert its right to indemnification under this Article IX, Buyer will4814not be required to provide any notice except as provided in this Section 9.1(d).48154816(e) Sellers will pay the amount of any Buyer Loss to Buyer within ten4817(10) days following the determination of Sellers' liability for and the amount4818of a Buyer Loss (whether such determination is made pursuant to the procedures4819set forth in this Section 9.1, by agreement between Buyer and Sellers'4820Representative or by arbitration award).482148229.2 Third Party Actions. Buyer shall promptly notify Sellers'4823Representative of the assertion or institution by a third party, including a4824Governmental Entity, of any claim, action, arbitration, mediation, hearing,4825investigation, proceeding or suit that may give rise to Buyer Losses for which4826Buyer could be entitled to indemnification hereunder (a "THIRD PARTY ACTION").4827Sellers' Representative shall be entitled to defend such Third Party Action on4828behalf of Buyer, at the sole cost and expense of Sellers, by giving notice of4829the intention to so defend to Buyer within 20 business days after Buyer notifies4830Sellers' Representative of such Third Party Action.483148324833234834<PAGE>48354836Such defense will be conducted by reputable attorneys retained by Sellers'4837Representative. Buyer will be entitled at any time, at its own cost and expense,4838to participate in such defense and to be represented by attorneys of its own4839choosing, provided that if Buyer elects to so participate, Buyer will cooperate4840with Sellers in the conduct of such defense. Whether or not Buyer participates4841in such defense, Buyer will cooperate with Sellers to the extent reasonably4842requested by Sellers in the defense of such Third Party Action, including4843providing reasonable access (upon reasonable notice) to the books, records and4844employees of the Buyer if relevant to the defense of such Third Party Action;4845provided that such cooperation will not unduly disrupt the operations of the4846business of Buyer or cause Buyer to waive any statutory or common law4847privileges, breach any confidentiality obligations owed to third parties or4848otherwise cause any Confidential Information of Buyer to become public. If at4849any time Buyer reasonably determines that Sellers' Representative is not4850adequately representing or, because of a conflict of interest, may not4851adequately represent any interests of Buyer, Buyer will be entitled to conduct4852its own defense and to be represented by attorneys of its own choosing. Neither4853Buyer nor Sellers may concede, settle or compromise any Third Party Action4854without the consent of the other party, which consent will not be unreasonably4855withheld. Notwithstanding the foregoing, if (i) the subject matter of a Third4856Party Action relates to the ongoing business of Buyer, which Third Party Action,4857if decided against Buyer, would materially adversely affect the ongoing business4858or reputation of Buyer and (ii) Buyer is unwilling to consent to a settlement of4859such Third Party Action negotiated by Sellers that provides for a complete4860release of Buyer, then Buyer shall immediately assume the defense of such Third4861Party Action and Sellers thereafter will have no responsibility to indemnify4862Buyer for any Buyer Losses arising from such Third Party Action.486348649.3 Tax Adjustment. Any payment to Buyer under this Article IX will be,4865for Tax purposes, to the extent permitted by Law, an adjustment to the Purchase4866Price.486748689.4 Sellers' Representative.48694870(a) Sellers appoint Henry J. West (or any person appointed as a4871successor Sellers' Representative pursuant to Section 9.4(b)) as their4872representative and agent under this Agreement ("SELLERS' REPRESENTATIVE").48734874(b) Until all obligations under this Agreement have been discharged4875(including all indemnification obligations under this Article IX), Getz Intl4876may, from time to time upon written notice to Sellers' Representative and Buyer,4877remove Sellers' Representative or appoint a new Sellers' Representative upon the4878death, incapacity, resignation or removal of Sellers' Representative. If, after4879the death, incapacity, resignation or removal of Sellers' Representative, a4880successor Sellers' Representative has not been appointed by Sellers within4881fifteen (15) business days after a request by Buyer, Buyer will have the right4882to appoint a Sellers' Representative to fill any vacancy so created by written4883notice of such appointment to Sellers.48844885(c) Sellers authorize Sellers' Representative to take any action and to4886make and deliver any certificate, notice, consent or instrument required or4887permitted to be made or delivered under this Agreement or under the documents4888referred to in this Agreement, to waive any requirements of this Agreement or to4889enter into one or more amendments or supplements to this Agreement that Sellers'4890Representative determines in Sellers' Representative's sole and absolute4891discretion to be necessary, appropriate or advisable, which authority includes4892the authority to collect and489348944895244896<PAGE>48974898pay funds and dispute, settle, compromise and make all claims. The authority of4899Sellers' Representative includes the right to hire or retain, at the sole4900expense of Sellers, such counsel, investment bankers, accountants,4901representatives and other professional advisors as Sellers' Representative4902determines in Sellers' Representative's sole and absolute discretion to be4903necessary, appropriate or advisable in order to perform this Agreement. Any4904party will have the right to rely upon any action taken by Sellers'4905Representative, and to act in accordance with such action without independent4906investigation.49074908(d) Buyer will have no liability to any Seller or otherwise arising out4909of the acts or omissions of Sellers' Representative or any disputes among4910Sellers or with Sellers' Representative. Buyer may rely entirely on its dealings4911with, and notices to and from, Sellers' Representative to satisfy any4912obligations it might have under this Agreement or any other agreement referred4913to in this Agreement or otherwise to Sellers.49144915X. ARBITRATION4916491710.1 Disputes. The parties agree to use their reasonable efforts to4918resolve any controversy, claim or dispute of whatever nature arising between the4919parties under this Agreement or in connection with the transactions contemplated4920hereunder, including those arising out of or relating to the breach,4921termination, enforceability, scope or validity hereof, whether such claim4922existed prior to or arises on or after the Closing Date (a "DISPUTE"), through4923negotiation or, upon failure of such negotiations, through such alternative4924dispute resolution ("ADR") techniques as they may deem appropriate; PROVIDED,4925HOWEVER, that any claim or request for interim, temporary or injunctive relief4926may be immediately submitted to arbitration in accordance with Section 10.2. Any4927Dispute that is not resolved by negotiation or through ADR within ninety (90)4928days from the day the Dispute Notice (as hereafter defined) is given shall be4929finally resolved by binding arbitration in accordance with Section 10.2. The4930agreement to arbitrate contained in this Article X shall continue in full force4931and effect despite the expiration, rescission or termination of this Agreement.4932No party shall commence an arbitration proceeding pursuant to the provisions set4933forth below unless such party shall first give a written notice (a "DISPUTE4934NOTICE") to the other parties setting forth the nature of the Dispute and,4935except as provided above, attempted to resolve the Dispute by negotiation and4936ADR as provided herein.4937493810.2 Arbitration.49394940(a) Binding arbitration shall be conducted in accordance with such4941rules as may be agreed upon by the parties, or failing agreement within thirty4942(30) days after arbitration is demanded (the "ARBITRATION DEMAND"), in4943accordance with the CPR Rules for Non-Administered Arbitration of the CPR4944Institute for Dispute Resolution ("CPR") in effect on the date on which the4945Arbitration Demand is sent, subject to any modifications contained in this4946Agreement. The site of arbitration shall be (i) Chicago, Illinois if the4947Arbitration Demand was given by Buyer, or (ii) Minneapolis, Minnesota, if the4948Arbitration Demand was given by any Seller. The Dispute shall be resolved by one4949arbitrator, who will be selected by the parties from the CPR Panels of4950Distinguished Neutrals and who shall have experience in international4951transactions. The arbitrator shall base the award on the applicable Law and4952judicial precedent that would apply in accordance with Section 12.12 if the4953Dispute were decided by a United States District Judge, and the arbitrator shall4954have no authority to render an award that is inconsistent therewith; PROVIDED,49554956254957<PAGE>49584959HOWEVER, that the foregoing shall not expand the statutory grounds to vacate the4960award. The arbitrator shall have the right to appoint an independent expert4961(including an independent accounting firm) and the costs and expenses of such4962expert, together with the costs and expenses of the arbitrator, shall be borne4963one-half by Sellers and one-half by Buyer. The award shall be in writing and4964include the findings of fact and conclusions of Law upon which it is based.4965Unless the parties agree otherwise, discovery will be limited to an exchange of4966relevant documents. Depositions will not be taken except as needed in lieu of a4967live appearance or upon mutual agreement of the parties. The arbitrator shall4968resolve any discovery disputes. The arbitrator and counsel of record will have4969the power of subpoena process as provided by the Federal Arbitration Act.49704971(b) Except as otherwise required by Law, the parties and the arbitrator4972agree to keep confidential and not disclose to third parties any information or4973documents obtained in connection with the arbitration process, including the4974resolution of the Dispute. If a party fails to proceed with arbitration as4975provided in this Agreement, or unsuccessfully seeks to stay the arbitration, or4976fails to comply with the arbitration award, or is unsuccessful in vacating or4977modifying the award pursuant to a petition or application for judicial review,4978the other party or parties, as applicable, shall be entitled to be awarded4979costs, including reasonable attorneys' fees, paid or incurred in successfully4980compelling such arbitration or defending against the attempt to stay, vacate or4981modify such arbitration award and/or successfully defending or enforcing the4982award.49834984(c) Sellers submit to the exclusive jurisdiction of any state or4985federal court sitting in Minneapolis, Minnesota, and Buyer submits to the4986exclusive jurisdiction of any state or federal court sitting in Chicago,4987Illinois, to compel arbitration or enforce or vacate any award entered in the4988arbitration which such party(ies) respectively initiated, and all such claims4989shall be heard and determined in such respective courts. Each of the parties4990waives any defense of inconvenient forum to the maintenance of any such action4991or proceeding.4992499310.3 Remedies. Each party hereby waives any and all rights it may have4994to receive exemplary or punitive damages under this Agreement in the arbitration4995proceedings with respect to any claim it may have against the other party, it4996being agreed that no party shall be entitled to receive money damages in excess4997of its actual compensatory damages, notwithstanding any contrary provision4998contained in this Agreement or otherwise. The parties knowingly and voluntarily4999waive their rights to have any Dispute tried and adjudicated by a judge or a5000jury. Any claim or request for interim, temporary or injunctive relief shall be5001exclusively submitted to arbitration.50025003XI. DEFINITIONS50045005"CODE" means the United States Internal Revenue Code of 1986, as5006amended.50075008"CONSENT" means any authorization, consent, approval, filing, waiver,5009exemption or other action by or notice to any Person.50105011"CONTRACT" means a contract, agreement, commitment or binding5012understanding that is in effect as of the date of this Agreement or any time5013after the date of this Agreement.50145015265016<PAGE>50175018"DISCLOSURE SCHEDULE" means the schedule delivered by Sellers to Buyer5019on or prior to the date of this Agreement that contains exceptions and5020disclosures to the representations and warranties set forth in Article III of5021this Agreement.50225023"ENCUMBRANCE" means any charge, claim, community property interest,5024condition, equitable interest, lien, option, pledge, security interest, right of5025first refusal or restriction of any kind, including any restriction on use,5026voting, transfer, receipt of income or exercise of any other attribute of5027ownership.50285029"GAAP" means Japanese generally accepted accounting principles, as in5030effect from time to time.50315032"GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,5033permit, waiver, registration or other authorization issued, granted, given, made5034available or otherwise required by any Governmental Entity or pursuant to Law.50355036"GOVERNMENTAL ENTITY" means any national, prefectural, provincial,5037state, local, foreign, international or multinational entity or authority5038exercising executive, legislative, judicial, regulatory, administrative or5039taxing functions of or pertaining to government.50405041"GOVERNMENTAL ORDER" means any judgment, injunction, writ, order,5042ruling, award or decree by any Governmental Entity or arbitrator.50435044"INTELLECTUAL PROPERTY" means all rights in patents, patent5045applications, trademarks, service marks, trade names, corporate names,5046copyrights, software, mask works, trade secrets, know-how and other intellectual5047property rights.50485049"INTELLECTUAL PROPERTY RIGHTS" means (i) rights in patents, patent5050applications and patentable subject matter, whether or not the subject of an5051application, (ii) rights in trademarks, service marks, trade names, trade dress5052and other designators of origin, registered or unregistered, (iii) rights in5053copyrightable subject matter or protectable designs, registered or unregistered,5054(iv) trade secrets, (v) rights in Internet domain names, uniform resource5055locators and e-mail addresses, (vi) rights in semiconductor topographies (mask5056works), registered or unregistered, (vii) know-how and (viii) all other5057intellectual and industrial property rights of every kind and nature and however5058designated, whether arising by operation of Law, Contract, license or otherwise.50595060"KNOWLEDGE," when used with respect to Sellers, means the actual5061knowledge of any director or executive officer of Sellers, the Company or the5062Subsidiaries.50635064"LAW" means any constitution, law, ordinance, principle of common law,5065regulation, statute or treaty of any Governmental Entity.50665067"LITIGATION" means any claim, action, arbitration, mediation, audit,5068hearing, investigation, proceeding, litigation or suit (whether civil, criminal,5069administrative, investigative or informal) commenced, brought, conducted or5070heard by or before, or otherwise involving, any Governmental Entity or5071arbitrator or mediator.50725073275074<PAGE>50755076"LOSS" means any Litigation, damage, deficiency, penalty, fine, cost,5077amount paid in settlement, liability, obligation, Tax, Encumbrance, loss,5078expense or fee, including court costs and reasonable attorney's fees and5079expenses.50805081"MATERIAL ADVERSE EFFECT" means any change, effect, event or condition,5082individually or in the aggregate, that has had, or, with the passage of time,5083would have, a material adverse effect on the business, assets, properties,5084condition (financial or otherwise), results of operations, prospects or5085customer, supplier or employee relationships of the Company and its5086Subsidiaries, taken as a whole.50875088"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of5089the Company and the Subsidiaries consistent with past custom and practice5090(including with respect to quantity and frequency).50915092"ORGANIZATIONAL DOCUMENTS" means (i) the articles or certificate of5093incorporation and the bylaws of a corporation, (ii) the partnership agreement5094and any statement of partnership of a general partnership, (iii) the limited5095partnership agreement and the certificate of limited partnership of a limited5096partnership, (iv) the limited liability company agreement and articles or5097certificate of formation of a limited liability company, (v) any charter,5098regulations or similar document adopted or filed in connection with the5099creation, formation or organization of a Person and (vi) any amendment to any of5100the foregoing.51015102"PERSON" means any individual, corporation (including any non-profit5103corporation), general or limited partnership, limited liability company, joint5104venture, estate, trust, association, organization, labor union, Governmental5105Entity or other entity.51065107"REMEDIES EXCEPTION," when used with respect to any Person, means5108performance of such Person's obligations except to the extent enforceability may5109be limited by applicable bankruptcy, insolvency, corporate reorganization, civil5110rehabilitation, moratorium or other laws affecting the enforcement of creditors'5111rights generally and by general equitable principles.51125113"RETURNS" means all returns, declarations, reports, estimates,5114information returns and statements pertaining to any Taxes.51155116"SUBSIDIARY" means any Person in which 50% or more of the ownership5117interests is owned, directly or indirectly, by another Person. When used without5118reference to a particular entity, "Subsidiary" means a Subsidiary of the5119Company.51205121"TAX AFFILIATE" means each of the Company and the Subsidiaries.51225123"TAXES" means all taxes, charges, fees, levies or other assessments,5124including all net income, gross income, gross receipts, sales, use, consumption,5125value-added, ad valorem, transfer, franchise, profits, license, withholding,5126payroll, employment, social security, unemployment, excise, estimated,5127severance, stamp, occupation, property or other taxes, customs duties, fees,5128assessments or charges of any kind whatsoever, including all interest and5129penalties thereon, and additions to tax or additional amounts imposed by any5130Governmental Entity upon the Company or any Tax Affiliate.51315132285133<PAGE>51345135XII. GENERAL5136513712.1 Press Releases and Announcements. Any public announcement,5138including any announcement to employees, customers or suppliers and others5139having dealings with the Company, or similar publicity with respect to this5140Agreement or the transactions contemplated by this Agreement, will be issued at5141such time and in such manner as the parties may mutually determine and approve,5142unless such announcement is required to carry out the transactions contemplated5143under this Agreement; provided that in the event such announcement is necessary,5144either party will notify the other in advance of such announcement.5145Notwithstanding the foregoing, nothing contained herein will prevent Buyer, St.5146Jude, Sellers, Company or its Subsidiaries from making disclosures to their5147attorneys, accountants, bankers, investment bankers or advisors, or other5148persons that are necessary or appropriate to carry out the transactions5149contemplated in this Agreement.5150515112.2 Expenses. Except as agreed by the parties with respect to the fees5152identified in a letter agreement, dated September 17, 2002, between St. Jude and5153Getz Intl (the "FEE LETTER"), Sellers, on the one hand, and Buyer, on the other5154hand, will each pay all expenses incurred by each of them (and, in the case of5155Sellers, the expenses incurred by the Company and Sellers' Representative) in5156connection with the Tender Offer, the Stock Transfer and the other transactions5157contemplated by this Agreement, including legal, accounting, investment banking5158and consulting fees and expenses incurred in negotiating, executing and5159delivering this Agreement and the other agreements, exhibits, documents and5160instruments contemplated by this Agreement. Sellers agree that neither the5161Company nor any Subsidiary has or will bear any of Sellers' expenses in5162connection with the Tender Offer, the Stock Transfer and the other transactions5163contemplated by this Agreement if the contemplated transactions are concluded.5164516512.3 Further Assurances. On and after the Closing Date, Sellers and5166Buyer will take all appropriate action and execute any documents, instruments or5167conveyances of any kind that may be reasonably requested by the other party to5168carry out any of the provisions of this Agreement.5169517012.4 Cooperation. After the Closing Date, Buyer and Sellers will make5171available to the other, as reasonably requested, all information, records or5172documents relating to Tax liabilities or potential Tax liabilities of the5173Company with respect to (i) Tax periods ending on or prior to the Closing Date5174and (ii) Tax periods beginning before the Closing Date and ending after the5175Closing Date, but only with respect to the portion of such period up to and5176including the Closing Date. Buyer and Sellers will preserve all such5177information, records and documents until the expiration of any applicable5178statute of limitations thereof. Buyer will prepare and provide to Sellers any5179information or documents reasonably requested by Sellers for Sellers' use in5180preparing or reviewing the Returns. Notwithstanding any other provision hereof,5181each party will bear its own expenses in complying with the foregoing5182provisions.5183518412.5 Notices. All notices, demands and other communications to be given5185or delivered under or by reason of the provisions of this Agreement will be in5186writing and will be deemed to have been given (i) when delivered if personally5187delivered by hand (with written confirmation of receipt), (ii) when received if5188sent by an internationally recognized overnight courier service (receipt5189requested), (iii) ten business days after being mailed, if sent by first class5190mail, return519151925193295194<PAGE>51955196receipt requested, or (iv) when receipt is acknowledged by an affirmative act of5197the party receiving notice, if sent by facsimile, telecopy or other electronic5198transmission device (provided that such an acknowledgement does not include an5199acknowledgment generated automatically by a facsimile or telecopy machine or5200other electronic transmission device). Notices, demands and communications to5201Buyer and Sellers' Representative will, unless another address is specified in5202writing, be sent to the address indicated below:52035204If to Buyer or St. Jude:52055206St. Jude Medical, Inc.5207One Lillehei Plaza5208St. Paul, MN 55117 USA5209Attn: Kevin T. O'Malley, Esq.5210Facsimile No. +1 (651) 481-769052115212With a copy to:52135214Dorsey & Whitney LLP5215Shiroyama MT Building, 9F52164-1-17 Toranomon, Minato-ku5217Tokyo 105-0001, Japan5218Attn: Christopher E. O'Brien5219Facsimile No. +81 (3) 5473 519952205221and an additional copy to:52225223Dorsey & Whitney LLP522450 South Sixth Street5225Minneapolis, MN 55401 USA5226Attn: Robert A. Kuhns, Esq.5227Facsimile No. +1 (612) 340-873852285229If to Sellers or Sellers' Representative:52305231Getz International, Inc.5232c/o The Marmon Group, Inc.5233225 W. Washington Street, 19th Floor5234Chicago, Illinois 606065235Attn: Robert W. Webb, Esq.5236Facsimile No. +1 (312) 845-876952375238With a copy to:52395240Neal, Gerber & Eisenberg5241Two North LaSalle St., Suite 22005242Chicago, Illinois 606025243Attn: Miranda K. Mandel, Esq.5244Facsimile No. +1 (312) 269-1747524552465247305248<PAGE>52495250and an additional copy to:52515252Mori Sogo5253NKK Building52541-1-2 Marunouchi, Chiyoda-ku5255Tokyo 100-0005, Japan5256Attn: Kanako Muraoka, Esq.5257Facsimile No. +81 (3) 5223 76655258525912.6 Assignment. Neither this Agreement nor any of the rights,5260interests or obligations hereunder may be assigned by any party to this5261Agreement without the prior written consent of the other parties to this5262Agreement, except that Buyer may assign any of its rights under this Agreement5263to an affiliate of Buyer, so long as Buyer remains responsible for the5264performance of all of its obligations under this Agreement. Subject to the5265foregoing, this Agreement and all of the provisions of this Agreement will be5266binding upon and inure to the benefit of the parties to this Agreement and their5267respective successors and permitted assigns.5268526912.7 No Third Party Beneficiaries. Nothing expressed or referred to in5270this Agreement confers any rights or remedies upon any Person that is not a5271party or permitted assign of a party to this Agreement.5272527312.8 Severability. Whenever possible, each provision of this Agreement5274will be interpreted in such manner as to be effective and valid under applicable5275Law, but if any provision of this Agreement is held to be prohibited by or5276invalid under applicable Law, such provision will be ineffective only to the5277extent of such prohibition or invalidity, without invalidating the remainder of5278such provision or the remaining provisions of this Agreement.5279528012.9 Complete Agreement. This Agreement (including the Disclosure5281Schedule and any Updated Disclosure Schedule), the Confidentiality Agreement and5282the Fee Letter contain the complete agreement between the parties and supersede5283any prior understandings, agreements or representations by or between the5284parties, written or oral.5285528612.10 English Language. This Agreement has been drafted, negotiated,5287and executed in the English language. If Sellers have this Agreement translated5288into Japanese, such translation shall be at the Sellers' own expense and with5289the understanding that the original English version of this Agreement shall5290govern. All notices, including Dispute Notices, shall be in English and all5291arbitration proceedings shall be conducted in English.5292529312.11 Signatures; Counterparts. This Agreement may be executed in one5294or more counterparts, any one of which need not contain the signatures of more5295than one party, but all such counterparts taken together will constitute one and5296the same instrument. A facsimile signature will be considered an original5297signature.5298529912.12 Governing Law. THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF5300LAWS PRINCIPLES, OF THE STATE OF MINNESOTA WILL GOVERN530153025303315304<PAGE>53055306ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS5307AGREEMENT AND THE PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT,5308EXCEPT TO THE EXTENT THAT PROCEDURAL MATTERS RELATING TO THE TENDER OFFER, THE5309STOCK TRANSFER, THE ACQUISITION OR THE ORGANIZATION OF, OR ACTIONS TO BE TAKEN5310BY, A JAPANESE ENTITY ARE GOVERNED BY OR REQUIRED TO BE TAKEN IN ACCORDANCE WITH5311JAPANESE LAW.5312531312.13 Amendment and Waiver. This Agreement may not be amended, nor may5314any provision of this Agreement or any default, misrepresentation, or breach of5315warranty or agreement under this Agreement be waived, except in writing executed5316by all of the parties hereto. Notwithstanding the foregoing, any amendment or5317waiver executed by Sellers' Representative shall be deemed to have been executed5318by each of the Sellers except as otherwise provided in Section 9.4.5319532012.14 Construction. The parties and their respective counsel have5321participated jointly in the negotiation and drafting of this Agreement. In5322addition, each of the parties acknowledges that it is sophisticated and has been5323advised by experienced counsel and, to the extent it deemed necessary, other5324advisors in connection with the negotiation and drafting of this Agreement. In5325the event an ambiguity or question of intent or interpretation arises, this5326Agreement will be construed as if drafted jointly by the parties and no5327presumption or burden of proof will arise favoring or disfavoring any party by5328virtue of the authorship of any of the provisions of this Agreement. The5329headings preceding the text of articles and sections included in this Agreement5330and the headings to the schedules and exhibits are for convenience only and are5331not be deemed part of this Agreement or given effect in interpreting this5332Agreement. The word "including" means "including without limitation." The use of5333the masculine, feminine or neuter gender or the singular or plural form of words5334will not limit any provisions of this Agreement. A statement in this Agreement5335that a copy of an item has been delivered means a true and correct copy of the5336writing has been delivered.53375338XIII. GUARANTY BY ST. JUDE53395340As an inducement to and in consideration of Sellers entering into this5341Agreement, St. Jude, being the ultimate parent of Buyer, hereby expressly,5342unconditionally, and irrevocably guarantees Buyer's performance of all of its5343duties, obligations, and agreements under the Agreement, including (without5344limitation) payment of all of Buyer's obligations under the Agreement. St. Jude5345agrees that Sellers shall not be required to take any action whatsoever against5346Buyer before St. Jude's liability attaches hereunder and that the liability of5347St. Jude hereunder shall immediately attach and accrue upon default or breach of5348Buyer with respect to any of its duties, obligations, and agreements under the5349Agreement.535053515352535353545355535653575358325359<PAGE>53605361IN WITNESS WHEREOF, Buyer, St. Jude and Sellers have executed this5362Stock Purchase Agreement as of the date first above written.536353645365BUYER: SELLERS:53665367ST. JUDE MEDICAL JAPAN K.K. GETZ BROS. AND CO. ZUG INC.536853695370By: /s/ Kevin T. O'Malley By: /s/ R. C. Gluth5371----------------------------- --------------------------------5372Name: Kevin T. O'Malley Name: R. C. Gluth5373----------------------------- --------------------------------5374Title: Director Title: Director, Vice President and5375----------------------------- Treasurer5376--------------------------------53775378ST. JUDE MEDICAL, INC. GETZ INTERNATIONAL, INC.537953805381By: /s/ Daniel J. Starks By: /s/ Robert K. Lorch5382-------------------- -------------------------------5383Title: President and COO Name: Robert K. Lorch5384----------------------------- -------------------------------5385Title: Vice President, Chief Financial5386Officer5387-------------------------------53885389MULLER & PHIPPS (JAPAN) LTD.539053915392By: /s/ Raymond Sipkins5393-------------------------------5394Name: Raymond Sipkins5395-------------------------------5396Title: Director5397-------------------------------5398539954005401540254035404540554065407540854095410541154125413541454155416541754185419335420<PAGE>54215422DISCLOSURE SCHEDULE TO THE STOCK PURCHASE AGREEMENT54235424Schedule 2.1 Good Title to Shares5425Schedule 3.1 Incorporation5426Schedule 3.4 Subsidiaries5427Schedule 3.5 Statements5428Schedule 3.6 Absence of Certain Developments5429Schedule 3.7 Real Property5430Schedule 3.8 Taxes5431Schedule 3.9 Material Contracts5432Schedule 3.10 Litigation5433Schedule 3.11 Insurance5434Schedule 3.14 Warranties5435Schedule 3.16 Employee Benefits5436Schedule 3.17 Suppliers5437Schedule 5.1 Conduct of the Business5438Schedule 5.10 Trademarks54395440St. Jude Medical, Inc. agrees to furnish supplementally copies of these5441schedules to the Securities and Exchange Commission upon request.54425443544454455446</TEXT>5447</DOCUMENT>5448<DOCUMENT>5449<TYPE>EX-2.25450<SEQUENCE>45451<FILENAME>stjude041330_ex2-2.txt5452<DESCRIPTION>AMENDMENT5453<TEXT>54545455Exhibit 2.254565457AMENDMENT54585459This AMENDMENT, dated as of February 20, 2003, by and among Getz Japan5460Holding KK, a company organized under the laws of Japan ("NEWCO"), St. Jude5461Medical Japan K.K., a company organized under the laws of Japan ("BUYER"), St.5462Jude Medical, Inc., a Minnesota corporation ("ST. JUDE"), Getz Bros. & Co. Zug5463Inc., a company organized under the laws of Switzerland ("GETZ ZUG"), Getz5464International, Inc., a Delaware corporation ("GETZ Intl"), and Muller & Phipps5465(Japan) Ltd., a company organized under the laws of Japan ("M&P", and together5466with Getz Zug and Getz Intl., "SELLERS"), is attached to and made a part of that5467certain Stock Purchase Agreement (the "AGREEMENT"), dated as of September 17,54682002 (USA), by and among Buyer, St. Jude and Sellers. Capitalized and undefined5469terms used in this Amendment shall have the same meanings ascribed to them in5470the Agreement.54715472WHEREAS, Section 1.2 of the Agreement provides that the parties will5473execute an amendment to the Agreement whereby Newco will become a party to the5474Agreement and be included within the definition of "SELLERS".54755476THEREFORE, in accordance with Section 1.2 of the Agreement, Newco5477agrees to (1) be included within the definition of "Sellers" in the Agreement,5478(2) execute such documents and to take such actions as may reasonably be5479necessary or appropriate to implement fully the transactions described in the5480Agreement, and (3) be bound by the covenants, obligations and undertakings5481applicable to Newco under the Agreement. Notwithstanding the foregoing, the5482parties acknowledge and agree that because Newco will be liquidated as soon as5483practicable after the Closing, Newco will be relieved of all of its obligations5484under the Agreement following the Closing except those arising under Sections54855.6 (Nondisparagement) and 5.9 (Confidentiality), and Buyer and St. Jude will5486look solely to the other Sellers with respect to any obligations of Sellers5487arising after the Closing. Buyer and St. Jude further agree not submit any5488objection as a creditor to the liquidation of Newco.54895490Except as expressly modified by the terms of this Amendment, the terms5491and conditions of the Agreement and its respective schedules and exhibits shall5492remain in full force and effect.54935494IN WITNESS WHEREOF, each of the undersigned has executed this Amendment5495as of the date first above written.54965497GETZ JAPAN HOLDING KK GETZ BROS. & CO. ZUG INC.54985499By: /s/ Ray Sipkins By: /s/ Ray Sipkins5500------------------------------ ------------------------------5501Name: Ray Sipkins Name: Ray Sipkins5502------------------------------ ------------------------------5503Title: Representative Liquidator Title: Director5504------------------------------ ------------------------------55055506ST. JUDE MEDICAL JAPAN K.K. GETZ INTERNATIONAL, INC.55075508By: /s/ Kevin T. O'Malley By: /s/ Ray Sipkins5509------------------------------ ------------------------------5510Name: Kevin T. O'Malley Name: Ray Sipkins5511------------------------------ ------------------------------5512Title: Director Title: President5513------------------------------ ------------------------------55145515ST. JUDE MEDICAL, INC. MULLER & PHIPPS (JAPAN) LTD.55165517By: /s/ Kevin T. O'Malley By: /s/ Ray Sipkins5518------------------------------ ------------------------------5519Name: Kevin T. O'Malley Name: Ray Sipkins5520------------------------------ ------------------------------5521Title: Vice President and General Title: President5522Counsel ------------------------------5523------------------------------552455255526</TEXT>5527</DOCUMENT>5528<DOCUMENT>5529<TYPE>EX-135530<SEQUENCE>55531<FILENAME>stjude041330_ex13.txt5532<TEXT>553355345535MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXHIBIT 135536FINANCIAL CONDITION AND RESULTS OF OPERATIONS553755385539OVERVIEW55405541Our business is focused on the development, manufacturing and distribution of5542cardiovascular medical devices for the global cardiac rhythm management (CRM),5543cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.5544Our principal products in each of these therapy areas are as follows:55455546CRM5547o bradycardia pacemaker systems (pacemakers),5548o tachycardia implantable cardioverter defibrillator systems (ICDs), and5549o electrophysiology (EP) catheters55505551CS5552o mechanical and tissue heart valves, and5553o valve repair products55545555C/VA5556o vascular closure devices,5557o angiography catheters,5558o guidewires, and5559o hemostasis introducers55605561Our products are sold in more than 120 countries around the world. Our largest5562geographic markets are the United States, Europe and Japan.55635564We compete on the basis of providing reliable products with advanced features.5565Our industry has undergone significant consolidation in the last decade and is5566very competitive. Our strategy requires significant investments in research and5567development in order to introduce new products, particularly in the cardiac5568rhythm management and the cardiology and vascular access therapy areas. We have5569also sought to improve our operating margins through a variety of techniques,5570including maintaining our average selling prices while improving the efficiency5571of our manufacturing operations. Our products are generally not affected by5572economic cycles. However, we expect cost containment pressure on healthcare5573systems to continue to place downward pressure on prices for our products,5574particularly in international markets such as Germany and Japan. The industry in5575which we operate is characterized by frequent patent litigation and product5576liability litigation, which are issues that we must manage.55775578Pacemakers and ICDs accounted for 43% and 21% of our total 2003 net sales,5579respectively. In addition, the pacemaker and ICD markets are the largest markets5580we participate in, and our strategy is to increase our sales and market share in5581those markets. In 2002, our primary CRM competitors began selling pacemaker and5582ICD systems that are capable of pacing the heart from both ventricles, providing5583cardiac resynchronization therapy (CRT). By pacing the heart from both5584ventricles, many physicians believe that pacemakers and ICDs with CRT provide a5585therapeutic advantage over traditional devices for certain patients. In5586addition, CRT devices have a higher average selling price over traditional5587devices. Currently, we do not have a pacemaker or ICD system with CRT approved5588for sale in the558955905591559215593<PAGE>55945595United States, which is the largest geographic market for these products.5596However, we are conducting clinical trials and anticipate introducing pacemakers5597and ICDs with CRT in the United States in the second quarter of 2004. We5598estimate that approximately 35% of the worldwide market for pacemakers and ICDs5599in 2003 was made up of sales of CRT devices.560056015602RESULTS OF OPERATIONS56035604FINANCIAL SUMMARY5605Net sales in 2003 increased approximately 22% over 2002 driven primarily by5606growth in our ICD and vascular closure devices, incremental revenue as a result5607of our acquisition of Getz Bros. Co., Ltd. in Japan (Getz Japan), and the5608positive impact of foreign currency translation as the U.S. dollar weakened5609against most currencies during 2003 as compared with 2002. Our ICD net sales5610grew approximately 37% to $414 million during 2003. Our vascular closure net5611sales increased approximately 40% to $218 million in 2003, strengthening our5612leadership position in the vascular closure market.56135614During 2003, we completed our acquisition of Getz Japan and Getz's related5615distribution operations in Australia. The addition of these operations further5616strengthened our presence in Japan and Australia.56175618Net earnings and diluted net earnings per share for 2003 increased approximately561923% and 21%, respectively, over 2002 due primarily to incremental profits5620resulting from higher sales.56215622We ended the year with $461 million of cash and equivalents and $352 million of5623long-term debt. We have strong short-term credit ratings, with an A2 rating from5624Standard & Poor's and a P2 rating from Moody's. Our cash flows from operations5625remained strong during 2003, helping to further strengthen our balance sheet and5626provide cash to repay a portion of the funds borrowed in 2003 to finance the5627Getz Japan acquisition and the repurchase of 9.25 million shares in August 2003.5628We expect to use our future cash flows to fund internal development5629opportunities, reduce our debt and potentially purchase the remaining ownership5630of Epicor Medical, Inc. (Epicor). See ACQUISTIONS & INVESTMENTS for a discussion5631of Epicor.56325633We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31,5634but for simplicity of presentation, describe all periods as if the year end is5635December 31. Fiscal year 2003 consisted of 53 weeks, adding three additional5636selling days as compared with 2002. The additional selling days occurred between5637the Christmas and New Year's Day holidays, which typically are lower volume5638selling days due to the elective nature of many hospitals' procedures. These5639additional selling days did not have a material impact on our net sales or5640results of operations for 2003. Fiscal years 2002 and 2001 each consisted of 525641weeks.56425643CRITICAL ACCOUNTING POLICIES AND ESTIMATES5644Preparation of our consolidated financial statements in accordance with5645accounting principles generally accepted in the United States requires us to5646adopt various accounting policies and to make estimates and assumptions that5647affect the reported amounts in the financial statements and accompanying notes.5648Our significant accounting policies are disclosed in Note 1 to the consolidated5649financial statements.56505651On an ongoing basis, we evaluate our estimates and assumptions, including those5652related to accounts receivable allowance for doubtful accounts; estimated useful5653lives of property, plant and equipment; income taxes; Silzone(R) special charge5654accruals; and legal reserves. We base our estimates on historical experience and5655various other assumptions that are believed to be reasonable under the5656circumstances,565756585659566025661<PAGE>56625663and the results form the basis for making judgments about the reported values of5664assets, liabilities, revenues and expenses. Actual results may differ from these5665estimates.56665667We believe that the following represent our most critical accounting estimates:56685669ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS: We grant credit to5670customers in the normal course of business, and generally do not require5671collateral or any other security to support our accounts receivable. We maintain5672an allowance for doubtful accounts for potential credit losses, which primarily5673consists of reserves for specific customer balances that we believe may not be5674collectible. We determine the adequacy of this allowance by regularly reviewing5675the accounts receivable agings, customer financial conditions and credit5676histories, and current economic conditions. In some developed markets and in5677many emerging markets, payments of certain accounts receivable balances are made5678by the individual countries' healthcare systems for which payment is dependent,5679to some extent, upon the political and economic environment within those5680countries. Although we consider our allowance for doubtful accounts to be5681adequate, if the financial condition of our customers or the individual5682countries' healthcare systems were to deteriorate and impair their ability to5683make payments to us, additional allowances may be required in future periods.5684The allowance for doubtful accounts was $31.9 million at December 31, 2003 and5685$24.1 million at December 31, 2002.56865687ESTIMATED USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT: Diagnostic equipment is5688recorded at cost and is depreciated using the straight-line method over its5689estimated useful life of five to eight years. Diagnostic equipment primarily5690consists of programmers that are used by physicians and healthcare professionals5691to program and analyze data from pacemaker and ICD devices. The estimated useful5692life of this equipment is determined based on our estimates of its usage by the5693physicians and healthcare professionals, factoring in new technology platforms5694and rollouts. To the extent that we experience changes in the usage of this5695equipment or there are introductions of new technologies to the market, the5696estimated useful lives of this equipment may change in a future period.5697Diagnostic equipment had a net carrying value of $68.7 million and $81.0 million5698at December 31, 2003 and 2002, respectively. If we had used an estimated useful5699life on diagnostic equipment that was one year less than our current estimate,5700our 2003 depreciation expense would have been approximately $5 million higher.57015702INCOME TAXES: As part of the process of preparing our consolidated financial5703statements, we are required to estimate our income taxes in each of the5704jurisdictions in which we operate. This process involves estimating the actual5705current tax expense as well as assessing temporary differences5706in the treatment of items for tax and accounting purposes. These timing5707differences result in deferred tax assets and liabilities, which are included in5708our consolidated balance sheet. We must then assess the likelihood that our5709deferred tax assets will be recovered from future taxable income, and to the5710extent that we believe that recovery is not likely, a valuation allowance must5711be established. At December 31, 2003, we had approximately $94 million of gross5712deferred tax assets, including net operating loss and tax credit carryforwards5713that will expire from 2004 to 2019 if not utilized. We believe that our deferred5714tax assets, including the net operating loss and tax credit carryforwards, will5715be fully realized based upon our estimates of future taxable income. As such, we5716have not recorded any valuation allowance for our deferred tax assets. If our5717estimates of future taxable income are not met, a valuation allowance for some5718of these deferred tax assets would be required.57195720We have not recorded U.S. deferred income taxes on certain of our non-U.S.5721subsidiaries' undistributed earnings, because such amounts are intended to be5722reinvested outside the United States indefinitely. However, should we change our5723business and tax strategies in the future and decide to repatriate a572457255726572735728<PAGE>57295730portion of these earnings to one of our U.S. subsidiaries, including cash5731maintained by these non-U.S. subsidiaries (see Liquidity and Capital Resources),5732additional U.S. tax liabilities would be incurred.57335734We operate within multiple taxing jurisdictions and are subject to audit in5735these jurisdictions. These audits can involve complex issues, including5736challenges regarding the timing and amount of deductions and the allocation of5737income among various tax jurisdictions. Our U.S. federal tax filings prior to57381998 have been examined by the Internal Revenue Service (IRS), and we have5739settled all differences arising out of those examinations. The U.S. federal tax5740authorities have designated us as a "coordinated industry case," more commonly5741known as a "large case," which is an IRS designation used for large companies5742that means, among other things, that the IRS will audit essentially all of our5743federal income tax return filings. The IRS is currently in the process of5744examining our U.S. federal tax returns for the calendar years 1998, 1999 and57452000.57465747We record our income tax provisions based on our knowledge of all relevant facts5748and circumstances, including the existing tax laws, our experience with previous5749settlement agreements, the status of current IRS examinations and our5750understanding of how the tax authorities view certain relevant industry and5751commercial matters. Although we have recorded all probable income tax accruals5752in accordance with Statement of Financial Accounting Standards (SFAS) No. 5,5753"ACCOUNTING FOR CONTINGENCIES" and SFAS No. 109. "ACCOUNTING FOR INCOME TAXES",5754our accruals represent accounting estimates that are subject to the inherent5755uncertainties associated with the tax audit process, and therefore include5756certain contingencies. We believe that any potential tax assessments from the5757various tax authorities that are not covered by our income tax provision will5758not have a material adverse impact on our consolidated financial position or5759liquidity. However, they may be material to our consolidated results of5760operations of a future period.57615762SILZONE(R) SPECIAL CHARGE ACCRUALS: In January 2000, we initiated a worldwide5763voluntary recall of all field inventory of heart valve replacement and repair5764products incorporating Silzone(R) coating on the sewing cuff fabric. We5765concluded that we would no longer utilize Silzone(R) coating and recorded a5766special charge totaling $26.1 million during the first quarter of 2000 to cover5767various asset write-downs and anticipated costs associated with these matters.5768In the second quarter of 2002, we increased our Silzone(R) reserves by $115769million to cover additional anticipated costs. We have recorded an accrual for5770probable legal costs that we will incur to defend the various cases involving5771Silzone(R) devices, and we have recorded a receivable from our product liability5772insurance carriers for amounts expected to be recovered. We have not accrued for5773any amounts associated with probable legal settlements or judgments because we5774cannot reasonably estimate such amounts. However, we believe that no significant5775claims will ultimately be allowed to proceed as class actions in the United5776States, and, therefore, that all settlements and judgments will be covered under5777our remaining product liability insurance coverage (approximately $170 million5778at December 31, 2003), subject to the insurance companies' performance under the5779policies. As such, we believe that any costs (the material components of which5780are settlements, judgments and legal fees) not covered by our product liability5781insurance policies or existing reserves will not have a material adverse effect5782on our statement of financial position or liquidity, although such costs may be5783material to our consolidated results of operations of a future period.57845785Our remaining product liability insurance for Silzone(R) claims consists of a5786number of layers, each of which is covered by one or more insurance companies.5787Our next layer of insurance, which is a $30 million layer that would be reached5788after the present $35 million layer is exhausted, is covered by Lumberman's5789Mutual Casualty Insurance, a unit of the Kemper Insurance Companies5790(collectively referred to as Kemper). Kemper's credit rating by A.M. Best has5791been downgraded to a "D" (poor). Kemper is currently in "run off," which means5792that it is not issuing new policies and is, therefore, not579357945795579645797<PAGE>57985799generating any new revenue that could be used to cover claims made under5800previously-issued policies. In the event Silzone(R) claims were to reach the5801Kemper layer and Kemper was unable to pay part or all of such claims, we believe5802the other insurance carriers in our program will take the position that we will5803be directly liable for any claims and costs that Kemper is unable to pay, and5804that insurance carriers at policy layers following Kemper's layer will not5805provide coverage for Kemper's layer. Kemper also provides part of the coverage5806for Silzone(R) claims in our final layer of insurance ($20 million of the final5807$50 million layer).58085809It is possible that Silzone(R) costs and expenses will reach the Kemper layers5810of insurance coverage, and it is possible that Kemper will be unable to meet its5811obligations to us. If this were to happen, we could incur a loss of up to $505812million. We have not accrued for any such losses.58135814LEGAL RESERVES: We operate in an industry that is susceptible to significant5815product liability and intellectual property claims. Product liability claims may5816be brought by individuals seeking relief for themselves or, increasingly, by5817groups seeking to represent a class. In addition, claims may be asserted against5818us in the future relative to events that are not known to us at the present5819time. Our product liability insurance coverage during most of 2003 was $2005820million, with a $50 million deductible per claim. In light of our significant5821self-insured retention, our product liability insurance coverage is designed to5822help protect against a catastrophic claim. We record a liability in our5823consolidated financial statements for any claims where we have assessed that a5824loss is probable and an amount can be reasonably estimated.58255826A substantial amount of intellectual property litigation occurs in our industry.5827In November 1996, one of our competitors, Guidant Corporation (Guidant),5828initiated a lawsuit against us alleging that we did not have a license to5829certain patents which they controlled and as such, we were infringing on those5830patents. A jury found against us in July 2000; however, the judge overseeing the5831trial issued post-trial rulings in February 2001 which essentially set aside the5832jury's $140 million damage assessment. Guidant is appealing certain aspects of5833the judge's ruling. While it is not possible to predict the outcome of the5834appeal process, we believe that the decision of the trial court in its5835post-trial rulings was correct. In February 2004, Guidant initiated another5836lawsuit against us alleging that a number of our CRT products infringe two of5837its patents. We have not submitted a substantive response to Guidant's February58382004 claims at this time. To date, we have not recorded any liability for any5839losses related to these litigation matters. Potential losses arising from the5840ultimate resolution of these litigation matters are possible, but not estimable5841at this time. The range of such a loss could be material to our consolidated5842financial position, liquidity and results of operations.58435844ACQUISITIONS & INVESTMENTS5845Acquisitions can have an impact on the comparison of our operating results and5846financial condition from year to year.58475848On April 1, 2003, we completed the acquisition of Getz Japan, a distributor of5849medical technology products in Japan and our largest volume distributor in5850Japan. We paid 26.9 billion Japanese Yen in cash to acquire 100% of the5851outstanding common stock of Getz Japan. Net consideration paid was $219.25852million, which includes closing costs less $12.0 million of cash acquired.58535854On April 1, 2003, we also acquired the net assets of Getz Bros. & Co. (Aust.)5855Pty. Limited and Medtel Pty. Limited (collectively referred to as Getz5856Australia) related to the distribution of our products in Australia for $6.25857million in cash, including closing costs.585858595860586155862<PAGE>58635864The results of operations of the Getz Japan and Getz Australia (collectively5865referred to as Getz) acquisitions have been included in our consolidated results5866of operations since April 1, 2003. Pro forma results of operations have not been5867presented for the Getz acquisitions since the effects of these acquisitions were5868not material to our consolidated financial statements either individually or in5869aggregate. Net sales for 2003 included approximately $106 million related to the5870Getz Japan and Getz Australia acquisitions. The additional revenue from Getz was5871generated from the sale of non-St. Jude Medical manufactured products sold by5872Getz and the incremental revenue on the sale of St. Jude Medical manufactured5873products. Prior to April 1, 2003, we recognized revenue from the sale of our5874products to Getz as our distributor.58755876In May 2003, we made a $15 million minority investment in Epicor, a development5877stage company focused on developing products which use high intensity focused5878ultrasound (HIFU) to ablate cardiac tissue. In conjunction with this investment,5879we also agreed to acquire the remaining ownership of Epicor in 2004 for an5880additional $185 million in cash if Epicor achieves specific clinical and5881regulatory milestones by June 30, 2004.58825883SEGMENT REVIEW5884We have two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery5885(CRM/CS) segment and the Daig segment, which focus on the development and5886manufacture of our products. The primary products produced by each segment are:5887CRM/CS - pacemaker and ICD systems, mechanical and tissue heart valves and other5888cardiac surgery products; Daig - electrophysiology catheters, vascular closure5889devices and other cardiology and vascular access products.58905891Our reportable segments include end customer revenues from the sale of products5892they each develop and manufacture. The costs included in each of the reportable5893segments' operating results include the direct costs of the products sold to end5894customers and operating expenses managed by each of the segments. Certain costs5895of goods sold and operating expenses managed by our selling and corporate5896functions are not included in segment operating profit. Because of this, segment5897operating profit is not representative of the operating profit of our products5898in these segments.58995900The following table presents certain financial information about our reportable5901segments (in thousands):590259035904590565906<PAGE>59075908<TABLE>5909<CAPTION>5910CRM/CS DAIG OTHER TOTAL5911==================================================================================================================================5912<S> <C> <C> <C> <C>5913FISCAL YEAR ENDED DECEMBER 31, 20035914Net sales $ 1,499,425 $ 366,433 $ 66,656 $ 1,932,5145915Operating profit (a) 873,904 202,007 (619,966) 455,9455916Total assets 639,724 147,270 1,769,100 2,556,0945917- ----------------------------------------------------------------------------------------------------------------------------------59185919FISCAL YEAR ENDED DECEMBER 31, 20025920Net sales $ 1,305,750 $ 284,179 $ - $ 1,589,9295921Operating profit (a) 713,341 149,592 (492,978) 369,9555922Total assets 723,414 134,610 1,093,355 1,951,3795923- ----------------------------------------------------------------------------------------------------------------------------------59245925FISCAL YEAR ENDED DECEMBER 31, 2001 (b)5926Net sales $ 1,135,833 $ 211,523 $ - $ 1,347,3565927Operating profit (a) 583,030 105,947 (453,161) 235,8165928==================================================================================================================================5929</TABLE>59305931(a) OTHER OPERATING PROFIT INCLUDES CERTAIN COSTS OF GOODS SOLD AND OPERATING5932EXPENSES MANAGED BY THE COMPANY'S SELLING AND CORPORATE FUNCTIONS. IN5933FISCAL YEAR 2001, OTHER ALSO INCLUDES SPECIAL CHARGES AND PURCHASED5934IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES.59355936(b) DURING 2001, THE COMPANY COMPLETED A REORGANIZATION OF ITS GLOBAL SALES5937ACTIVITIES, WHICH RESULTED IN CHANGES TO ITS INTERNAL MANAGEMENT AND5938FINANCIAL REPORTING STRUCTURE. DUE TO THIS RESTRUCTURING, INFORMATION5939RELATING TO 2001 TOTAL ASSETS HAS NOT BEEN COMPILED AS IT IS5940IMPRACTICABLE TO DO SO.59415942We do not generally manage our business or allocate resources based on the5943measure of segment operating profit or loss because these measures are not5944indicative of the operating results of the products sold by these segments.5945Rather, we utilize the segment results to measure performance against targets5946for each segment's controllable activities. Additionally, we review global and5947product line sales information to assess performance of the business.59485949The following discussion of the changes in our net sales is provided by class of5950similar products, which is the primary focus of our sales activities. That5951analysis sufficiently describes the changes in our sales results for our two5952reportable segments.59535954NET SALES5955Net sales by geographic markets were as follows (in thousands):59565957<TABLE>5958<CAPTION>59592003 2002 20015960==============================================================================================5961<S> <C> <C> <C>5962United States $1,129,055 $1,042,766 $ 880,0865963International5964Europe 465,369 347,936 294,8525965Japan 207,431 95,813 83,3615966Other 130,659 103,414 89,0575967- ----------------------------------------------------------------------------------------------5968803,459 547,163 467,2705969- ----------------------------------------------------------------------------------------------5970$1,932,514 $1,589,929 $1,347,3565971- ----------------------------------------------------------------------------------------------5972</TABLE>59735974Foreign currency translation relating to our international operations can have a5975significant impact on our operating results from year to year. Foreign currency5976translation had a favorable impact on 2003 net sales as compared with 2002 by5977approximately $71 million due primarily to the strengthening of the597859795980598175982<PAGE>59835984Euro against the U.S. dollar. Foreign currency translation had a net favorable5985impact on 2002 net sales as compared with 2001 by approximately $9 million due5986primarily to the strengthening of the Euro against the U.S. dollar, offset in5987part by the weakening of the Brazilian Real against the U.S. dollar. These5988amounts are not indicative of the net earnings impact of foreign currency5989translation for 2003 and 2002 due to partially offsetting unfavorable foreign5990currency translation impacts on cost of sales and operating expenses.59915992Net sales by class of similar products were as follows (in thousands):59935994<TABLE>5995<CAPTION>59962003 2002 20015997========================================================================================================================5998<S> <C> <C> <C>5999CARDIAC RHYTHM MANAGEMENT6000Pacemaker systems $ 826,121 $ 751,575 $ 689,2236001ICD systems 414,255 303,218 200,5116002Electrophysiology catheters 124,836 92,696 76,2346003- ------------------------------------------------------------------------------------------------------------------------60041,365,212 1,147,489 965,9686005CARDIAC SURGERY6006Heart valves 250,840 232,986 240,8296007Other cardiac surgery products 20,093 17,971 7,2166008- ------------------------------------------------------------------------------------------------------------------------6009270,933 250,957 248,0456010CARDIOLOGY AND VASCULAR ACCESS6011Vascular closure devices 218,215 156,474 101,5916012Other cardiology and vascular access products 78,154 35,009 31,7526013- ------------------------------------------------------------------------------------------------------------------------6014296,369 191,483 133,34360156016- ------------------------------------------------------------------------------------------------------------------------6017$1,932,514 $1,589,929 $1,347,3566018========================================================================================================================6019</TABLE>602060212003 NET SALES COMPARED TO 20026022In cardiac rhythm management, net sales of pacemaker systems increased 9.9% in60232003 due to an increase in pacemaker unit sales of approximately 5% from 2002,6024approximately $33 million of favorable impact from foreign currency translation6025and $29 million of favorable impact from the Getz acquisitions. Pacemaker net6026sales in 2003 benefited from the worldwide launches of our Identity(R) ADx,6027Integrity(R) ADx and Verity(TM) ADx pacemaker product families. These increases6028were offset in part by average selling price declines of approximately 3%. Net6029sales of ICD systems increased 36.6% in 2003 due to growth in ICD unit sales of6030approximately 39%, offset in part by average selling price declines of6031approximately 6%. ICD net sales in 2003 benefited from the worldwide launch in6032mid-2003 of our Epic(TM)+ DR ICD containing AF Suppression(TM) technology. Net6033sales of ICD systems in 2003 also included approximately $12 million of6034favorable impact from foreign currency translation. Electrophysiology catheter6035net sales increased 34.7% in 2003 due primarily to a 9% increase in unit sales,6036$18 million of favorable impact from the Getz acquisitions and approximately $46037million of favorable impact from foreign currency translation.60386039In cardiac surgery, heart valve net sales increased 7.7% in 2003 due primarily6040to approximately $12 million of favorable impact from foreign currency6041translation and $10 million of favorable impact from the Getz acquisitions.6042These increases were partially offset by a global average selling price decline6043of approximately 4% due to a larger portion of our sales mix coming from6044lower-priced international markets. Net sales of other cardiac surgery products6045increased 11.8% in 2003 due primarily to $13 million of favorable impact from6046the Getz acquisitions, offset in part by a 60% decrease in aortic connector unit6047sales.60486049605086051<PAGE>60526053In cardiology and vascular access, net sales of vascular closure devices6054increased 39.5% in 2003 due to an increase of 37% in Angio-Seal(TM) unit sales6055and approximately $8 million of favorable impact from foreign currency6056translation. These increases were partially offset by a global average selling6057price decline of approximately 3% due to a larger portion of our sales mix6058coming from lower-priced international markets. Net sales in 2003 benefited from6059the global launch of our fifth-generation Angio-Seal(TM) vascular closure6060product, the STS Plus, in the third quarter. Net sales of other cardiology and6061vascular access products increased 123.2% in 2003 due primarily to $36 million6062of sales of non-St. Jude Medical manufactured products distributed in Japan by6063Getz, a 19% increase in unit sales and approximately $2 million of favorable6064impact from foreign currency translation.606560662002 NET SALES COMPARED TO 20016067In cardiac rhythm management, net sales of pacemaker systems increased 9.0% in60682002 due primarily to an increase in unit sales of 9%, attributable to the6069ongoing success of our Identity(R) family of pacemakers and other devices that6070incorporate BEAT-BY-BEAT AutoCapture(TM) and AF Suppression(TM) technology.6071Foreign currency translation had a favorable impact on 2002 net sales of6072pacemakers of approximately $3.5 million. Net sales of ICD systems increased607351.2% in 2002 due primarily to increased ICD unit sales of 48% and approximately6074$2 million of favorable impact from foreign currency translation. Our ICD net6075sales benefited from the ongoing success of the Atlas(R) ICD, the new Epic(TM)6076ICD that was launched worldwide in the fourth quarter of 2002 and the Riata(R)6077family of ICD leads. EP catheter net sales increased 21.6% in 2002 due primarily6078to increased unit sales.60796080In cardiac surgery, heart valve net sales decreased 3.3% in 2002 due primarily6081to an ongoing clinical preference shift from mechanical valves to tissue valves6082in the U.S. market, where we hold significant mechanical valve market share and6083a smaller share of the tissue valve market. Heart valve net sales were favorably6084impacted in 2002 by approximately $1.5 million due to foreign currency6085translation. Net sales of other cardiac surgery products increased 149% in 20026086due primarily to an increase in aortic connector sales as a result of the6087ongoing rollout of this product in the U.S. market.60886089In cardiology and vascular access, net sales of vascular sealing devices6090increased 54.0% in 2002 due primarily to increased Angio-Seal(TM) unit sales of6091approximately 50%. Net sales in 2002 benefited from the worldwide launch in6092early 2002 of our newest vascular closure device platform, the Angio-Seal(TM)6093STS. Net sales of other cardiology and vascular access products increased 10.3%6094in 2002 due primarily to an increase in unit sales.60956096GROSS PROFIT6097Gross profits were as follows (in thousands):60986099<TABLE>6100<CAPTION>61012003 2002 20016102- ----------------------------------------------------------------------------------------6103<S> <C> <C> <C>6104Gross profit $1,329,423 $1,083,983 $888,1976105Percentage of net sales 68.8% 68.2% 65.9%6106- ----------------------------------------------------------------------------------------6107</TABLE>61086109Our 2003 gross profit percentage increased 0.6 percentage points over 20026110despite a 1.6 percentage point reduction as a result of our Getz Japan6111acquisition. The increase in our gross profit percentage during 2003 is6112primarily a result of reduced material costs and increased labor efficiencies6113due to continued improvements in our CRM manufacturing processes, and to lower6114overhead costs per unit as a result of higher CRM production volumes. In6115addition, our ongoing cost management efforts helped to improve our gross profit6116percentage.61176118611996120<PAGE>61216122On April 1, 2003, we valued the Getz Japan-owned inventory of pacemaker systems6123and heart valves at fair value in accordance with acquisition accounting rules.6124This fair value was established as the price at which we had sold the inventory6125to Getz. As these inventory items were sold subsequent to April 1, 2003, our6126gross profit percentage was reduced since the gross profit recognized by Getz6127Japan was less than our historical gross profit related to the sale of these6128items to Getz Japan as our distributor. Once the original Getz Japan-owned6129inventory is sold, our gross profit percentage will improve. In 2004, we6130anticipate that our gross profit percentage will increase to a range of 70.5% to613171.5% due primarily to completing the sale of the remaining original Getz-owned6132inventory and to additional anticipated cost savings in our CRM operations.61336134Our 2002 gross profit percentage increased 2.3 percentage points over 2001 due6135primarily to the $21.7 million of inventory write-downs and equipment write-offs6136in 2001 which did not recur in 2002 (see further details under SPECIAL CHARGES).6137The remaining 0.7 percentage point improvement in gross profit percentage is due6138primarily to reduced material costs and increased labor efficiencies as a result6139of improvements in our CRM manufacturing processes, lower overhead costs per6140unit as a result of higher CRM production volumes and to ongoing cost management6141efforts.61426143OPERATING EXPENSES6144Certain operating expenses were as follows (in thousands):61456146<TABLE>6147<CAPTION>61482003 2002 20016149=============================================================================================6150<S> <C> <C> <C>6151Selling, general and administrative $632,395 $513,691 $467,1136152Percentage of net sales 32.7% 32.3% 34.7%61536154Research and development $241,083 $200,337 $164,1016155Percentage of net sales 12.5% 12.6% 12.2%6156=============================================================================================6157</TABLE>61586159SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense as a percentage6160of net sales increased 0.4 percentage points in 2003. This increase is due6161primarily to the addition of the Getz direct sales organization beginning April61621, 2003, which included approximately 400 sales, sales support and marketing6163personnel. In addition, we incurred increased selling and marketing expenses in61642003 in anticipation of our entry into the CRT segments of the U.S. pacemaker6165and ICD markets in 2004. These headcount increases in our worldwide selling6166organizations were offset, in part, by the effects of spreading certain6167relatively fixed elements of our selling and administrative costs over a revenue6168base that grew 22% in 2003. We anticipate that SG&A expense as a percentage of6169net sales will increase to a range of 33.5% to 34.0% in 2004 as a result of6170increased spending in our sales and marketing areas in support of our6171anticipated 2004 launch of our CRT products in the United States and the Getz6172results in our income statement for the full year in 2004 versus nine months in61732003.61746175SG&A expense as a percentage of net sales decreased by 2.4 percentage points in61762002. Approximately $28 million, or 1.8 percentage points of the decrease in6177SG&A expense as a percentage of net sales, resulted from the elimination of6178goodwill amortization expense in 2002 as a result of our adoption of SFAS No.6179142, "GOODWILL AND OTHER INTANGIBLE ASSETS," effective January 1, 2002. The6180remaining SG&A improvement as a percentage of net sales represented the effects6181of spreading certain relatively fixed elements of our selling and administrative6182costs over a revenue base that grew 18% in 2002. During the second quarter of61832002, we received a cash payment of $18.5 million relating to the settlement of61846185618661876188106189<PAGE>61906191certain patent litigation, which was recorded as a reduction of SG&A expense.6192Also during the second quarter of 2002, we recorded in SG&A an $11 million6193charge to increase the reserve for expenses related to the Silzone(R) recall6194(see SPECIAL CHARGES) and a $7.5 million discretionary contribution to our6195charitable foundation, the St. Jude Medical Foundation.61966197During the fourth quarter of 2001, we reversed through SG&A expense a $156198million accrued liability relating to royalties on a license agreement with6199Guidant that we believed we had acquired as part of our purchase of assets of6200the Telectronics cardiac stimulation device business. This accrual reversal was6201necessary as a result of various legal conclusions in the Guidant litigation,6202including the judge's rulings in February 2002 (see Note 5 to our Consolidated6203Financial Statements), when it was determined that we would never have to pay6204any royalties under the license. In addition, during this same quarter we6205expensed approximately $15 million of legal fees incurred in relation to the6206Guidant litigation that were subject to recoverability under an indemnification6207agreement between us and the seller of the Telectronics cardiac stimulation6208device business. This write-off occurred as a result of the same legal6209conclusions referred to above, when it was determined that our realization of6210the indemnity receivable was impaired.62116212RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expense increased in 2003 and 20026213due primarily to our increased spending on the development of new products and6214related clinical trials, including our CRT devices and other products to treat6215emerging indications including atrial fibrillation.62166217PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES: In September 1999, we6218recorded purchased in-process research and development charges of $67.5 million6219in connection with our acquisition of Vascular Science, Inc. (VSI). The6220purchased in-process research and development charges were computed by an6221independent third-party appraisal company and were expensed at the close of the6222acquisition, except as noted below, since technological feasibility had not been6223established and since there were no alternative future uses for the technology.6224To date, we have capitalized $.6 million of intangible assets related to the VSI6225acquisition.62266227The total appraised value of the VSI purchased in-process research and6228development was $95.5 million, of which $67.5 million was recorded at the close6229of the acquisition. We paid additional contingent consideration of $10 million6230in 2001 and $5 million in 2000 as certain regulatory approvals for the proximal6231and distal connector technologies were obtained. These additional payments were6232also expensed as purchased in-process research and development at the time of6233payment. The remaining balance of the purchased in-process research and6234development valuation ($13 million) will be recorded in our financial statements6235as purchased in-process research and development expense when payment of the6236contingent consideration is assured beyond a reasonable doubt. Contingent6237consideration payments in excess of the $13 million will be capitalized as6238goodwill.62396240Since 1999, we have continued to develop certain of the in-process technologies6241acquired in the VSI acquisition. Development of the proximal connector was6242completed and regulatory approvals and E.U. and U.S. market releases occurred in62432000 and 2001. A second VSI in-process technology, the distal connector,6244received E.U. regulatory approval in 2001; however, we decided to not release6245the product to the market until we were able to make additional enhancements.6246The other in-process technologies acquired in the VSI acquisition continue to be6247reviewed for ultimate viability in the developing coronary artery bypass graft6248anastomoses market.624962506251116252<PAGE>62536254At the date of the VSI acquisition, the total estimated costs necessary to6255complete the proximal and distal connector technologies into commercially viable6256products and to make certain subsequent product enhancements were approximately6257$1 million, all of which were scheduled to be incurred in 1999 and 2000. Through6258December 2003, we have incurred approximately $10 million to complete the6259proximal connector and the distal connector. The original estimated costs to6260complete the other in-process technologies into commercially viable products6261were approximately $6 million, of which only an immaterial amount has been6262incurred to date.62636264During 2003, our proximal and distal connector products did not continue to6265develop as they did during 2001 and 2002 nor as we had originally anticipated in6266September 1999. Product sales declined 54% to $8.2 million during 2003 after6267increasing 149% to $18.0 million in 2002. We believe that additional investments6268in research and development and clinical studies to support these products will6269be required. There can be no assurance that the VSI technologies will achieve6270the technological or commercial success which we originally anticipated in6271September 1999.62726273The VSI purchase agreement requires us to make additional payments to the former6274VSI shareholders upon the achievement of certain regulatory milestones and6275minimum sales levels. To date, we have paid $15 million related to the6276achievement of three regulatory milestones. Achievement of the final regulatory6277milestone, U.S. regulatory approval of the distal connector, requires an6278additional $5 million payment. This contractual commitment continues6279indefinitely.62806281The contingent consideration tied to sales requires us to make additional6282payments totaling 5% of sales once cumulative sales exceed $50 million for the6283proximal and distal connectors collectively. There is no maximum amount of6284contingent consideration that could be paid related to sales. This contractual6285commitment ceases in 2009 if the minimum sales threshold is not attained prior6286to such date. If the minimum sales threshold is met prior to 2009, the6287commitment will extend for 10 years from the date the minimum sales threshold is6288met. Cumulative proximal and distal connector sales totaled $33 million through6289December 31, 2003.62906291There can be no assurance that we will be able to complete the development of6292these technologies into commercially viable products. Additionally, we are not6293able to reasonably predict the level of proximal or distal connector sales over6294a period of time which could extend beyond the next 10 years. As a result of6295these factors, we are not able to predict the amount of additional contingent6296consideration, if any, that may become due. However, we believe that any amounts6297which may ultimately become due in the next 5 years will not be material to our6298results of operations, financial position or liquidity.62996300SPECIAL CHARGES: During the first half of 2001, we undertook a review of the6301organizational structure of our sales operations and our heart valve operations.6302At that time, the structure our sales organization included four separate sales6303groups. Additionally, the cardiac surgery markets were experiencing a shift in6304clinical preference away from mechanical heart valves in favor of tissue heart6305valves and repair product for certain patients. These changes had the potential6306to impact the future performance of our heart valve operations. As a result of6307these reviews, in July 2001 we approved two restructuring plans. The first plan6308included a restructuring of our sales organizations into two geographically6309oriented groups (one group focused on the United States and one group focused on6310locations outside the United States) and changes within each of these new6311organizations to harmonize their operations within each of their geographies.6312631363146315126316<PAGE>63176318The second plan included the elimination of excess capacity in our heart valve6319operations workforce, facilities and equipment and the discontinuance of certain6320heart valve product lines.63216322As a result of these restructuring plans, we recorded pre-tax charges totaling6323$20.7 million in the third quarter of 2001 consisting of inventory write-downs6324($9.5 million), capital equipment write-offs ($3.4 million), employee6325termination costs ($5.3 million) and lease termination and other exit costs6326($2.5 million).63276328Inventory write-downs represented the estimated net carrying value of various6329inventory items that would be scrapped in connection with the decision to6330terminate two heart valve product lines. Capital equipment write-offs were a6331result of the elimination of certain excess capacity in our heart valve6332operations. Employee termination costs related to the severance costs for6333approximately 90 individuals whose positions were eliminated. Lease termination6334and other exit costs included office closings for international locations,6335contractual obligations under certain programs that were cancelled and lease6336termination costs.63376338A summary of the employee termination costs and lease termination and other exit6339costs activity is as follows (in thousands):63406341<TABLE>6342<CAPTION>6343LEASE6344EMPLOYEE TERMINATION6345TERMINATION AND OTHER6346COSTS EXIT COSTS TOTAL6347===========================================================================================================6348<S> <C> <C> <C>6349Initial expense and accrual in 2001 $ 5,293 $ 2,495 $ 7,7886350Cash payments (2,468) (352) (2,820)6351- -----------------------------------------------------------------------------------------------------------6352Balance at December 31, 2001 2,825 2,143 4,96863536354Cash payments (1,676) (1,970) (3,646)6355Changes in estimates (639) (53) (692)6356- -----------------------------------------------------------------------------------------------------------6357Balance at December 31, 2002 510 120 63063586359Cash payments (510) (120) (630)6360- -----------------------------------------------------------------------------------------------------------6361Balance at December 31, 2003 $ - $ - $ -6362===========================================================================================================6363</TABLE>63646365In addition to the above restructuring activities, we identified a trend early6366in the third quarter of 2001 related to the usage of certain diagnostic6367equipment, also referred to as programmers. We noted that customer acceptance of6368our new programmer, which received FDA regulatory approval in late December 20006369and was subsequently launched during the first and second quarters of 2001,6370significantly exceeded our expectations, necessitating a special analysis of the6371recoverability of the older programmers that were not yet fully depreciated.6372After a review of the situation, we approved a plan to abandon certain older6373programmer models during the third quarter of 2001. As a result of this plan, we6374wrote off the remaining net book value of the abandoned programmers ($12.26375million) to cost of sales.63766377The charges relating to employee termination costs, capital equipment write-offs6378and other costs ($11.2 million) were recorded in operating expenses as special6379charges. The inventory and diagnostic equipment write-offs ($21.7 million) were6380included in cost of sales as special charges.63816382On January 21, 2000, we initiated a worldwide voluntary recall of all field6383inventory of heart valve replacement and repair products incorporating6384Silzone(R) coating on the sewing cuff fabric. We6385638663876388136389<PAGE>63906391concluded that we would no longer utilize Silzone(R) coating. As a result of the6392voluntary recall and product discontinuance, we recorded a special charge6393totaling $26.1 million during the first quarter of 2000. The $26.1 million6394special charge consisted of asset write-downs ($9.5 million), legal and patient6395monitoring costs ($14.4 million) and customer returns and related costs ($2.26396million).63976398The $9.5 million of asset write-downs related to inventory write-offs associated6399with the physical scrapping of inventory with Silzone(R) coating ($8.6 million),6400and to the write-off of a prepaid license asset and related costs associated6401with the Silzone(R) coating technology ($0.9 million). The $14.4 million of6402legal and patient monitoring costs related to our product liability insurance6403deductible ($3.5 million) and patient monitoring costs ($10.9 million) related6404to contractual and future monitoring activities directly related to the product6405recall and discontinuance. The $2.2 million of customer returns and related6406costs represented costs associated with the return of customer-owned Silzone(R)6407inventory.64086409In the second quarter of 2002, we determined that the Silzone(R) reserves should6410be increased by $11 million as a result of difficulties in obtaining certain6411reimbursements from our insurance carriers under our product liability insurance6412policies ($4.6 million), an increase in our estimate of the costs associated6413with future patient monitoring costs as a result of extending the time period in6414which we planned to perform patient monitoring activities ($5.8 million) and an6415increase in other related costs ($0.6 million). This additional accrual was6416included in selling, general and administrative expense during the second6417quarter ended June 30, 2002.64186419Our product liability insurance coverage for Silzone(R) claims consists of a6420number of policies with different carriers. During 2002, we observed a trend6421where various insurance companies were not reimbursing us or outside legal6422counsel for a variety of costs incurred, which we believed should be paid under6423the product liability insurance policies. These insurance companies were either6424refusing to pay the claims or had delayed providing an explanation for6425non-payment for an extended period of time. Although we believe we have legal6426recourse from these insurance carriers for the costs they are refusing to pay,6427the additional costs we would need to incur to resolve these disputes may exceed6428the amount we would recover. As a result of these developments, we increased the6429Silzone(R) reserves by $4.6 million in the second quarter of 2002, which6430represents the existing disputed costs already incurred at that time plus the6431anticipated future costs where we expect similar resistance from the insurance6432companies on reimbursement.64336434During the fourth quarter of 2003, we reclassified $15.7 million of existing6435accruals to the Silzone(R) special charge accrual from other current assets.6436This amount related to probable future legal costs associated with the6437Silzone(R) litigation. Previously, these accruals were offset against a6438receivable from our insurance carriers.64396440A summary of the legal and monitoring costs and customer returns and related6441costs activity is as follows (in thousands):644264436444146445<PAGE>64466447<TABLE>6448<CAPTION>6449LEGAL AND CUSTOMER6450MONITORING RETURNS AND6451COSTS RELATED COSTS TOTAL6452===========================================================================================================6453<S> <C> <C> <C> <C>6454Initial expense and accrual in 2000 $ 14,397 $ 2,239 $ 16,6366455Cash payments (5,955) (2,239) (8,194)6456- -----------------------------------------------------------------------------------------------------------6457Balance at December 31, 2000 8,442 - 8,44264586459Cash payments (3,042) - (3,042)6460- -----------------------------------------------------------------------------------------------------------6461Balance at December 31, 2001 5,400 - 5,40064626463Additional expense 10,433 567 11,0006464Cash payments (2,442) (59) (2,501)6465- -----------------------------------------------------------------------------------------------------------6466Balance at December 31, 2002 13,391 508 13,89964676468Cash payments (1,206) (22) (1,228)6469Reclassification of legal accruals 15,721 - 15,7216470- -----------------------------------------------------------------------------------------------------------6471Balance at December 31, 2003 $ 27,906 $ 486 $ 28,3926472- -----------------------------------------------------------------------------------------------------------6473</TABLE>64746475In addition to the amounts available under the above Silzone(R) reserves, we6476have approximately $170 million remaining in product liability insurance6477currently available for the Silzone(R)-related matters. See discussion of Kemper6478under CRITICAL ACCOUNTING POLICIES AND ESTIMATES - SILZONE(R) SPECIAL CHARGE6479ACCRUALS.64806481OTHER INCOME (EXPENSE)64826483Other income (expense) consists of the following (in thousands):64846485<TABLE>6486<CAPTION>64872003 2002 20016488==========================================================================================6489<S> <C> <C> <C>6490Interest income $ 7,031 $ 5,481 $ 3,2616491Interest expense (3,746) (1,754) (12,567)6492Other (593) (324) 1,4686493- ------------------------------------------------------------------------------------------6494Other income (expense) $ 2,692 $ 3,403 $ (7,838)6495- ------------------------------------------------------------------------------------------6496</TABLE>64976498The decrease in other income (expense) during 2003 as compared with 2002 was due6499primarily to higher levels of interest expense as a result of borrowings for our6500Getz Japan acquisition in 2003 and our August 2003 share repurchase, offset in6501part by higher levels of interest income as a result of higher average invested6502cash balances.65036504The change in other income (expense) during 2002 as compared with 2001 was due6505primarily to reduced interest expense as a result of lower debt levels, lower6506interest rates on our borrowings in 2002 and higher levels of interest income as6507a result of the increase in cash and equivalents in 2002.65086509INCOME TAXES6510Our reported effective income tax rates were 26.0% in 2003 and 2002, and 24.3%6511in 2001. Excluding the purchased in-process research and development and special6512charges in 2001, our effective income tax rate was 25.0%. The purchased6513in-process research and development charges were not deductible for income tax6514purposes, and the special charges were recorded in taxing jurisdictions where6515income tax rates varied from our blended 25.0% effective tax rate. Our higher6516effective income tax rate in 2003 and 2002 as compared to 2001 was due to a6517larger percentage of our taxable income being generated in higher tax rate6518jurisdictions.6519652065216522156523<PAGE>65246525NET EARNINGS6526Net earnings were $339.4 million in 2003, a 22.8% increase over 2002, and6527diluted net earnings per share was $1.83 in 2003, a 21.2% increase over 2002.6528Net earnings were $276.3 million in 2002, a 36.0% increase over 2001, and6529diluted net earnings per share was $1.51 in 2002, a 32.5% increase over 2001.6530The 2001 net earnings included $42.8 million of pre-tax special charges and6531purchased in-process research and development charges, or $0.17 per diluted6532share.65336534In August 2003, we repurchased 9.25 million shares, which we funded through6535existing cash balances and borrowings under a short-term credit facility and6536commercial paper program. Our share repurchase decreased our weighted average6537shares outstanding during 2003 by 3.6 million shares. This impact, offset by the6538foregone interest income and additional interest expense we incurred, resulted6539in an immaterial increase to our net earnings per share for 2003.65406541STOCK SPLIT6542On May 16, 2002, our Board of Directors declared a two-for-one stock split in6543the form of a 100% stock dividend to shareholders of record on June 10, 2002.6544Net earnings per share, shares outstanding and weighted average shares6545outstanding have been restated to reflect this stock split.65466547GOVERNMENT REGULATION, COMPETITION AND OTHER CONSIDERATIONS6548We expect that market demand, government regulation and reimbursement policies,6549and societal pressures will continue to change the worldwide healthcare industry6550resulting in further business consolidations and alliances. We participate with6551industry groups to promote the use of advanced medical device technology in a6552cost-conscious environment.65536554The global medical technology industry is highly competitive and is6555characterized by rapid product development and technological change. Our6556products must continually improve technologically and provide improved clinical6557outcomes due to the competitive nature of the industry. In addition, competitors6558have historically employed litigation to gain a competitive advantage.65596560The pacemaker and ICD markets are highly competitive. There are currently three6561principal suppliers to these markets, including us, and our two principal6562competitors each have substantially more assets and sales than us. Rapid6563technological change in these markets is expected to continue, requiring us to6564invest heavily in R&D and to effectively market our products. Two trends began6565to emerge in these markets during 2002. The first involved a shift of some6566traditional pacemaker patients to ICD devices in the United States, and the6567second involved the increasing use of resynchronization devices in both the U.S.6568ICD and pacemaker markets. Our competitors in CRM have U.S. regulatory approval6569to market ICD and pacemaker devices with resynchronization features. We6570currently have both a cardiac resynchronization ICD and pacemaker product in6571U.S. clinical studies. We currently anticipate U.S. approval of these products6572during the second quarter of 2004. If the approvals of these products are6573delayed or not received, our pacemaker and ICD sales could be adversely affected6574if the markets continue to shift towards products with cardiac resynchronization6575capabilities. We have experienced a modest decline in average selling prices for6576ICDs in the U.S. market during 2003, which will likely continue until we obtain6577U.S. approval of our cardiac resynchronization ICD.65786579The cardiac surgery markets, which include mechanical heart valves, tissue heart6580valves and valve repair products, are also highly competitive. Since 1999,6581cardiac surgery therapies have shifted to tissue valves and repair products from6582mechanical heart valves, resulting in an overall market share loss for us.6583Competition is anticipated to continue to place pressure on pricing and terms,6584including a trend6585658665876588166589<PAGE>65906591toward vendor-owned (consignment) inventory at the hospitals. Also, healthcare6592reform is expected to result in further hospital consolidations over time with6593related pressure on pricing and terms.65946595The cardiology and vascular access therapy area is also growing and has numerous6596competitors. Over 70% of our sales in this area are comprised of vascular6597closure devices. The market for vascular closure devices is highly competitive,6598and there are several companies, in addition to St. Jude Medical, that6599manufacture and market these products worldwide. Additionally, we anticipate6600other large companies will enter this market in the coming years, which will6601likely increase competition.66026603Group purchasing organizations (GPOs) and independent delivery networks6604(IDNs) in the United States continue to consolidate purchasing decisions for6605some of our hospital customers. We have contracts in place with many of these6606organizations. In some circumstances, our inability to obtain a contract with a6607GPO or IDN could adversely affect our efforts to sell our products to that6608organization's hospitals.66096610MARKET RISK6611We are exposed to foreign currency exchange rate fluctuations due to6612transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars,6613Brazilian Reals, British Pounds, and Swedish Kronor. Although we elected not to6614enter into any hedging contracts during 2003, 2002 or 2001, historically we6615have, from time to time, hedged a portion of our foreign currency exchange rate6616risk through the use of forward exchange or option contracts. The gains or6617losses on these contracts are intended to offset changes in the fair value of6618the anticipated foreign currency transactions. We do not enter into contracts6619for trading or speculative purposes. We continue to evaluate our foreign6620currency exchange rate risk and the different mechanisms for use in managing6621such risk. We had no forward exchange or option contracts outstanding at6622December 31, 2003 or 2002. A hypothetical 10% change in the value of the U.S.6623dollar in relation to our most significant foreign currency exposures would have6624had an impact of approximately $55 million on our 2003 net sales. This amount is6625not indicative of the hypothetical net earnings impact due to partially6626offsetting impacts on cost of sales and operating expenses.66276628With our acquisition of Getz Japan during 2003, we significantly increased our6629exposure to foreign currency exchange rate fluctuations due to transactions6630denominated in Japanese Yen. We elected to naturally hedge a portion of our6631Yen-based net asset exposure by issuing 1.02%Yen-based 7-year notes, the6632proceeds of which were used to repay the short-term bank debt that we used to6633fund a portion of the Getz Japan purchase price. Excess cash flows from our Getz6634Japan operations will be used to fund principal and interest payments on the6635Yen-based borrowings. We have not entered into any Yen-based hedging contracts6636to mitigate any remaining foreign currency exchange rate risk.66376638We are exposed to interest rate risk on our short-term, Yen-based bank credit6639agreement which has a variable interest rate tied to the floating Yen London6640InterBank Offered Rate (LIBOR). In the United States, we issue short-term,6641unsecured commercial paper that bears interest at varying market rates. We also6642have two committed credit facilities that have variable interest rates tied to6643the LIBOR. Our variable interest rate borrowings had a notional value of $169.56644million at December 31, 2003. A hypothetical 10% change in interest rates6645assuming the current level of borrowings would have had an impact of6646approximately $0.2 million on our 2003 interest expense, which is not material6647to our consolidated results of operations.66486649We are exposed to fair value risk on our 1.02% Yen-based fixed-rate notes. A6650hypothetical 10% change in interest rates would have an impact of approximately6651$1.3 million on the fair value of these notes, which is not material to our6652financial position or consolidated results of operations.665366546655176656<PAGE>66576658We are also exposed to equity market risk on our marketable equity security6659investments. We periodically invest in marketable equity securities of emerging6660technology companies. Our investments in these companies had a fair value of6661$23.7 million and $13.7 million at December 31, 2003 and 2002, which are subject6662to the underlying price risk of the public equity markets.66636664NEW ACCOUNTING PRONOUNCEMENTS6665In January 2003, the Financial Accounting Standards Board (FASB) issued FASB6666Interpretation No. 46, "CONSOLIDATION OF VARIABLE INTEREST ENTITIES" (FIN 46).6667FIN 46 requires the consolidation of variable interest entities in which an6668enterprise absorbs a majority of the entity's expected losses, receives a6669majority of the entity's expected residual returns, or both, as a result of6670ownership, contractual or other financial interests in the entity. FIN 46 is6671effective for the first quarter of 2004. We do not expect our adoption of FIN 466672to have an impact on our consolidated results of operations, financial position6673or cash flows.66746675In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL6676INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" (Statement6677150). Statement 150 establishes standards for issuer classification and6678measurement of certain financial instruments with characteristics of both6679liabilities and equity. In accordance with this standard, financial instruments6680that embody obligations for the issuer are required to be classified as6681liabilities. Statement 150 is effective for all financial instruments entered6682into or modified after May 31, 2003, and is otherwise effective at the beginning6683of the first interim period beginning after June 15, 2003. Our adoption of6684Statement 150 did not have an impact on our consolidated results of operations,6685financial position or cash flows.66866687Emerging Issues Task Force (EITF) Issue No. 00-21, "ACCOUNTING FOR REVENUE6688ARRANGEMENTS WITH MULTIPLE DELIVERABLES," addresses certain aspects of the6689accounting by a vendor for arrangements under which multiple revenue-generating6690activities are performed. EITF Issue No. 00-21 establishes three principles:6691revenue arrangements with multiple deliverables should be divided into separate6692units of accounting; arrangement consideration should be allocated among the6693separate units of accounting based on their relative fair values; and revenue6694recognition criteria should be considered separately for separate units of6695accounting. EITF Issue No. 00-21 was effective for all revenue arrangements6696entered into in fiscal periods beginning after June 15, 2003. Our adoption of6697EITF Issue No. 00-21 did not have an impact on our consolidated results of6698operations, financial position or cash flows.66996700In December 2003, the Securities and Exchange Commission released Staff6701Accounting Bulletin No. 104, "REVENUE RECOGNITION" (SAB 104). SAB 104 clarifies6702existing guidance regarding revenue recognition. Our adoption of SAB 104 did not6703have a material impact on our consolidated results of operation, financial6704position or cash flows.670567066707FINANCIAL CONDITION67086709LIQUIDITY AND CAPITAL RESOURCES6710Our liquidity and cash flows remained strong during 2003. Cash provided by6711operating activities was $474.3 million for 2003, up $57.1 million from 2002 due6712primarily to increased earnings and an increase in the tax benefit realized from6713the exercise of employee stock options. Offsetting these improvements was an6714increase in our finished goods inventory levels as a result of fourth quarter67152003 new product launches. Cash provided by operating activities was $417.26716million in 2002, up $107.1 million from 2001 due primarily to increased earnings6717and to a reduction of our inventory levels during 2002. Our inventory, expressed6718as the number of days of cost of sales on hand (DIOH), declined from6719672067216722186723<PAGE>67246725199 days at the end of 2001 to 160 days at the end of 2002 due mostly to more6726focused inventory management across our business.67276728At December 31, 2003, substantially all of our cash and equivalents were held by6729our non-U.S. subsidiaries. These funds are available for use by our U.S.6730operations; however, assuming we accomplished a repatriation under current law6731by paying a dividend, the amount paid would be subject to additional U.S. taxes6732upon repatriation which could total as much as 33% of the amount repatriated.67336734On April 1, 2003, we borrowed 24.6 billion Japanese Yen, or approximately $2086735million, under a short-term, unsecured bank credit agreement to partially6736finance the Getz Japan acquisition. These borrowings bore interest at an average6737rate of 0.58% per annum and were repaid in May 2003. In May 2003, we issued67387-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $194.4 million at6739December 31, 2003. We also obtained a short-term, unsecured bank credit6740agreement which provides for borrowings of up to 3.8 billion Yen. Proceeds from6741the issuance of the 7-year notes and from borrowings under the short-term, bank6742credit agreement were used to repay the 24.6 billion Yen of short-term bank6743borrowings. Outstanding borrowings under our short-term bank credit agreement6744were approximately 1.3 billion Yen, or $12.1 million, at December 31, 2003.6745Borrowings under the short-term, bank credit agreement bear interest at the6746floating Yen LIBOR plus 0.50% per annum (effective rate of 0.54% at December 31,67472003) and are due in May 2004.67486749On July 22, 2003, the Board of Directors authorized a share repurchase program6750of up to $500 million of our outstanding common stock and the establishment of a6751$500 million credit facility. The share repurchases could be made at the6752direction of management through transactions in the open market and/or privately6753negotiated transactions, including the use of options, futures, swaps and6754accelerated share repurchase contracts.67556756On August 7, 2003, we repurchased approximately 9.25 million shares, or about6757five percent of our outstanding common stock, for $500 million under a6758privately-negotiated transaction with an investment bank. The investment bank6759borrowed the 9.25 million shares to complete the transaction and purchased6760replacement shares in the open market over a three month period which ended6761November 7, 2003. We entered into a related accelerated stock buyback contract6762with the same investment bank which, in return for a separate payment to the6763investment bank, included a price-protection feature. The price-protection6764feature provided that if the investment bank's per share purchase price of the6765replacement shares was lower than the initial share purchase price for the 9.256766million shares ($54.06), then the investment bank would, at our election, make a6767payment or deliver additional shares to us in the amount of the difference6768between the initial share purchase price and their replacement price, subject to6769a maximum amount. In addition, the price-protection feature provided that if the6770investment bank's replacement price was greater than the initial share purchase6771price, we would not be required to make any further payments. On November 7,67722003, the investment bank completed its purchase of replacement shares. The6773market price of our shares during this replacement period exceeded the initial6774purchase price, resulting in no additional exchange of consideration.67756776In July 2003, we obtained a $400 million short-term revolving credit facility to6777partially fund our $500 million share repurchase in August 2003. Borrowings6778under this facility bore interest at an average rate of 1.73% per annum and were6779repaid in September 2003. In September 2003, we obtained a $150 million6780unsecured, revolving credit facility that expires in September 2004 and a $3506781million unsecured, revolving credit facility that expires in September 2008.6782These credit facilities bear interest at the LIBOR plus 0.625% and 0.60% per6783annum, respectively, subject to adjustment in the event of a6784678567866787196788<PAGE>67896790change in our debt ratings. There were no outstanding borrowings under these6791credit facilities at December 31, 2003.67926793During September 2003, we began issuing short-term, unsecured commercial paper6794with maturities up to 270 days. Outstanding commercial paper borrowings totaled6795$157.4 million at December 31, 2003. These commercial paper borrowings bear6796interest at varying market rates (effective rate of 1.2% at December 31, 2003).67976798The debt that we incurred to partially fund our $500 million share repurchase6799reflected our decision to increase the debt component of our current6800capitalization. Our decision was influenced by a number of factors, including6801the relatively low interest rates on our borrowings, the relatively low interest6802rates that we were earning on our excess cash investments, the outlook for our6803cash flows from operations for the next 1 to 2 years and the adequacy of those6804cash flows to repay the debt and continue to fund our operations and investments6805in growth opportunities while maintaining our investment grade status with the6806debt rating agencies.68076808We classify all of our commercial paper borrowings as long-term on the balance6809sheet as we have the ability to repay any short-term maturity with available6810cash from our existing long-term, committed credit facility. We continually6811review our cash flow projections and may from time to time repay a portion of6812the borrowings.68136814In May 2003, we made a $15 million minority investment in Epicor, a development6815stage company focused on developing products which use high intensity focused6816ultrasound (HIFU) to ablate cardiac tissue. This investment is accounted for6817under the cost method and is included in other long-term assets on the balance6818sheet. In conjunction with this investment, we also agreed to acquire the6819remaining ownership of Epicor in 2004 for an additional $185 million in cash if6820Epicor receives approval from the FDA by June 30, 2004 to begin marketing its6821device for general cardiac tissue ablation and if Epicor achieves certain6822success criteria, as defined in the purchase agreement, in connection with its6823European clinical study. In addition, we have an option to purchase the6824remaining ownership of Epicor for $185 million even if FDA approval is not6825received and the success criteria are not achieved. This option to purchase6826Epicor expires on June 30, 2004.68276828Our 7-year notes, short-term bank credit agreement and revolving credit6829facilities contain various operating and financial covenants (see Note 4 to our6830Consolidated Financial Statements). We were in compliance with all of our debt6831covenants at December 31, 2003. We believe that these covenants will not have a6832material impact on our ability to borrow in the future.68336834We believe that our existing cash balances, borrowings under our committed6835credit facilities and future cash generated from operations will be sufficient6836to meet our working capital and capital investment needs over the next twelve6837months and in the foreseeable future thereafter. Should suitable investment6838opportunities arise, we believe that our earnings, cash flows and balance sheet6839position will permit us to obtain additional debt financing or equity capital,6840if necessary.68416842OFF-BALANCE SHEET ARRANGEMENTS6843We have no off-balance sheet financing arrangements other than operating leases6844for various facilities and equipment as noted below in the table of contractual6845obligations and other commitments.68466847CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS68486849Presented below is a summary of our contractual obligations and other6850commitments as of December 31, 2003 (in thousands). See Note 4 to our6851Consolidated Financial Statements for additional6852685368546855206856<PAGE>68576858information regarding short-term and long-term debt, and Note 5 for additional6859information regarding operating leases and contingent acquisitions.68606861<TABLE>6862<CAPTION>6863PAYMENTS DUE BY PERIOD6864--------------------------------------------------------------------------6865Less than 1-3 4-5 After 56866Total 1 Year Years Years Years6867=====================================================================================================================6868<S> <C> <C> <C> <C> <C>6869Short-term bank credit agreement $ 12,115 $ 12,115 $ - $ - $ -6870Long-term debt (1) 351,813 - - 157,400 194,4136871Operating leases (2) 108,040 16,349 29,732 24,950 37,0096872Purchase commitments (2)(3) 209,583 132,064 40,919 36,600 -6873Contingent acquisitions (2)(4) 255,230 209,589 26,851 16,090 2,7006874- ---------------------------------------------------------------------------------------------------------------------6875Total $936,781 $ 370,117 $97,502 $ 235,040 $234,1226876=====================================================================================================================6877</TABLE>68786879(1) LONG-TERM DEBT INCLUDES $194.4 MILLION OF LONG-TERM NOTES DUE IN MAY 20106880AND $157.4 MILLION OF COMMERCIAL PAPER BORROWINGS THAT ARE BACKED BY OUR6881COMMITTED CREDIT FACILITY THAT EXPIRES IN SEPTEMBER 2008. WE MAY REPAY THE6882COMMERICAL PAPER BORROWINGS PRIOR TO THE EXPIRATION OF OUR LONG-TERM6883COMMITTED CREDIT FACILITY.68846885(2) IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED6886STATES, THESE OBLIGATIONS ARE NOT RECORDED IN THE CONSOLIDATED BALANCE6887SHEET.68886889(3) THESE AMOUNTS INCLUDE COMMITMENTS FOR INVENTORY PURCHASES AND CAPITAL6890EXPENDITURES THAT DO NOT EXCEED OUR PROJECTED REQUIREMENTS OVER THE6891RELATED TERMS AND ARE IN THE NORMAL COURSE OF BUSINESS.68926893(4) THESE AMOUNTS INCLUDE A $185 MILLION COMMITMENT TO ACQUIRE THE REMAINING6894OWNERSHIP OF EPICOR IN 2004 PROVIDED THAT SPECIFIC CLINICAL AND REGULATORY6895MILESTONES ARE ACHIEVED, AND CONTINGENT COMMITMENTS TO ACQUIRE VARIOUS6896BUSINESSES INVOLVED IN THE DISTRIBUTION OF OUR PRODUCTS. WHILE IT IS NOT6897CERTAIN IF AND/OR WHEN THESE PAYMENTS WILL BE MADE, WE HAVE INCLUDED THE6898PAYMENTS IN THE TABLE BASED ON OUR ESTIMATE OF THE EARLIEST DATE WHEN THE6899MILESTONES OR CONTINGENCIES MAY BE MET.69006901DIVIDENDS6902We did not declare or pay any cash dividends during 2003, 2002 or 2001. We6903currently intend to utilize our earnings for operating and investment purposes.69046905CAUTIONARY STATEMENTS6906In this discussion and in other written or oral statements made from time to6907time, we have included and may include statements that may constitute6908"forward-looking statements" within the meaning of the safe harbor provisions of6909the Private Securities Litigation Reform Act of 1995. These forward-looking6910statements are not historical facts but instead represent our belief regarding6911future events, many of which, by their nature, are inherently uncertain and6912beyond our control. These statements relate to our future plans and objectives,6913among other things. By identifying these statements for you in this manner, we6914are alerting you to the possibility that its actual results may differ, possibly6915materially, from the results indicated by these forward-looking statements. We6916undertake no obligation to update any forward-looking statements.69176918Various factors contained in the previous discussion and those described below6919may affect our operations and results. We believe the most significant factors6920that could affect our future operations6921692269236924216925<PAGE>69266927and results are set forth in the list below. Since it is not possible to foresee6928all such factors, you should not consider these factors to be a complete list of6929all risks or uncertainties.693069311. Legislative or administrative reforms to the U.S. Medicare and Medicaid6932systems or similar reforms of international reimbursement systems in a6933manner that significantly reduces reimbursement for procedures using6934our medical devices or denies coverage for such procedures. Adverse6935decisions relating to our products by administrators of such systems in6936coverage or reimbursement issues.69372. Acquisition of key patents by others that have the effect of excluding6938us from market segments or require us to pay royalties.69393. Economic factors, including inflation, changes in interest rates and6940changes in foreign currency exchange rates.69414. Product introductions by competitors which have advanced technology,6942better features or lower pricing.69435. Price increases by suppliers of key components, some of which are6944sole-sourced.69456. A reduction in the number of procedures using our devices caused by6946cost-containment pressures or preferences for alternate therapies.69477. Safety, performance or efficacy concerns about our marketed products,6948many of which are expected to be implanted for many years, leading to6949recalls and/or advisories with the attendant expenses and declining6950sales.69518. Changes in laws, regulations or administrative practices affecting6952government regulation of our products, such as FDA laws and6953regulations, that increase pre-approval testing requirements for6954products or impose additional burdens on the manufacture and sale of6955medical devices.69569. Regulatory actions arising from the concern over Bovine Spongiform6957Encephalopathy (BSE), sometimes referred to as "mad cow disease", that6958have the effect of limiting the Company's ability to market products6959using collagen, such as Angio-SealTM, or that impose added costs on the6960procurement of collagen.696110. Difficulties obtaining, or the inability to obtain, appropriate levels6962of product liability insurance.696311. The ability of our Silzone(R) product liability insurers, especially6964Kemper, to meet their obligations to us.696512. A serious earthquake affecting our facilities in Sunnyvale or Sylmar,6966California, or a hurricane affecting our operations in Puerto Rico.696713. Healthcare industry consolidation leading to demands for price6968concessions or the exclusion of some suppliers from significant market6969segments.697014. Adverse developments in litigation including product liability6971litigation and patent litigation or other intellectual property6972litigation including that arising from the Telectronics and Ventritex6973acquisitions.697415. Enactment of a U.S. law repealing the tax benefit of the6975extraterritorial income exclusion.6976697769786979226980<PAGE>698169826983REPORT OF MANAGEMENT69846985We are responsible for the preparation, integrity and objectivity of the6986accompanying financial statements. The financial statements were prepared in6987accordance with accounting principles generally accepted in the United States6988and include amounts which reflect management's best estimates based on its6989informed judgment and consideration given to materiality. We are also6990responsible for the accuracy of the related data in the annual report and its6991consistency with the financial statements.69926993In our opinion, our accounting systems and procedures, and related internal6994controls, provide reasonable assurance that transactions are executed in6995accordance with management's intention and authorization, that financial6996statements are prepared in accordance with accounting principles generally6997accepted in the United States and that assets are properly accounted for and6998safeguarded. The concept of reasonable assurance is based on the recognition6999that there are inherent limitations in all systems of internal control and that7000the cost of such systems should not exceed the benefits to be derived therefrom.7001We review and modify the system of internal controls to improve its7002effectiveness. The effectiveness of the controls system is supported by the7003selection, retention and training of qualified personnel, an organizational7004structure that provides an appropriate division of responsibility and a strong7005budgeting system of control.70067007We also recognize our responsibility for fostering a strong ethical climate so7008that our affairs are conducted according to the highest standards of personal7009and business conduct. This responsibility is reflected in our Code of Business7010Conduct.70117012The adequacy of our internal accounting controls, the accounting principles7013employed in our financial reporting and the scope of independent and internal7014audits are reviewed by the Audit Committee of the Board of Directors, consisting7015solely of outside directors. The independent auditors meet with, and have7016confidential access to, the Audit Committee to discuss the results of their7017audit work.70187019/s/ TERRY L. SHEPHERD70207021Terry L. Shepherd7022Chairman and Chief Executive Officer70237024/s/ JOHN C. HEINMILLER70257026John C. Heinmiller7027Vice President, Finance and Chief Financial Officer702870297030703170327033237034<PAGE>703570367037REPORT OF INDEPENDENT AUDITORS70387039Board of Directors and Shareholders7040St. Jude Medical, Inc.70417042We have audited the accompanying consolidated balance sheets of St. Jude7043Medical, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related7044consolidated statements of earnings, shareholders' equity, and cash flows for7045each of the three fiscal years in the period ended December 31, 2003. These7046financial statements are the responsibility of the Company's management. Our7047responsibility is to express an opinion on these financial statements based on7048our audits.70497050We conducted our audits in accordance with auditing standards generally accepted7051in the United States. Those standards require that we plan and perform the audit7052to obtain reasonable assurance about whether the financial statements are free7053of material misstatement. An audit includes examining, on a test basis, evidence7054supporting the amounts and disclosures in the financial statements. An audit7055also includes assessing the accounting principles used and significant estimates7056made by management, as well as evaluating the overall financial statement7057presentation. We believe that our audits provide a reasonable basis for our7058opinion.70597060In our opinion, the financial statements referred to above present fairly, in7061all material respects, the consolidated financial position of St. Jude Medical,7062Inc. and subsidiaries at December 31, 2003 and 2002 and the consolidated results7063of their operations and their cash flows for each of the three fiscal years in7064the period ended December 31, 2003 in conformity with accounting principles7065generally accepted in the United States.70667067/s/ ERNST & YOUNG LLP70687069Minneapolis, Minnesota7070January 26, 20047071707270737074707570767077247078<PAGE>707970807081CONSOLIDATED STATEMENTS OF EARNINGS7082(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)70837084<TABLE>7085<CAPTION>70867087FISCAL YEAR ENDED DECEMBER 31, 2003 2002 20017088===============================================================================================================================7089<S> <C> <C> <C>7090Net sales $ 1,932,514 $ 1,589,929 $ 1,347,3567091Cost of sales:7092Cost of sales before special charges 603,091 505,946 437,4927093Special charges - - 21,6677094- -------------------------------------------------------------------------------------------------------------------------------7095Total cost of sales 603,091 505,946 459,1597096- -------------------------------------------------------------------------------------------------------------------------------7097Gross profit 1,329,423 1,083,983 888,1977098Selling, general and administrative expense 632,395 513,691 467,1137099Research and development expense 241,083 200,337 164,1017100Purchased in-process research and development charges - - 10,0007101Special charges - - 11,1677102- -------------------------------------------------------------------------------------------------------------------------------7103Operating profit 455,945 369,955 235,8167104Other income (expense) 2,692 3,403 (7,838)7105- -------------------------------------------------------------------------------------------------------------------------------7106Earnings before income taxes 458,637 373,358 227,9787107Income tax expense 119,246 97,073 55,3867108- -------------------------------------------------------------------------------------------------------------------------------7109Net earnings $ 339,391 $ 276,285 $ 172,5927110===============================================================================================================================71117112===============================================================================================================================7113NET EARNINGS PER SHARE:7114Basic $ 1.92 $ 1.56 $ 1.007115Diluted $ 1.83 $ 1.51 $ 0.977116WEIGHTED AVERAGE SHARES OUTSTANDING:7117Basic 176,956 176,570 172,4287118Diluted 185,377 183,002 178,7677119===============================================================================================================================7120</TABLE>71217122SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.712371247125257126<PAGE>712771287129CONSOLIDATED BALANCE SHEETS7130(IN THOUSANDS, EXCEPT SHARE AMOUNTS)71317132<TABLE>7133<CAPTION>71347135DECEMBER 31, 2003 20027136================================================================================================================7137<S> <C> <C>7138ASSETS7139Current Assets7140Cash and equivalents $ 461,253 $ 401,8607141Accounts receivable, less allowances for doubtful accounts 501,759 381,2467142Inventories 311,761 227,0247143Deferred income taxes 112,376 56,8577144Other 105,188 47,3307145- ----------------------------------------------------------------------------------------------------------------7146Total current assets 1,492,337 1,114,3177147PROPERTY, PLANT AND EQUIPMENT7148Land, buildings and improvements 145,405 126,4717149Machinery and equipment 431,839 393,7267150Diagnostic equipment 173,851 181,1177151- ----------------------------------------------------------------------------------------------------------------7152Property, plant and equipment at cost 751,095 701,3147153Less accumulated depreciation (449,442) (400,833)7154- ----------------------------------------------------------------------------------------------------------------7155Net property, plant and equipment 301,653 300,4817156OTHER ASSETS7157Goodwill 407,013 325,5757158Other intangible assets, net 154,404 89,4917159Deferred income taxes - 12,2697160Other 200,687 109,2467161- ----------------------------------------------------------------------------------------------------------------7162Total other assets 762,104 536,5817163- ----------------------------------------------------------------------------------------------------------------7164TOTAL ASSETS $ 2,556,094 $ 1,951,3797165================================================================================================================71667167LIABILITIES AND SHAREHOLDERS' EQUITY7168CURRENT LIABILITIES7169Short-term debt $ 12,115 $ -7170Accounts payable 128,206 108,9317171Income taxes payable 72,376 51,3807172Accrued expenses7173Employee compensation and related benefits 190,152 135,7057174Other 107,466 78,6367175- ----------------------------------------------------------------------------------------------------------------7176Total current liabilities 510,315 374,6527177LONG-TERM DEBT 351,813 -7178DEFERRED INCOME TAXES 89,719 -7179COMMITMENTS AND CONTINGENCIES - -7180SHAREHOLDERS' EQUITY7181Preferred stock - -7182Common stock (173,014,167 and 178,028,129 shares issued and7183outstanding at December 31, 2003 and 2002, respectively) 17,301 17,8037184Additional paid-in capital 35,627 216,8787185Retained earnings 1,544,499 1,411,1947186Accumulated other comprehensive income (loss):7187Cumulative translation adjustment (4,246) (73,388)7188Unrealized gain on available-for-sale securities 11,066 4,2407189- ----------------------------------------------------------------------------------------------------------------7190Total shareholders' equity 1,604,247 1,576,7277191- ----------------------------------------------------------------------------------------------------------------7192TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,556,094 $ 1,951,3797193================================================================================================================7194</TABLE>71957196SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.7197719871997200267201<PAGE>720272037204CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY7205(IN THOUSANDS, EXCEPT SHARE AMOUNTS)72067207<TABLE>7208<CAPTION>72097210COMMON STOCK ACCUMULATED7211------------------------ ADDITIONAL OTHER TOTAL7212NUMBER OF PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'7213SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY7214- -----------------------------------------------------------------------------------------------------------------------------------7215<S> <C> <C> <C> <C> <C> <C>7216BALANCE AT JANUARY 1, 2001 170,672,572 $ 17,067 $ 47,190 $ 962,317 $ (85,725) $ 940,8497217Comprehensive income:7218Net earnings 172,592 172,5927219Other comprehensive income (loss):7220Unrealized gain on investments,7221net of taxes of $928 1,515 1,5157222Foreign currency translation7223adjustment, net of taxes7224of $(19,393) (10,401) (10,401)7225-----------------7226Other comprehensive loss (8,886)7227-----------------7228Comprehensive income 163,7067229=================7230Common stock issued under stock7231plans and other, net 3,746,140 375 57,566 57,9417232Tax benefit from stock plans 21,249 21,2497233- -----------------------------------------------------------------------------------------------------------------------------------7234BALANCE AT DECEMBER 31, 2001 174,418,712 17,442 126,005 1,134,909 (94,611) 1,183,7457235Comprehensive income:7236Net earnings 276,285 276,2857237Other comprehensive income (loss):7238Unrealized loss on investments,7239net of taxes of $(3,021) (4,930) (4,930)7240Foreign currency translation7241adjustment, net of taxes7242of $4,291 30,393 30,3937243-----------------7244Other comprehensive income 25,4637245-----------------7246Comprehensive income 301,7487247=================7248Common stock issued under stock7249plans and other, net 3,609,417 361 65,644 66,0057250Tax benefit from stock plans 25,229 25,2297251- -----------------------------------------------------------------------------------------------------------------------------------7252BALANCE AT DECEMBER 31, 2002 178,028,129 17,803 216,878 1,411,194 (69,148) 1,576,7277253Comprehensive income:7254Net earnings 339,391 339,3917255Other comprehensive income (loss):7256Unrealized gain on investments,7257net of taxes of $4,1837258and reclassification7259adjustment (see below) 6,826 6,8267260Foreign currency translation7261adjustment, net of taxes7262of $16,719 69,142 69,1427263-----------------7264Other comprehensive income 75,9687265-----------------7266Comprehensive income 415,3597267=================7268Common stock issued under stock7269plans and other, net 4,234,583 423 89,279 89,7027270Tax benefit from stock plans 42,484 42,4847271Common stock repurchased,7272including related costs (9,248,545) (925) (313,014) (206,086) (520,025)7273- -----------------------------------------------------------------------------------------------------------------------------------7274BALANCE AT DECEMBER 31, 2003 173,014,167 $ 17,301 $ 35,627 $ 1,544,499 $ 6,820 $ 1,604,2477275===================================================================================================================================7276</TABLE>72777278Other comprehensive income reclassification adjustments for realized losses on7279the write-down of marketable securities, net of income taxes, were $620 in 2003.72807281SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.728272837284277285<PAGE>72867287CONSOLIDATED STATEMENTS OF CASH FLOWS7288(IN THOUSANDS)72897290<TABLE>7291<CAPTION>72927293FISCAL YEAR ENDED DECEMBER 31 2003 2002 20017294==============================================================================================================================7295<S> <C> <C> <C>7296OPERATING ACTIVITIES7297Net earnings $339,391 $276,285 $ 172,5927298Adjustments to reconcile net earnings to net7299cash from operating activities:7300Depreciation 64,695 67,224 58,4047301Amortization 11,988 7,696 31,8957302Purchased in-process research and development charges - - 10,0007303Special charges - - 32,8347304Deferred income taxes 33,146 37,695 (11,681)7305Changes in operating assets and liabilities, net of7306business acquisitions:7307Accounts receivable (31,315) (39,146) (23,941)7308Inventories (17,388) 15,784 (32,373)7309Other current assets (40,273) (8,719) 13,6057310Accounts payable and accrued expenses 52,714 48,376 12,9077311Income taxes payable 61,327 12,005 45,8937312- ------------------------------------------------------------------------------------------------------------------------------7313NET CASH PROVIDED BY OPERATING ACTIVITIES 474,285 417,200 310,13573147315INVESTING ACTIVITIES7316Purchase of property, plant and equipment (49,565) (62,176) (63,129)7317Proceeds from sale or maturity of marketable securities - 7,000 15,0007318Business acquisition payments, net of cash acquired (230,839) (29,500) (20,444)7319Minority investment in Epicor Medical, Inc. (15,505) - -7320Other (50,691) (31,088) (26,220)7321- ------------------------------------------------------------------------------------------------------------------------------7322NET CASH USED IN INVESTING ACTIVITIES (346,600) (115,764) (94,793)73237324FINANCING ACTIVITIES7325Proceeds from exercise of stock options and stock issued 89,702 66,005 57,9417326Common stock repurchased, including related costs (520,025) - -7327Net borrowings under short-term debt facilities 9,454 - -7328Issuance of long-term notes 173,350 - -7329Borrowings under debt facilities 1,111,450 352,000 2,115,0287330Payments under debt facilities (954,050) (475,128) (2,286,400)7331==============================================================================================================================7332NET CASH USED IN FINANCING ACTIVITIES (90,119) (57,123) (113,431)73337334Effect of currency exchange rate changes on cash and equivalents 21,827 9,212 (4,015)7335- ------------------------------------------------------------------------------------------------------------------------------7336NET INCREASE IN CASH AND EQUIVALENTS 59,393 253,525 97,8967337CASH AND EQUIVALENTS AT BEGINNING OF YEAR 401,860 148,335 50,4397338- ------------------------------------------------------------------------------------------------------------------------------7339CASH AND EQUIVALENTS AT END OF YEAR $461,253 $401,860 $ 148,3357340==============================================================================================================================73417342SUPPLEMENTAL CASH FLOW INFORMATION7343==============================================================================================================================7344Cash paid during the year for:7345Interest $ 3,557 $ 1,473 $ 10,6637346Income taxes 57,217 51,243 21,4247347- ------------------------------------------------------------------------------------------------------------------------------7348</TABLE>73497350SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.73517352287353<PAGE>735473557356NOTES TO CONSOLIDATED FINANCIAL STATEMENTS735773587359NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES73607361COMPANY OVERVIEW: St. Jude Medical, Inc. (St. Jude Medical or the Company)7362develops, manufactures and distributes cardiovascular medical devices for the7363global cardiac rhythm management (CRM), cardiac surgery (CS) and cardiology and7364vascular access (C/VA) therapy areas. The Company's principal products in each7365of these therapy areas are as follows:73667367CRM7368o bradycardia pacemaker systems (pacemakers),7369o tachycardia implantable cardioverter defibrillator systems (ICDs), and7370o electrophysiology (EP) catheters73717372CS7373o mechanical and tissue heart valves, and7374o valve repair products73757376C/VA7377o vascular closure devices,7378o angiography catheters,7379o guidewires, and7380o hemostasis introducers73817382The Company markets and sells its products primarily through a direct sales7383force. The principal geographic markets for the Company's products are the7384United States, Europe and Japan.73857386PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the7387accounts of the Company and its wholly owned subsidiaries. Significant7388intercompany transactions and balances have been eliminated in consolidation.7389Certain reclassifications of previously reported amounts have been made to7390conform to the current year presentation.73917392FISCAL YEAR: The Company utilizes a 52/53-week fiscal year ending on the7393Saturday nearest December 31. For simplicity of presentation, the Company7394describes all periods as if the year end is December 31. Fiscal year 20037395consisted of 53 weeks and fiscal years 2002 and 2001 consisted of 52 weeks.73967397USE OF ESTIMATES: Preparation of the Company's consolidated financial statements7398in conformity with accounting principles generally accepted in the United States7399requires management to make estimates and assumptions that affect the reported7400amounts in the consolidated financial statements and accompanying notes. Actual7401results could differ from those estimates.74027403CASH EQUIVALENTS: The Company considers highly liquid investments with an7404original maturity of three months or less to be cash equivalents. Cash7405equivalents are stated at cost, which approximates market. The Company's cash7406equivalents include bank certificates of deposit, money market funds and7407instruments, commercial paper investments and repurchase agreements7408collateralized by U.S. government agency securities. The Company performs7409periodic evaluations of the relative credit7410741174127413297414<PAGE>74157416standing of the financial institutions and issuers of its cash equivalents and7417limits the amount of credit exposure with any one issuer.74187419MARKETABLE SECURITIES: Marketable securities consist of publicly-traded equity7420securities. Marketable securities are classified as available-for-sale, recorded7421at fair market value based upon quoted market prices and are classified with7422other current assets on the balance sheet. The following table summarizes the7423Company's available-for-sale marketable securities as of December 31 (in7424thousands):742574262003 20027427===============================================================================7428Adjusted cost $ 5,826 $ 6,8267429Gross unrealized gains 18,461 8,6397430Gross unrealized losses (613) (1,800)7431- -------------------------------------------------------------------------------7432Fair value $ 23,674 $ 13,6657433===============================================================================74347435Unrealized gains and losses, net of related incomes taxes, are recorded in other7436comprehensive income (loss) in shareholders' equity. Realized gains and losses7437from the sale of marketable securities are recorded in other income (expense)7438and are computed using the specific identification method.74397440The Company's policy for assessing recoverability of its available-for-sale7441securities is to record a charge against net earnings when the Company7442determines that a decline in the fair value of a security drops below the cost7443basis and judges that decline to be other-than-temporary. During 2003, the7444Company recorded a $1 million write-down on one of its equity securities, which7445is included in other income (expense).74467447ACCOUNTS RECEIVABLE: The Company grants credit to customers in the normal course7448of business, but generally does not require collateral or any other security to7449support its receivables. The Company maintains an allowance for doubtful7450accounts for potential credit losses. The allowance for doubtful accounts was7451$31.9 million at December 31, 2003 and $24.1 million at December 31, 2002.74527453INVENTORIES: Inventories are stated at the lower of cost or market with cost7454determined using the first-in, first-out method.74557456Inventories consist of the following at December 31 (in thousands):745774582003 20027459==================================================================7460Finished goods $ 209,236 $ 140,8567461Work in process 32,547 27,4817462Raw materials 69,978 58,6877463- ------------------------------------------------------------------7464$ 311,761 $ 227,0247465==================================================================74667467PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at7468cost and are depreciated using the straight-line method over their estimated7469useful lives, ranging from 15 to 39 years for buildings and improvements, three7470to seven years for machinery and equipment and five to eight years for7471diagnostic equipment. Diagnostic equipment primarily consists of programmers7472that are used by physicians and healthcare professionals to program and analyze7473data from pacemaker and ICD devices. The estimated useful lives of this7474equipment are based on74757476747774787479307480<PAGE>74817482management's estimates of its usage by the physicians and healthcare7483professionals, factoring in new technology platforms and rollouts by the7484Company. To the extent that the Company experiences changes in the usage of this7485equipment or introductions of new technologies to the market, the estimated7486useful lives of this equipment may change in a future period. Diagnostic7487equipment had a net carrying value of $68.7 million and $81.0 million at7488December 31, 2003 and 2002. Accelerated depreciation methods are used for income7489tax purposes.74907491GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of cost7492over the fair value of identifiable net assets of businesses acquired. The7493Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,7494"GOODWILL AND OTHER INTANGIBLE ASSETS" (Statement 142), effective January 1,74952002. Under Statement 142, goodwill is no longer amortized, but is subject to7496annual impairment tests. See Note 3 for pro forma 2001 net earnings and net7497earnings per share exclusive of goodwill amortization.74987499Other intangible assets consist of purchased technology and patents,7500distribution agreements, customer relationships, trademarks and licenses and are7501amortized on a straight-line basis using lives ranging from 10 to 20 years.75027503Statement 142 requires that goodwill for each reporting unit be reviewed for7504impairment at least annually. The Company has three reporting units at December750531, 2003, consisting of its three operating segments (see Note 11). The Company7506tests goodwill for impairment using the two-step process prescribed in Statement7507142. In the first step, the Company compares the fair value of each reporting7508unit, as computed primarily by present value cash flow calculations, to its book7509carrying value, including goodwill. If the fair value exceeds the carrying7510value, no further work is required and no impairment loss is recognized. If the7511carrying value exceeds the fair value, the goodwill of the reporting unit is7512potentially impaired and the Company would then complete step 2 in order to7513measure the impairment loss. In step 2, the Company would calculate the implied7514fair value of goodwill by deducting the fair value of all tangible and7515intangible net assets (including unrecognized intangible assets) of the7516reporting unit from the fair value of the reporting unit (as determined in step75171). If the implied fair value of goodwill is less than the carrying value of7518goodwill, the Company would recognize an impairment loss equal to the7519difference.75207521Management also reviews other intangible assets for impairment at least annually7522to determine if any adverse conditions exist that would indicate impairment. If7523the carrying value of other intangible assets exceeds the undiscounted cash7524flows, the carrying value is written down to fair value in the period7525identified. Indefinite-lived intangible assets are reviewed at least annually7526for impairment by calculating the fair value of the assets and comparing with7527their carrying value. In assessing fair value, management generally utilizes7528present value cash flow calculations using an appropriate risk-adjusted discount7529rate.75307531During the fourth quarters of 2003 and 2002, management completed its annual7532goodwill and other intangible asset impairment reviews with no impairments to7533the carrying values identified.75347535TECHNOLOGY LICENSE AGREEMENT: The Company has a technology license agreement7536that provides access to a significant number of patents covering a broad range7537of technology used in the Company's pacemaker and ICD systems. The agreement7538provides for payments through September 2004 at which time the Company will have7539a fully paid-up license, granting access to the underlying patents which expire7540at various dates through the year 2014. The Company recognizes the total7541estimated costs under this license agreement as an expense over the term of the7542underlying patents' lives. The costs deferred under this license are recorded on7543the balance sheet in other long-term assets.754475457546317547<PAGE>75487549PRODUCT WARRANTIES: The Company offers a warranty on various products, the most7550significant of which relate to pacemaker and ICD systems. The Company estimates7551the costs that may be incurred under its warranties and records a liability in7552the amount of such costs at the time the product is sold. Factors that affect7553the Company's warranty liability include the number of units sold, historical7554and anticipated rates of warranty claims and cost per claim. The Company7555periodically assesses the adequacy of its recorded warranty liabilities and7556adjusts the amounts as necessary. Changes in the Company's product warranty7557liability during 2003 and 2002 were as follows (in thousands):755875592003 20027560==============================================================================7561Balance at beginning of year $ 14,755 $ 11,3697562Warranty expense recognized 3,035 5,1747563Warranty credits issued (2,569) (1,788)7564- ------------------------------------------------------------------------------7565Balance at end of year $ 15,221 $ 14,7557566==============================================================================75677568REVENUE RECOGNITION: The Company sells its products to hospitals primarily7569through a direct sales force. In certain international markets, the Company7570sells its products through independent distributors. The Company recognizes7571revenue when persuasive evidence of a sales arrangement exists, delivery of7572goods occurs through the transfer of title and risks and rewards of ownership,7573the selling price is fixed or determinable and collectibility is reasonably7574assured. In most markets where the Company has a direct sales force, the Company7575consigns inventory to hospitals. For consigned products, revenue is recognized7576at the time the product is used by a physician at the hospital. For products7577that are not consigned, revenue recognition occurs upon shipment to the hospital7578or, in the case of distributors, when title transfers under the contract. The7579Company records estimated sales returns, discounts and rebates as a reduction of7580net sales in the same period revenue is recognized.75817582RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense7583as incurred. Purchased in-process research and development charges are7584recognized in business acquisitions for the portion of the purchase price7585allocated to the appraised value of in-process technologies. The portion7586assigned to in-process research and development technologies excludes the value7587of core and developed technologies, which are recognized as intangible assets.75887589STOCK-BASED COMPENSATION: The Company accounts for its stock-based employee7590compensation plans (see Note 6) under the recognition and measurement principles7591of APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO Employees," and related7592Interpretations. The following table illustrates the effect on net earnings and7593net earnings per share if the Company had applied the fair value recognition7594provisions of SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," to its7595stock-based employee compensation (in thousands, except per share amounts):75967597327598<PAGE>759976007601<TABLE>7602<CAPTION>76032003 2002 20017604==================================================================================================7605<S> <C> <C> <C>7606Net earnings, as reported $ 339,391 $ 276,285 $ 172,59276077608Less: Total stock-based employee compensation7609expense determined under fair value based method7610for all awards, net of related tax effects (38,030) (33,194) (26,619)7611- --------------------------------------------------------------------------------------------------76127613Pro forma net earnings $ 301,361 $ 243,091 $ 145,9737614==================================================================================================76157616==================================================================================================7617Net earnings per share:7618Basic-as reported $ 1.92 $ 1.56 $ 1.007619Basic-pro forma 1.70 1.38 0.8576207621Diluted-as reported $ 1.83 $ 1.51 $ 0.977622Diluted-pro forma 1.63 1.33 0.827623==================================================================================================7624</TABLE>76257626The weighted-average fair value of options granted and the assumptions used in7627the Black-Scholes option-pricing model are as follows:762876292003 2002 20017630================================================================================7631Fair value of options granted $ 21.75 $ 12.95 $ 12.847632Assumptions used:7633Expected life (years) 5 5 57634Risk-free rate of return 3.2% 3.3% 4.4%7635Volatility 35.0% 35.0% 30.9%7636Dividend yield 0% 0% 0%7637================================================================================76387639NET EARNINGS PER SHARE: Basic net earnings per share is computed by dividing net7640earnings by the weighted average number of outstanding common shares during the7641period, exclusive of restricted shares. Diluted net earnings per share is7642computed by dividing net earnings by the weighted average number of outstanding7643common shares and dilutive securities.76447645The table below sets forth the computation of basic and diluted net earnings per7646share (in thousands, except per share amounts).764776487649337650<PAGE>76517652<TABLE>7653<CAPTION>76542003 2002 20017655=========================================================================================7656<S> <C> <C> <C>7657Numerator:7658Net earnings $ 339,391 $ 276,285 $ 172,59276597660Denominator:7661Basic-weighted average shares outstanding 176,956 176,570 172,4287662Effect of dilutive securities:7663Employee stock options 8,410 6,410 6,2697664Restricted shares 11 22 707665- -----------------------------------------------------------------------------------------7666Diluted-weighted average shares outstanding 185,377 183,002 178,7677667=========================================================================================7668Basic net earnings per share $ 1.92 $ 1.56 $ 1.007669=========================================================================================7670Diluted net earnings per share $ 1.83 $ 1.51 $ 0.977671- -----------------------------------------------------------------------------------------7672</TABLE>76737674Diluted-weighted average shares outstanding have not been adjusted for certain7675employee stock options and awards where the effect of those securities would7676have been anti-dilutive.76777678FOREIGN CURRENCY TRANSLATION: Sales and expenses denominated in foreign7679currencies are translated at average exchange rates in effect throughout the7680year. Assets and liabilities of foreign operations are translated at period-end7681exchange rates. Gains and losses from translation of net assets of foreign7682operations, net of related income taxes, are recorded in other comprehensive7683income (loss). Foreign currency transaction gains and losses are included in7684other income (expense).76857686NEW ACCOUNTING PRONOUNCEMENTS: In January 2003, the Financial Accounting7687Standards Board (FASB) issued FASB Interpretation No. 46, "CONSOLIDATION OF7688VARIABLE INTEREST ENTITIES" (FIN 46). FIN 46 requires the consolidation of7689variable interest entities in which an enterprise absorbs a majority of the7690entity's expected losses, receives a majority of the entity's expected residual7691returns, or both, as a result of ownership, contractual or other financial7692interests in the entity. FIN 46 is effective for the first quarter of 2004. The7693Company does not expect its adoption of FIN 46 to have an impact on its7694consolidated results of operations, financial position or cash flows.76957696In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL7697INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" (Statement7698150). Statement 150 establishes standards for issuer classification and7699measurement of certain financial instruments with characteristics of both7700liabilities and equity. In accordance with this standard, financial instruments7701that embody obligations for the issuer are required to be classified as7702liabilities. Statement 150 is effective for all financial instruments entered7703into or modified after May 31, 2003, and is otherwise effective at the beginning7704of the first interim period beginning after June 15, 2003. The Company's7705adoption of Statement 150 did not have an impact on its consolidated results of7706operations, financial position or cash flows.77077708Emerging Issues Task Force (EITF) Issue No. 00-21, "ACCOUNTING FOR REVENUE7709ARRANGEMENTS WITH MULTIPLE DELIVERABLES," addresses certain aspects of the7710accounting by a vendor for arrangements under which multiple revenue-generating7711activities are performed. EITF Issue No. 00-21 establishes three principles:7712revenue arrangements with multiple deliverables should be divided into separate7713units of accounting; arrangement consideration should be allocated among the7714separate units of accounting based on their relative fair values; and revenue7715recognition criteria should be considered separately for separate units of7716accounting. EITF Issue No. 00-21 was effective for all revenue arrangements7717entered into in fiscal periods beginning after June 15, 2003. The Company's7718adoption7719772077217722347723<PAGE>77247725of EITF Issue No. 00-21 did not have an impact on its consolidated results of7726operations, financial position or cash flows.77277728In December 2003, the Securities and Exchange Commission released Staff7729Accounting Bulletin No. 104, "REVENUE RECOGNITION" (SAB 104). SAB 104 clarifies7730existing guidance regarding revenue recognition. The Company's adoption of SAB7731104 did not have a material impact on its consolidated results of operation,7732financial position or cash flows.773377347735NOTE 2--ACQUISITIONS & MINORITY INVESTMENT77367737ACQUISITIONS: On April 1, 2003, the Company completed its acquisition of Getz7738Bros. Co., Ltd. (Getz Japan), a distributor of medical technology products in7739Japan and the Company's largest volume distributor in Japan. The Company paid774026.9 billion Japanese Yen in cash to acquire 100% of the outstanding common7741stock of Getz Japan. Net consideration paid was $219.2 million, which includes7742closing costs less $12.0 million of cash acquired.77437744On April 1, 2003, the Company also acquired the net assets of Getz Bros. & Co.7745(Aust.) Pty. Limited and Medtel Pty. Limited (collectively referred to as Getz7746Australia) related to the distribution of the Company's products in Australia7747for $6.2 million in cash, including closing costs.77487749The Company acquired Getz Japan and Getz Australia (collectively referred to as7750Getz) in order to further strengthen its presence in the Japanese and Australian7751medical technology markets. The purchase price for Getz was based on the future7752cash flows of the businesses. In addition, Getz Japan had equity securities7753which traded on a Japanese stock exchange. The goodwill recognized as part of7754the Getz acquisitions relates primarily to the operating efficiencies that these7755businesses were able to achieve and the increased levels of efficiencies7756anticipated in the future as the Company expands its presence in the Japanese7757and Australian medical technology markets. The goodwill recorded in connection7758with the Getz acquisitions has been allocated entirely to the Company's Cardiac7759Rhythm Management/Cardiac Surgery (CRM/CS) reportable segment.77607761The following table summarizes the estimated fair values of the assets acquired7762and liabilities assumed as a result of these acquisitions (in thousands):77637764=========================================================7765Current assets $ 124,9617766Goodwill 67,4657767Intangible assets 64,1067768Other long-term assets 33,9457769- ---------------------------------------------------------7770Total assets acquired $ 290,47777717772Current liabilities $ 27,7247773Deferred income taxes 25,3907774- ---------------------------------------------------------7775Total liabilities assumed $ 53,1147776- ---------------------------------------------------------7777Net assets acquired $ 237,3637778=========================================================77797780The goodwill recorded as a result of these acquisitions is not deductible for7781income tax purposes.77827783In connection with the acquisitions of Getz, the Company recorded intangible7784assets valued at $64.1 million that each have a weighted average useful life of778510 years. Total intangible assets subject to amortization include distribution7786agreements of $44.9 million, customer lists and relationships of $9.57787778877897790357791<PAGE>77927793million, and licenses and other of $5.6 million. Intangible assets not subject7794to amortization include trademarks of $4.1 million.77957796The Getz acquisitions did not provide for the payment of any contingent7797consideration. The third party appraisal used by the Company for purposes of the7798purchase price allocation did not include any in-process research and7799development. There are no material unresolved items relating to the purchase7800price allocation.78017802During 2003, 2002 and 2001, the Company also acquired various businesses7803involved in the distribution of the Company's products. Aggregate consideration7804paid in cash during 2003, 2002 and 2001 was $5.4 million, $24.5 million and7805$10.4 million, respectively.78067807In December 2002, the Company acquired the assets of a catheter business for $57808million in cash. Substantially all of the purchase price was allocated to7809technology and patents with estimated useful lives of 15 years.78107811The results of operations of the above-mentioned business acquisitions have been7812included in the Company's consolidated results of operations since the date of7813acquisition. Pro forma results of operations have not been presented for these7814acquisitions since the effects of these business acquisitions were not material7815to the Company either individually or in aggregate.78167817During 2001, the Company paid $10 million relating to the September 19997818acquisition of Vascular Science, Inc. (VSI - see Note 7).78197820MINORITY INVESTMENT: In May 2003, the Company made a $15 million minority7821investment in Epicor Medical, Inc. (Epicor), a development stage company focused7822on developing products which use high intensity focused ultrasound (HIFU) to7823ablate cardiac tissue. This investment is accounted for under the cost method7824and is included in other long-term assets on the balance sheet. In conjunction7825with this investment, the Company also agreed to acquire the remaining ownership7826of Epicor in 2004 for an additional $185 million in cash if Epicor receives7827approval from the U.S. Food and Drug Administration (FDA) by June 30, 2004 to7828begin marketing its device to ablate cardiac tissue and if Epicor achieves7829certain success criteria, as defined in the purchase agreement, in connection7830with its European clinical study. In addition, the Company has an option to7831purchase the remaining ownership of Epicor for $185 million even if FDA approval7832is not received and the success criteria are not achieved. This option to7833purchase Epicor expires on June 30, 2004.783478357836NOTE 3-- GOODWILL AND OTHER INTANGIBLE ASSETS78377838The Company ceased amortizing goodwill effective January 1, 2002 as discussed in7839Note 1 - GOODWILL AND OTHER INTANGIBLE ASSETS. The following table provides pro7840forma fiscal year 2001 net earnings and net earnings per share had Statement 1427841been effective January 1, 2001 (in thousands, except per share amounts):784278437844367845<PAGE>78467847784820017849===============================================================================78507851NET EARNINGS:7852As reported $ 172,5927853Goodwill amortization, net of taxes 21,3237854- -------------------------------------------------------------------------------7855Pro forma net earnings $ 193,9157856===============================================================================78577858BASIC NET EARNINGS PER SHARE:7859As reported $ 1.007860Goodwill amortization, net of taxes 0.127861- -------------------------------------------------------------------------------7862Pro forma basic net earnings per share $ 1.127863===============================================================================78647865DILUTED NET EARNINGS PER SHARE:7866As reported $ 0.977867Goodwill amortization, net of taxes 0.127868- -------------------------------------------------------------------------------7869Pro forma diluted net earnings per share $ 1.087870===============================================================================78717872The changes in the carrying amount of goodwill for each of the Company's7873reportable segments for the fiscal year ended December 31, 2003 are as follows7874(in thousands):78757876<TABLE>7877<CAPTION>7878CRM/CS DAIG TOTAL7879=========================================================================================================7880<S> <C> <C> <C>7881Balance at December 31, 2002 $ 270,829 $ 54,746 $ 325,5757882Goodwill recorded from the Getz acquisitions 67,465 - 67,4657883Foreign currency translation 13,372 123 13,4957884Other 478 - 4787885- ---------------------------------------------------------------------------------------------------------7886Balance at December 31, 2003 $ 352,144 $ 54,869 $ 407,0137887=========================================================================================================7888</TABLE>78897890The following table provides the gross carrying amount of other intangible7891assets and related accumulated amortization at December 31 (in thousands):78927893<TABLE>7894<CAPTION>78952003 20027896==========================================================================================================7897GROSS GROSS7898CARRYING ACCUMULATED CARRYING ACCUMULATED7899AMOUNT AMORTIZATION AMOUNT AMORTIZATION7900- ----------------------------------------------------------------------------------------------------------7901<S> <C> <C> <C> <C>7902Amortized intangible assets:7903Purchased technology and patents $76,189 $ 21,253 $75,749 $ 17,0757904Distribution agreements 49,348 3,701 - -7905Customer lists and relationships 50,511 7,278 33,306 2,8227906Licenses and other 6,679 610 435 1027907- ----------------------------------------------------------------------------------------------------------7908$ 182,727 $ 32,842 $ 109,490 $ 19,9997909==========================================================================================================79107911Unamortized intangible assets:7912Trademarks $ 4,5197913- ----------------------------------------------------------------------------------------------------------7914</TABLE>79157916377917<PAGE>79187919Amortization expense of other intangible assets was $12.0 million, $7.7 million7920and $3.8 million for the fiscal years ended December 31, 2003, 2002 and 2001,7921respectively. Estimated amortization expense for fiscal years 2004 through 20087922based on the current carrying value of other intangible assets is approximately7923$14 million per year.792479257926NOTE 4-- DEBT79277928On April 1, 2003, the Company borrowed 24.6 billion Japanese Yen, or7929approximately $208 million, under a short-term, unsecured bank credit agreement7930to partially finance the Getz Japan acquisition. Borrowings under this agreement7931bore interest at an average rate of 0.58% per annum and were repaid in May 2003.7932In May 2003, the Company issued 7-year, 1.02% unsecured notes totaling 20.97933billion Yen. The Company also obtained a short-term, unsecured bank credit7934agreement that provides for borrowings of up to 3.8 billion Yen. Proceeds from7935the issuance of the 7-year notes and from borrowings under the short-term, bank7936credit agreement were used to repay the 24.6 billion Yen of short-term bank7937borrowings. Outstanding borrowings under the Company's short-term bank credit7938agreement were approximately 1.3 billion Yen, or $12.1 million, at December 31,79392003. Borrowings under the short-term, bank credit agreement bear interest at7940the floating Yen London InterBank Offered Rate (LIBOR) plus 0.50% per annum7941(effective rate of 0.54% at December 31, 2003) and are due in May 2004.79427943In July 2003, the Company obtained a $400 million short-term revolving credit7944facility to partially fund its $500 million share repurchase in August 2003.7945Borrowings under this facility bore interest at an average rate of 1.73% per7946annum and were repaid in September 2003. In September 2003, the Company obtained7947a $150 million unsecured, revolving credit facility that expires in September79482004 and a $350 million unsecured, revolving credit facility that expires in7949September 2008. These credit facilities bear interest at the LIBOR plus 0.625%7950and 0.60% per annum, respectively, subject to adjustment in the event of a7951change in the Company's debt ratings. There were no outstanding borrowings under7952these credit facilities at December 31, 2003.79537954During September 2003, the Company began issuing short-term, unsecured7955commercial paper with maturities up to 270 days. These commercial paper7956borrowings bear interest at varying market rates (effective rate of 1.2% at7957December 31, 2003).79587959The Company's long-term debt consisted of the following at December 31, 2003 (in7960thousands):79617962- -------------------------------------------------------------------------------79631.02% Yen-denominated notes, due 2010 $ 194,4137964Commercial paper borrowings 157,4007965- -------------------------------------------------------------------------------7966$ 351,8137967===============================================================================79687969The Company classifies all of its commercial paper borrowings as long-term on7970its balance sheet as the Company has the ability to repay any short-term7971maturity with available cash from its existing long-term, committed credit7972facility. Management continually reviews the Company's cash flow projections and7973may from time to time repay a portion of the Company's borrowings.79747975The Company's 7-year notes, short-term bank credit agreement and revolving7976credit facilities contain various operating and financial covenants.7977Specifically, the Company must have a ratio of total debt to total7978capitalization not exceeding 55%, have a leverage ratio (defined as the ratio of7979total debt to EBITDA (net earnings before interest, income taxes, depreciation7980and amortization) and the ratio of79817982798379847985387986<PAGE>79877988total debt to EBIT (net earnings before interest and income taxes)) not7989exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of7990EBITDA to interest expense and the ratio of EBIT to interest expense) not less7991than 3.0 to 1.0. The Company also has limitations on additional liens or7992indebtedness and limitations on certain acquisitions, investments and7993dispositions of assets. However, these agreements do not include provisions for7994the termination of the agreements or acceleration of repayment due to changes in7995the Company's credit ratings. The Company was in compliance with all of its debt7996covenants at December 31, 2003.799779987999NOTE 5--COMMITMENTS AND CONTINGENCIES80008001LEASES: The Company leases various facilities and equipment under noncancelable8002operating lease arrangements. Future minimum lease payments under these leases8003are as follows: $16.3 million in 2004; $15.5 million in 2005; $14.2 million in80042006; $13.3 million in 2007; $11.7 million in 2008; and $37.0 million in years8005thereafter. Rent expense under all operating leases was $16.5 million, $10.28006million and $8.9 million in 2003, 2002 and 2001.80078008SILZONE(R) LITIGATION: In July 1997, the Company began marketing mechanical8009heart valves which incorporated a Silzone(R) coating. The Company later began8010marketing heart valve repair products incorporating a Silzone(R) coating. The8011Silzone(R) coating was intended to reduce the risk of endocarditis, a bacterial8012infection affecting heart tissue, which is associated with replacement heart8013valves.80148015In January 2000, the Company voluntarily recalled all field inventories of8016Silzone(R) devices after receiving information from a clinical study that8017patients with a Silzone valve had a small, but statistically significant,8018increased incidence of explant due to paravalvular leak compared to patients in8019that clinical study with non-Silzone(R) heart valves.80208021Subsequent to the Company's voluntary recall, the Company has been sued in the8022United States, Canada, and United Kingdom by some patients who received a8023Silzone(R) device. Some of these claims allege bodily injuries as a result of an8024explant or other complications, which they attribute to the Silzone(R) devices.8025Others, who have not had their device explanted, seek compensation for past and8026future costs of special monitoring they allege they need over and above the8027medical monitoring all replacement heart valve patients receive. Some of the8028lawsuits seeking the cost of monitoring have been initiated by patients who are8029asymptomatic and who have no apparent clinical injury to date. The Company has8030vigorously defended against the claims that have been asserted, and expects to8031continue to do so with respect to any remaining claims.80328033The Company has settled a number of these Silzone(R)-related cases and others8034have been dismissed. Cases filed in the United States in federal courts have8035been consolidated in the federal district court for the district of Minnesota8036under Judge Tunheim. A number of class action complaints have been consolidated8037into one case seeking certification of two separate classes. One proposed class8038in the consolidated complaint seeks injunctive relief in the form of medical8039monitoring. A second class in the consolidated complaint seeks an unspecified8040amount of money damages. The Court also certified a class action for patients8041claiming relief under Minnesota's Consumer Protection Statutes.80428043On January 5, 2004, the judge ruled on the ability of certain claims to proceed8044as class actions. The judge declined to grant class action status to personal8045injury claims; however, he granted class action status for patients from a8046limited group of states to proceed with medical monitoring claims. Further80478048804980508051398052<PAGE>80538054briefing is pending on exactly which states fall into this category and how a8055class action proceeding involving such claims would proceed.80568057In addition, there have been 39 individual Silzone(R) cases filed in federal8058court where plaintiffs are each requesting damages ranging from an unspecified8059amount to $120.5 million. These cases are proceeding in accordance with the8060orders issued by Judge Tunheim. There have also been 25 individual state court8061suits filed involving 42 patients. The complaints in these cases each request8062damages ranging from an unspecified amount to $70,000. These state court cases8063are proceeding in accordance with the orders issued by the judges in those8064matters.80658066Four class action cases have been filed against the Company in Canada. In one8067such case in Ontario, the court certified that a class action may proceed8068involving Silzone(R) patients. The most recent certification decision was issued8069on January 16, 2004. In the United Kingdom, one case involving one plaintiff has8070been filed. The complaint in this case requests damages of an unspecified8071amount. This matter is in its very early stages.80728073The Company is not aware of any unasserted claims related to Silzone(R) devices.80748075Company management believes that the final resolution of the Silzone(R) cases8076will take several years. At this time, management cannot reasonably estimate the8077time frame in which any potential settlements or judgments would be paid out.8078The Company accrues for contingent losses when it is probable that a loss has8079been incurred and the amount can be reasonably estimated. The Company has8080recorded an accrual for probable legal costs that it will incur to defend the8081various cases involving Silzone(R) devices, and the Company has recorded a8082receivable from its product liability insurance carriers for amounts expected to8083be recovered (see Note 7). The Company has not accrued for any amounts8084associated with probable settlements or judgments because management cannot8085reasonably estimate such amounts. However, management believes that no8086significant claims will ultimately be allowed to proceed as class actions in the8087United States and, therefore, that all settlements and judgments will be covered8088under the Company's remaining product liability insurance coverage8089(approximately $170 million at December 31, 2003), subject to the insurance8090companies' performance under the policies (see Note 7 for further discussion on8091the Company's insurance carriers). As such, management believes that any costs8092(the material components of which are settlements, judgments and legal fees) not8093covered by its product liability insurance policies or existing reserves will8094not have a material adverse effect on the Company's statement of financial8095position or liquidity, although such costs may be material to the Company's8096consolidated results of operations of a future period.80978098GUIDANT 1996 PATENT LITIGATION: In November 1996, Guidant Corporation (Guidant)8099sued St. Jude Medical alleging that the Company did not have a license to8100certain patents controlled by Guidant covering ICD products and alleging that8101the Company was infringing those patents. St. Jude Medical's contention was that8102it had obtained a license from Guidant to the patents in issue when it acquired8103certain assets of Telectronics in November 1996. In July 2000, an arbitrator8104rejected St. Jude Medical's position, and in May 2001, a federal district court8105judge also ruled that the Guidant patent license with Telectronics had not8106transferred to St. Jude Medical.81078108Guidant's suit originally alleged infringement of four patents by St. Jude8109Medical. Guidant later dismissed its claim on one patent and a court ruled that8110a second patent was invalid. This determination of invalidity was appealed by8111Guidant and the Court of Appeals upheld the lower court's invalidity8112determination. In a jury trial involving the two remaining patents (the `288 and8113`472 patents), the jury found that these patents were valid and that St. Jude8114Medical did not infringe the `288 patent. The jury also found that the Company8115did infringe the `472 patent, though such8116811781188119408120<PAGE>81218122infringement was not willful. The jury awarded damages of $140 million to8123Guidant. In post-trial rulings, however, the judge overseeing the jury trial8124ruled that the `472 patent was invalid and also was not infringed by St. Jude8125Medical, thereby eliminating the $140 million verdict against the Company. The8126trial court also made other rulings as part of the post-trial order, including a8127ruling that the `288 patent was invalid on several grounds.81288129In August 2002, Guidant commenced an appeal of certain of the trial judge's8130post-trial decisions pertaining to the `288 patent. Guidant did not appeal the8131trial court's finding of invalidity and non-infringement of the `472 patent. As8132part of its appeal, Guidant requested that the monetary damages awarded by the8133jury pertaining to the `472 patent ($140 million) be transferred to the `2888134patent infringement claim. The Company maintains that such a request is not8135supported by the facts or law. After the briefing for this appeal was completed,8136oral argument before the Court of Appeals occurred on September 4, 2003. The8137Company expects that the Appellate Court will issue a decision concerning8138Guidant's appeal sometime later in 2004. While it is not possible to predict the8139outcome of the appeal process, the Company believes that the decision of the8140trial court in its post-trial rulings, which is publicly available, was correct.81418142The `288 patent expired in December 2003. Accordingly, the final outcome of the8143appeal process cannot involve an injunction precluding the Company from selling8144ICD products in the future. Sales of the Company's ICD products which Guidant8145asserts infringed the `288 patent were approximately 18%, 16% and 13% of the8146Company's consolidated net sales during the fiscal years ended December 31,81472003, 2002 and 2001, respectively.81488149The Company has not accrued any amounts for losses related to the Guidant 19968150patent litigation. Although the Company believes that the assertions and claims8151in these matters are without merit, potential losses arising from this8152litigation are possible, but not estimable, at this time. The range of such8153losses could be material to the operations, financial position and liquidity of8154the Company.81558156GUIDANT 2004 PATENT LITIGATION: In February 2004, Guidant sued the Company8157alleging that the Company's Epic(TM) HF ICD, Atlas(R)+ HF ICD and Frontier(TM)8158device infringe U.S Patent No. RE 38,119E (the `119 patent). Guidant also sued8159the Company in February 2004 alleging that the Company's QuickSite(TM) 1056K8160pacing lead infringes U.S. Patent No. 5,755,766 (the `766 patent). Guidant is8161seeking an injunction against the manufacture and sale of these devices by the8162Company in the United States and compensation for what it claims are infringing8163sales of these products up through the effective date of the injunction. Sales8164of the above St. Jude Medical devices in the United States were not material8165during fiscal years 2003, 2002 and 2001, although it is anticipated that once8166the Company receives FDA approval to market these products during 2004, sales of8167these devices could become material in the future. The Company has not submitted8168a substantive response to Guidant's claims at this time. Another competitor of8169the Company, Medtronic, Inc., which has a license to the `119 patent, is8170contending in a separate lawsuit with Guidant that the `119 patent is invalid.81718172The Company has not accrued any amounts for losses related to the Guidant 20048173patent litigation. Potential losses arising from this litigation are possible,8174but not estimable, at this time. The range of such losses could be material to8175the operations, financial position and liquidity of the Company.81768177SYMMETRY(TM) LITIGATION: The Company has been sued in six cases in the United8178States alleging that its Symmetry(TM) Bypass System Aortic Connector8179(Symmetry(TM) device) caused bodily injury or might cause bodily injury. The8180firST such suit was filed against the Company on August 5, 2003, and the8181818281838184418185<PAGE>81868187most recently initiated case was served upon the Company on January 28, 2004.8188Each of the complaints in these cases request damages ranging from an8189unspecified amount to $100,000. Three of the six cases are seeking class-action8190status. One of the cases seeking class-action status has been dismissed but the8191dismissal is being appealed by the plaintiff. The Company believes that those8192cases seeking class-action status will request damages for injuries and8193monitoring costs.81948195The Company's Symmetry(TM) device was cleared through a 510(K) submission to the8196FDA, and therefore, is not eligible for the defense under the doctrine of8197federal preemption that such suits are prohibited. Given the Company's8198self-insured retention levels under its product liability insurance policies,8199the Company expects that it will be solely responsible for these lawsuits,8200including any costs of defense, settlements and judgments. The Company8201management believes that class action status is not appropriate for the claims8202asserted based on existing facts and case law. Discovery is in the very early8203stages in these cases.82048205The Company has not accrued any amounts for losses related to the Symmetry(TM)8206litigation. Potential losses arising from this litigation are possible, but not8207estimable, at this time. The range of such losses could be material to the8208operations, financial position and liquidity of the Company. At this time,8209Company management cannot reasonably estimate the time frame in which this8210litigation will be resolved, including when potential settlements or judgments8211would be paid out, if any.82128213OTHER LITIGATION MATTERS: The Company is involved in various other product8214liability lawsuits, claims and proceedings of a nature considered normal to its8215business.82168217OTHER CONTINGENCIES: The Company has agreed to acquire the remaining ownership8218of Epicor in 2004 for $185 million in cash, provided that specific clinical and8219regulatory milestones are achieved (see Note 2 for further discussion on8220Epicor). The Company also has contingent commitments to acquire various8221businesses involved in the distribution of its products that could total8222approximately $70 million in aggregate during 2004 to 2010, provided that8223certain contingencies are satisfied. The purchase prices of the individual8224businesses range from approximately $0.1 million to $7.0 million. In addition,8225the Company is required to make additional payments for the acquisition of VSI8226upon the achievement of certain regulatory milestones and minimum sales levels8227(see Note 7 for further discussion on these contingent payments).822882298230NOTE 6--SHAREHOLDERS' EQUITY82318232CAPITAL STOCK: The Company has 250,000,000 authorized shares of $0.10 per share8233par value common stock. The Company also has 25,000,000 authorized shares of8234$1.00 par value per share preferred stock. The Company has designated 1,100,0008235of the authorized preferred shares as a Series B Junior Preferred Stock for its8236shareholder rights plan (see SHAREHOLDERS' RIGHTS PLAN below for further8237discussion). There were no shares of preferred stock issued or outstanding8238during 2003, 2002 or 2001.82398240SHARE REPURCHASE: On July 22, 2003, the Company's Board of Directors authorized8241a share repurchase program of up to $500 million of the Company's outstanding8242common stock. The share repurchases could be made at the direction of the8243Company's management through transactions in the open market and/or privately8244negotiated transactions, including the use of options, futures, swaps and8245accelerated share repurchase contracts.824682478248428249<PAGE>825082518252On August 7, 2003, the Company repurchased approximately 9.25 million shares, or8253about five percent of its outstanding common stock, for $500 million under a8254privately-negotiated transaction with an investment bank. The investment bank8255borrowed the 9.25 million shares to complete the transaction and purchased8256replacement shares in the open market over a three month period which ended on8257November 7, 2003. The Company entered into a related accelerated stock buyback8258contract with the same investment bank which, in return for a separate payment8259to the investment bank, included a price-protection feature. The8260price-protection feature provided that if the investment bank's per share8261purchase price of the replacement shares was lower than the initial share8262purchase price for the 9.25 million shares ($54.06), then the investment bank8263would, at the Company's election, make a payment or deliver additional shares to8264the Company in the amount of the difference between the initial share purchase8265price and their replacement price, subject to a maximum amount. In addition, the8266price-protection feature provided that if the investment bank's replacement8267price was greater than the initial share purchase price, the Company would not8268be required to make any further payments.82698270The Company recorded the cost of the shares repurchased and the payment for the8271price-protection feature, totaling $520 million, as a reduction of shareholders'8272equity on the date of share repurchase (August 7, 2003). On November 7, 2003,8273the investment bank completed its purchase of replacement shares. The market8274price of the Company's shares during this replacement period exceeded the8275initial purchase price, resulting in no additional exchange of consideration.82768277SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholder rights plan that8278entitles shareholders to purchase one-tenth of a share of Series B Junior8279Preferred Stock at a stated price, or to purchase either the Company's shares or8280shares of an acquiring entity at half their market value, upon the occurrence of8281certain events which result in a change in control, as defined by the Plan. The8282rights related to this plan expire in 2007.82838284EMPLOYEE STOCK PURCHASE SAVINGS PLAN: The Company's employee stock purchase8285savings plan allows participating employees to purchase, through payroll8286deductions, newly issued shares of the Company's common stock at 85% of the fair8287market value at specified dates. Employees purchased 0.3 million, 0.2 million8288and 0.3 million shares in 2003, 2002 and 2001, respectively, under this plan. At8289December 31, 2003, 1.2 million shares of additional common stock were available8290for purchase under the plan.82918292STOCK COMPENSATION PLANS: The Company's stock compensation plans provide for the8293issuance of stock-based awards, such as restricted stock or stock options, to8294directors, officers, employees and consultants. Stock option awards under these8295plans generally have an eight to ten year life, an exercise price equal to the8296fair market value on the date of grant and a four-year vesting term. Under the8297Company's current stock plans, a majority of the stock option awards have an8298eight-year life. At December 31, 2003, the Company had 4.5 million shares of8299common stock available for grant under these plans.83008301Stock option transactions under these plans during each of the three years in8302the period ended December 31, 2003 are as follows:830383048305438306<PAGE>83078308<TABLE>8309<CAPTION>8310OPTIONS WEIGHTED AVERAGE8311OUTSTANDING EXERCISE PRICE8312=====================================================================================================8313<S> <C> <C>8314Balance at January 1, 2001 26,539,640 $ 18.248315Granted 6,373,310 35.948316Canceled (762,734) 21.088317Exercised (3,467,214) 15.278318- -----------------------------------------------------------------------------------------------------8319Balance at December 31, 2001 28,683,002 22.458320Granted 5,041,340 35.608321Canceled (716,452) 26.898322Exercised (3,312,968) 16.668323- -----------------------------------------------------------------------------------------------------8324Balance at December 31, 2002 29,694,922 25.228325Granted 4,552,336 60.038326Canceled (721,246) 31.538327Exercised (3,962,865) 20.308328- -----------------------------------------------------------------------------------------------------8329Balance at December 31, 2003 29,563,147 $ 31.098330- -----------------------------------------------------------------------------------------------------8331</TABLE>83328333Stock options totaling 16.3 million, 15.4 million and 12.6 million were8334exercisable at December 31, 2003, 2002 and 2001, respectively.83358336The following tables summarize information concerning currently outstanding and8337exercisable stock options at December 31, 2003:83388339<TABLE>8340<CAPTION>8341OPTIONS OUTSTANDING8342======================================================================================================8343WEIGHTED AVERAGE8344RANGES OF NUMBER REMAINING CONTRAC- WEIGHTED AVERAGE8345EXERCISE PRICES OUSTANDING TUAL LIFE (YEARS) EXERCISE PRICE8346======================================================================================================8347<S> <C> <C> <C> <C>8348$ 9.29 - $19.02 8,804,726 3.7 $ 14.94834919.03 - 25.37 1,419,478 3.0 20.50835025.38 - 31.71 5,137,790 4.9 26.71835131.72 - 38.05 9,057,277 6.3 35.73835238.06 - 50.74 1,170,520 6.7 44.51835350.75 - 63.36 3,973,356 7.9 61.778354- ------------------------------------------------------------------------------------------------------835529,563,147 5.4 $ 31.098356======================================================================================================835783588359OPTIONS EXERCISABLE8360======================================================================================================83618362RANGES OF NUMBER WEIGHTED AVERAGE8363EXERCISE PRICES OUSTANDING EXERCISE PRICE8364======================================================================================================8365$ 9.29 - $19.02 8,614,356 $ 14.95836619.03 - 25.37 967,278 20.68836725.38 - 31.71 3,292,158 26.48836831.72 - 38.05 3,266,046 35.93836938.06 - 50.74 181,215 40.63837050.75 - 63.36 28,000 51.708371- ------------------------------------------------------------------------------------------------------837216,349,053 $ 22.158373======================================================================================================8374</TABLE>83758376448377<PAGE>83788379The Company also granted 18,796 shares of restricted common stock during the8380three years ended December 31, 2003, under the Company's stock compensation8381plans. The value of restricted stock awards as of the date of grant is charged8382to expense over the periods during which the restrictions lapse.838383848385NOTE 7--PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT AND SPECIAL CHARGES83868387PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES: In September 1999, the8388Company purchased VSI for $75.1 million in cash, net of cash acquired, plus8389additional contingent consideration related to product development milestones8390for regulatory approvals and to future sales. The total consideration paid at8391close was allocated to the fair value of the net assets acquired ($7.6 million)8392and in-process research and development ($67.5 million). The Company paid8393additional amounts totaling $10 million in 2001 and $5 million in 2000, which8394were recorded as purchased in-process research and development expenses, as8395certain product development milestones were achieved. The remaining balance of8396the original $95.5 million in-process research and development valuation ($138397million) will be recorded in the Company's consolidated financial statements as8398purchased in-process research and development expense when payment of the8399contingent consideration is assured beyond a reasonable doubt. Contingent8400consideration payments in excess of the $13 million will be capitalized as8401goodwill.84028403The VSI purchase agreement requires the Company to make additional payments to8404the former VSI shareholders upon the achievement of certain regulatory8405milestones and minimum sales levels. To date, the Company has paid $15 million8406related to the achievement of three regulatory milestones. Achievement of the8407final regulatory milestone, U.S. regulatory approval of the distal connector,8408requires an additional $5 million payment. This contractual commitment continues8409indefinitely.84108411The contingent consideration tied to sales requires the Company to make8412additional payments totaling 5% of sales once cumulative sales exceed $508413million for the proximal and distal connectors collectively. There is no maximum8414amount of contingent consideration that could be paid related to sales. This8415contractual commitment ceases in 2009 if the minimum sales threshold is not8416attained prior to such date. If the minimum sales threshold is met prior to84172009, the commitment will extend for 10 years from the date the minimum sales8418threshold is met. Cumulative proximal and distal connector sales totaled $338419million through December 31, 2003.84208421Company management continues to evaluate the additional research and development8422expenditures necessary to develop the distal and other connector technologies8423into commercially viable products. There can be no assurance that the Company8424will be able to complete the development of these technologies into commercially8425viable products. Additionally, the Company is not able to reasonably predict the8426level of proximal or distal connector sales over a period of time which could8427extend beyond the next 10 years. As a result of these factors, the Company is8428not able to predict the amount of additional contingent consideration, if any,8429that may become due. However, the Company believes that any amounts which may8430ultimately become due in the next 5 years will not be material to the Company's8431results of operations, financial position or liquidity.843284332001 SPECIAL CHARGE: During the first half of 2001, Company management undertook8434a review of the organizational structure of the Company's sales operations and8435its heart valve operations. At that time, the structure of the Company's sales8436organization included four separate sales groups. Additionally, the cardiac8437surgery markets were experiencing a shift in clinical preference away from8438mechanical heart8439844084418442458443<PAGE>84448445valves in favor of tissue heart valves and repair products for certain patients.8446These changes had the potential to impact the future performance of the8447Company's heart valve operations. As a result of these reviews, in July 20018448Company management approved two restructuring plans. The first plan included a8449restructuring of the Company's sales organizations into two geographically8450oriented groups (one group focused on the United States and one group focused on8451locations outside the United States) and changes within each of these new8452organizations to harmonize their operations within each of their geographies.8453The second plan included the elimination of excess capacity in the Company's8454heart valve operations workforce, facilities and equipment and the8455discontinuance of certain heart valve product lines. As a result of these8456restructuring plans, the Company recorded pre-tax charges totaling $20.7 million8457in the third quarter of 2001 consisting of inventory write-downs ($9.5 million),8458capital equipment write-offs ($3.4 million), employee termination costs ($5.38459million) and lease termination and other exit costs ($2.5 million).84608461Inventory write-downs represented the estimated net carrying value of various8462inventory items that would be scrapped in connection with the decision to8463terminate two heart valve product lines. Capital equipment write-offs were a8464result of the elimination of certain excess capacity in the Company's heart8465valve operations. Employee termination costs related to the severance costs for8466approximately 90 individuals whose positions were eliminated. Lease termination8467and other exit costs included office closings for international locations,8468contractual obligations under certain programs that were cancelled and lease8469termination costs.84708471A summary of the employee termination costs and lease termination and other exit8472costs activity is as follows (in thousands):84738474<TABLE>8475<CAPTION>8476LEASE8477EMPLOYEE TERMINATION8478TERMINATION AND OTHER8479COSTS EXIT COSTS TOTAL8480==============================================================================================8481<S> <C> <C> <C> <C>8482Initial expense and accrual in 2001 $ 5,293 $ 2,495 $ 7,7888483Cash payments (2,468) (352) (2,820)8484- ----------------------------------------------------------------------------------------------8485Balance at December 31, 2001 2,825 2,143 4,96884868487Cash payments (1,676) (1,970) (3,646)8488Changes in estimates (639) (53) (692)8489- ----------------------------------------------------------------------------------------------8490Balance at December 31, 2002 510 120 63084918492Cash payments (510) (120) (630)8493- ----------------------------------------------------------------------------------------------8494Balance at December 31, 2003 $ - $ - $ -8495==============================================================================================8496</TABLE>84978498In addition to the above restructuring activities, Company management identified8499a trend early in the third quarter of 2001 related to the usage of certain8500diagnostic equipment, also referred to as programmers. Management noted that8501customer acceptance of its new programmer, which received FDA regulatory8502approval in late December 2000 and was subsequently launched during the first8503and second quarters of 2001, significantly exceeded its expectations,8504necessitating a special analysis of the recoverability of the older programmers8505that were not yet fully depreciated. After a review of the situation, Company8506management approved a plan to abandon certain older programmer models during the8507third quarter of 2001. As a result of this plan, the Company wrote off the8508remaining net book value of the abandoned programmers ($12.2 million) to cost of8509sales.8510851185128513468514<PAGE>85158516The charges relating to employee termination costs, capital equipment write-offs8517and other costs ($11.2 million) were recorded in operating expenses as special8518charges. The inventory and diagnostic equipment write-offs ($21.7 million) were8519included in cost of sales as special charges.85208521SILZONE(R) SPECIAL CHARGES: On January 21, 2000, the Company initiated a8522worldwide voluntary recall of all field inventory of heart valve replacement and8523repair products incorporating Silzone(R) coating on the sewing cuff fabric. The8524Company concluded that it would no longer utilize Silzone(R) coating. As a8525result of the voluntary recall and product discontinuance, the Company recorded8526a special charge totaling $26.1 million during the first quarter of 2000. The8527$26.1 million special charge consisted of asset write-downs ($9.5 million),8528legal and patient monitoring costs ($14.4 million) and customer returns and8529related costs ($2.2 million).85308531The $9.5 million of asset write-downs related to inventory write-offs associated8532with the physical scrapping of inventory with Silzone(R) coating ($8.6 million),8533and to the write-off of a prepaid license asset and related costs associated8534with the Silzone(R) coating technology ($0.9 million). The $14.4 million of8535legal and patient monitoring costs related to the Company's product liability8536insurance deductible ($3.5 million) and patient monitoring costs ($10.9 million)8537related to contractual and future monitoring activities directly related to the8538product recall and discontinuance. The $2.2 million of customer returns and8539related costs represented costs associated with the return of customer-owned8540Silzone(R) inventory.85418542In the second quarter of 2002, the Company determined that the Silzone(R)8543reserves should be increased by $11 million as a result of difficulties in8544obtaining certain reimbursements from the Company's insurance carriers under its8545product liability insurance policies ($4.6 million), an increase in management's8546estimate of the costs associated with future patient monitoring costs as a8547result of extending the time period in which it planned to perform patient8548monitoring activities ($5.8 million) and an increase in other related costs8549($0.6 million). This additional accrual was included in selling, general and8550administrative expense during the second quarter ended June 30, 2002.85518552The Company's product liability insurance coverage for Silzone(R) claims8553consists of a number of policies with different carriers. During 2002, Company8554management observed a trend where various insurance companies were not8555reimbursing the Company or outside legal counsel for a variety of costs8556incurred, which the Company believed should be paid under the product liability8557insurance policies. These insurance companies were either refusing to pay the8558claims or had delayed providing an explanation for non-payment for an extended8559period of time. Although the Company believes it has legal recourse from these8560insurance carriers for the costs they are refusing to pay, the additional costs8561the Company would need to incur to resolve these disputes may exceed the amount8562the Company would recover. As a result of these developments, the Company8563increased the Silzone(R) reserves by $4.6 million in the second quarter of 2002,8564which represents the existing disputed costs already incurred at that time plus8565the anticipated future costs where the Company expects similar resistance from8566the insurance companies on reimbursement.85678568During the fourth quarter of 2003, the Company reclassified $15.7 million of8569existing accruals to the Silzone(R) special charge accrual from other current8570assets. This amount related to probable future legal costs associated with the8571Silzone(R) litigation. Previously, these accruals were offset against a8572receivable from the Company's insurance carriers.85738574A summary of the legal and monitoring costs and customer returns and related8575costs activity is as follows (in thousands):857685778578478579<PAGE>85808581<TABLE>8582<CAPTION>8583LEGAL AND CUSTOMER8584MONITORING RETURNS AND8585COSTS RELATED COSTS TOTAL8586=========================================================================================================8587<S> <C> <C> <C>8588Initial expense and accrual in 2000 $ 14,397 $ 2,239 $ 16,6368589Cash payments (5,955) (2,239) (8,194)8590- ---------------------------------------------------------------------------------------------------------8591Balance at December 31, 2000 8,442 - 8,44285928593Cash payments (3,042) - (3,042)8594- ---------------------------------------------------------------------------------------------------------8595Balance at December 31, 2001 5,400 - 5,40085968597Additional expense 10,433 567 11,0008598Cash payments (2,442) (59) (2,501)8599- ---------------------------------------------------------------------------------------------------------8600Balance at December 31, 2002 13,391 508 13,89986018602Cash payments (1,206) (22) (1,228)8603Reclassification of legal accruals 15,721 - 15,7218604- ---------------------------------------------------------------------------------------------------------8605Balance at December 31, 2003 $ 27,906 $ 486 $ 28,3928606- ---------------------------------------------------------------------------------------------------------8607</TABLE>86088609In addition to the amounts available under the above Silzone(R) reserves, the8610Company has approximately $170 million remaining in product liability insurance8611currently available for the Silzone(R)-related matters. The Company's remaining8612product liability insurance for Silzone(R) claims consists of a number of8613layers, each of which is covered by one or more insurance companies. The next8614layer of insurance, which is a $30 million layer that would be reached after the8615present $35 million layer is exhausted, is covered by Lumberman's Mutual8616Casualty Insurance, a unit of the Kemper Insurance Companies (collectively8617referred to as Kemper). Kemper's credit rating by A.M. Best has been downgraded8618to a "D" (poor). Kemper is currently in "run off," which means that it is not8619issuing new policies and is, therefore, not generating any new revenue that8620could be used to cover claims made under previously-issued policies. In the8621event Silzone(R) claims were to reach the Kemper layer and Kemper was unable to8622pay part or all of such claims, the Company believes the other insurance8623carriers in its program will take the position that the Company will be directly8624liable for any claims and costs that Kemper is unable to pay, and that insurance8625carriers at policy layers following Kemper's layer will not provide coverage for8626Kemper's layer. Kemper also provides part of the coverage for Silzone(R) claims8627in the Company's final layer of insurance ($20 million of the final $50 million8628layer).86298630It is possible that Silzone(R) costs and expenses will reach the Kemper layers8631of insurance coverage, and it is possible that Kemper will be unable to meet its8632obligations to the Company. If this were to happen, the Company could incur a8633loss of up to $50 million. The Company has not accrued for any such losses.863486358636NOTE 8--OTHER INCOME (EXPENSE)86378638Other income (expense) consists of the following (in thousands):863986402003 2002 20018641================================================================================8642Interest income $ 7,031 $ 5,481 $ 3,2618643Interest expense (3,746) (1,754) (12,567)8644Other (593) (324) 1,4688645- --------------------------------------------------------------------------------8646Other income (expense) $ 2,692 $ 3,403 $ (7,838)8647================================================================================8648864986508651488652<PAGE>86538654NOTE 9--INCOME TAXES86558656The Company's earnings before income taxes were generated from its U.S. and8657international operations as follows (in thousands):86588659866086612003 2002 20018662================================================================================8663U.S. $285,214 $270,595 $83,1288664International 173,423 102,763 144,8508665- --------------------------------------------------------------------------------8666Earnings before income taxes $458,637 $373,358 $227,9788667================================================================================86688669Income tax expense consists of the following (in thousands):867086712003 2002 20018672================================================================================8673Current:8674U.S. federal $56,669 $48,459 $48,8448675U.S. state and other 4,285 4,732 4,9948676International 25,146 6,187 13,2298677- --------------------------------------------------------------------------------8678Total current 86,100 59,378 67,0678679Deferred 33,146 37,695 (11,681)8680- --------------------------------------------------------------------------------8681Income tax expense $119,246 $97,073 $55,3868682================================================================================86838684The tax effects of the cumulative temporary differences between the tax bases of8685assets and liabilities and their carrying amounts for financial statement8686purposes are as follows (in thousands):868786882003 20028689================================================================================8690Deferred income tax assets:8691Net operating loss carryforwards $ 3,088 $ 12,7328692Tax credit carryforwards 20,272 30,5548693Inventories 53,395 34,4038694Intangible assets - 3,5528695Accrued liabilities and other 16,801 11,5698696- --------------------------------------------------------------------------------8697Deferred income tax assets 93,556 92,8108698- --------------------------------------------------------------------------------8699Deferred income tax liabilities:8700Unrealized gain on available-for-sale securities (6,782) (2,599)8701Property, plant and equipment (30,955) (21,085)8702Intangible assets (33,162) -8703- --------------------------------------------------------------------------------8704Deferred income tax liabilities (70,899) (23,684)8705- --------------------------------------------------------------------------------8706Net deferred income tax asset $ 22,657 $ 69,1268707- --------------------------------------------------------------------------------87088709The increase in the Company's current deferred income taxes during 2003 was due8710primarily to an increase in the book to tax differences related to profits on8711intercompany sales of inventory and to various differences related to the8712acquisition of Getz Japan. The change in the Company's long-term deferred income8713tax asset/liability during 2003 was due primarily to the utilization of net8714operating losses and tax credits, the acquisition of Getz Japan, and increases8715in the book to tax differences related to depreciation of fixed assets and8716amortization of goodwill and other intangible assets. The8717871887198720498721<PAGE>87228723Company has not recorded any valuation allowance for its deferred tax assets as8724of December 31, 2003 or 2002.87258726A reconciliation of the U.S. federal statutory income tax rate to the Company's8727effective income tax rate is as follows (in thousands):87288729<TABLE>8730<CAPTION>87312003 2002 20018732========================================================================================================8733<S> <C> <C> <C>8734Income tax expense at the U.S. federal8735statutory rate of 35% $ 160,523 $ 130,675 $79,7928736U.S. state income taxes, net of federal tax benefit 12,533 8,378 3,6548737International taxes at lower rates (39,032) (29,972) (20,089)8738Tax benefits from extraterritorial income exclusion (7,173) (3,675) (3,681)8739Research and development credits (11,013) (9,467) (5,984)8740Non-deductible purchased in-process research8741and development charges - - 3,9128742Other 3,408 1,134 (2,218)8743- --------------------------------------------------------------------------------------------------------8744Income tax expense $ 119,246 $97,073 $55,3868745========================================================================================================8746Effective income tax rate 26.0% 26.0% 24.3%8747- --------------------------------------------------------------------------------------------------------8748</TABLE>87498750At December 31, 2003, the Company has $8.8 million of U.S. federal net operating8751loss carryforwards and $6.6 million of U.S. tax credit carryforwards that will8752expire from 2004 through 2019 if not utilized. The Company also has state tax8753credit carryforwards of $13.7 million that have an unlimited carryforward8754period. These amounts are subject to annual usage limitations. The Company's net8755operating loss carryforwards arose primarily from acquisitions.87568757The Company has not recorded U.S. deferred income taxes on $547 million of its8758non-U.S. subsidiaries' undistributed earnings, because such amounts are intended8759to be reinvested outside the United States indefinitely.876087618762NOTE 10--RETIREMENT PLANS87638764DEFINED CONTRIBUTION PLANS: The Company has a 401(k) profit sharing plan that8765provides retirement benefits to substantially all full-time U.S. employees.8766Eligible employees may contribute a percentage of their annual compensation,8767subject to Internal Revenue Service limitations, with the Company matching a8768portion of the employees' contributions. The Company also contributes a portion8769of its earnings to the plan based upon Company performance. The Company's8770matching and profit sharing contributions are at the discretion of the Company's8771Board of Directors. In addition, the Company has defined contribution programs8772for employees in certain countries outside the United States. Company8773contributions under all defined contribution plans totaled $24.0 million, $18.88774million and $16.2 million in 2003, 2002 and 2001, respectively.87758776DEFINED BENEFIT PLANS: The Company has funded and unfunded defined benefit plans8777for employees in certain countries outside the United States. The Company had an8778accrued liability totaling $16.0 million and $10.7 million at December 31, 20038779and 2002, respectively, which approximated the actuarially calculated unfunded8780liability. The related pension expense was not material.878187828783508784<PAGE>878587868787NOTE 11--SEGMENT AND GEOGRAPHIC INFORMATION87888789SEGMENT INFORMATION: The Company develops, manufactures and distributes8790cardiovascular medical devices for the global cardiac rhythm management (CRM),8791cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.8792The Company has three operating segments, Cardiac Rhythm Management (CRM),8793Cardiac Surgery (CS) and Daig, which focus on the development and manufacture of8794products for the three therapy areas. The primary products produced by each8795segment are: CRM - pacemaker and ICD systems; CS - mechanical and tissue heart8796valves; Daig - electrophysiology catheters, vascular closure devices and other8797cardiology and vascular access products. The Company has aggregated the CRM and8798CS segments into one reportable segment based primarily upon their similar8799operational and economic characteristics.88008801The Company's reportable segments include end customer revenues from the sale of8802products they each develop and manufacture. The costs included in each of the8803reportable segments' operating results include the direct costs of the products8804sold to end customers and operating expenses managed by each of the segments.8805Certain costs of goods sold and operating expenses managed by the Company's8806selling and corporate functions are not included in segment operating profit.8807Consequently, segment operating profit presented below is not representative of8808the operating profit of the Company's products in these segments.88098810The following table presents certain financial information about the Company's8811reportable segments (in thousands):8812881388148815518816<PAGE>881788188819882088218822<TABLE>8823<CAPTION>8824CRM/CS DAIG OTHER TOTAL8825====================================================================================================================================8826<S> <C> <C> <C> <C>8827FISCAL YEAR ENDED DECEMBER 31, 20038828Net sales $ 1,499,425 $ 366,433 $ 66,656 $ 1,932,5148829Operating profit (a) 873,904 202,007 (619,966) 455,9458830Depreciation and8831amortization expense 29,836 8,307 38,540 76,6838832Total assets (b)(c) 639,724 147,270 1,769,100 2,556,0948833- ------------------------------------------------------------------------------------------------------------------------------------88348835FISCAL YEAR ENDED DECEMBER 31, 20028836Net sales $ 1,305,750 $ 284,179 $ - $ 1,589,9298837Operating profit (a) 713,341 149,592 (492,978) 369,9558838Depreciation and8839amortization expense 33,819 7,158 33,943 74,9208840Total assets (b)(c) 723,414 134,610 1,093,355 1,951,3798841- ------------------------------------------------------------------------------------------------------------------------------------88428843FISCAL YEAR ENDED DECEMBER 31, 2001 (D)8844Net sales $ 1,135,833 $ 211,523 $ - $ 1,347,3568845Operating profit (a) 583,030 105,947 (453,161) 235,8168846====================================================================================================================================8847</TABLE>88488849(a) OTHER OPERATING PROFIT INCLUDES CERTAIN COSTS OF GOODS SOLD AND OPERATING8850EXPENSES MANAGED BY THE COMPANY'S SELLING AND CORPORATE FUNCTIONS. IN8851FISCAL YEAR 2001, OTHER ALSO INCLUDES SPECIAL CHARGES AND PURCHASED8852IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES.88538854(b) OTHER TOTAL ASSETS INCLUDE THE ASSETS MANAGED BY THE COMPANY'S SELLING8855AND CORPORATE FUNCTIONS, INCLUDING END CUSTOMER RECEIVABLES, INVENTORY,8856CORPORATE CASH AND EQUIVALENTS AND DEFERRED INCOME TAXES.88578858(c) THE COMPANY DOES NOT COMPILE EXPENDITURES FOR LONG-LIVED ASSETS BY8859SEGMENT AND, THEREFORE, HAS NOT INCLUDED THIS INFORMATION AS IT IS8860IMPRACTICABLE TO DO SO.88618862(d) DURING 2001, THE COMPANY COMPLETED A REORGANIZATION OF ITS GLOBAL SALES8863ACTIVITIES, WHICH RESULTED IN CHANGES TO ITS INTERNAL MANAGEMENT AND8864FINANCIAL REPORTING STRUCTURE. DUE TO THIS RESTRUCTURING, INFORMATION8865RELATING TO DEPRECIATION AND AMORTIZATION, TOTAL ASSETS AND EXPENDITURES8866FOR LONG-LIVED ASSETS FOR FISCAL YEAR 2001 BY CURRENT REPORTING SEGMENTS8867HAS NOT BEEN COMPILED AS IT IS IMPRACTICABLE TO DO SO.88688869Net sales by class of similar products were as follows (in thousands):88708871<TABLE>8872<CAPTION>88738874NET SALES 2003 2002 20018875================================================================================================8876<S> <C> <C> <C>8877Cardiac rhythm management $ 1,365,212 $ 1,147,489 $ 965,9688878Cardiac surgery 270,933 250,957 248,0458879Cardiology and vascular access 296,369 191,483 133,3438880- ------------------------------------------------------------------------------------------------8881$ 1,932,514 $ 1,589,929 $ 1,347,3568882================================================================================================8883</TABLE>88848885528886<PAGE>888788888889GEOGRAPHIC INFORMATION: The following tables present certain geographical8890financial information (in thousands):88918892<TABLE>8893<CAPTION>88948895NET SALES (a) 2003 2002 20018896================================================================================================8897<S> <C> <C> <C>8898United States $ 1,129,055 $ 1,042,766 $ 880,0868899International8900Europe 465,369 347,936 294,8528901Japan 207,431 95,813 83,3618902Other (b) 130,659 103,414 89,0578903- ------------------------------------------------------------------------------------------------8904803,459 547,163 467,2708905- ------------------------------------------------------------------------------------------------8906$ 1,932,514 $ 1,589,929 $ 1,347,3568907================================================================================================89088909LONG-LIVED ASSETS (b) 2003 2002 20018910================================================================================================8911United States $ 744,445 $ 674,119 $ 626,1408912International8913Europe 96,520 88,194 76,5428914Japan 152,772 267 468915Other 70,020 62,213 61,2158916- ------------------------------------------------------------------------------------------------8917319,312 150,674 137,8038918- ------------------------------------------------------------------------------------------------8919$ 1,063,757 $ 824,793 $ 763,9438920================================================================================================8921</TABLE>89228923(a) NET SALES ARE ATTRIBUTED TO GEOGRAPHIES BASED ON LOCATION OF THE CUSTOMER.8924(b) NO ONE GE0GRAPHIC MARKET IS GREATER THAN 2% OF CONSOLIDATED NET SALES.8925(c) LONG-LIVED ASSETS EXCLUDE DEFERRED INCOME TAXES.89268927538928<PAGE>892989308931NOTE 12--QUARTERLY FINANCIAL DATA (UNAUDITED)89328933Quarterly financial data for 2003 and 2002 is as follows (in thousands, except8934per share amounts):89358936<TABLE>8937<CAPTION>8938QUARTER8939FIRST SECOND THIRD FOURTH8940============================================================================================8941<S> <C> <C> <C> <C>8942FISCAL YEAR ENDED DECEMBER 31, 2003:8943Net sales $441,384 $495,093 $477,454 $518,5838944Gross profit 301,920 333,793 330,741 362,9698945Net earnings 79,987 81,932 84,621 92,8518946Basic net earnings per share 0.45 0.45 0.48 0.548947Diluted net earnings per share $ 0.43 $ 0.43 $ 0.46 $ 0.5189488949FISCAL YEAR ENDED DECEMBER 31, 2002:8950Net sales $371,193 $404,348 $404,857 $409,5318951Gross profit 252,405 275,386 276,476 279,7168952Net earnings 62,076 69,555 (a) 71,680 72,9748953Basic net earnings per share 0.35 0.39 0.40 0.418954Diluted net earnings per share $ 0.34 $ 0.38 $ 0.39 $ 0.408955============================================================================================8956</TABLE>89578958(a) INCLUDES A CASH RECEIPT OF $18.5 MILLION RELATING TO THE SETTLEMENT OF8959CERTAIN PATENT LITIGATION, WHICH WAS RECORDED AS A REDUCTION OF SG&A8960EXPENSE. ALSO, THE COMPANY RECORDED IN SG&A AN $11 MILLION CHARGE TO8961INCREASE THE RESERVE FOR EXPENSES RELATED TO THE SILZONE(R)RECALL AND A $7.58962MILLION DISCRETIONARY CONTRIBUTION TO THE COMPANY'S CHARITABLE FOUNDATION,8963THE ST. JUDE MEDICAL FOUNDATION.89648965896689678968548969<PAGE>897089718972FIVE-YEAR SUMMARY FINANCIAL DATA8973(In thousands, except per share amounts)89748975<TABLE>8976<CAPTION>89772003 2002 (a) 2001 (b) 2000 (c) 1999 (d)8978===============================================================================================================================8979<S> <C> <C> <C> <C> <C>8980SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:8981Net sales $1,932,514 $1,589,929 $1,347,356 $1,178,806 $1,114,5498982Gross profit $1,329,423 $1,083,983 $ 888,197 $ 787,657 $ 733,6478983Percent of net sales 68.8% 68.2% 65.9% 66.8% 65.8%8984Operating profit $ 455,945 $ 369,955 $ 235,816 $ 202,359 $ 89,1888985Percent of net sales 23.6% 23.3% 17.5% 17.2% 8.0%8986Net earnings $ 339,391 $ 276,285 $ 172,592 $ 129,094 $ 24,2278987Percent of net sales 17.6% 17.4% 12.8% 11.0% 2.2%8988Diluted net earnings per share $ 1.83 $ 1.51 $ 0.97 $ 0.75 $ 0.148989- -------------------------------------------------------------------------------------------------------------------------------8990FINANCIAL POSITION AT YEAR END:8991Cash and equivalents $ 461,253 $ 401,860 $ 148,335 $ 50,439 $ 9,6558992Working capital (e) 982,022 739,665 475,692 388,322 389,7688993Total assets 2,556,094 1,951,379 1,628,727 1,532,716 1,554,0388994Long-term debt 351,813 - 123,128 294,500 477,4958995Shareholders' equity $1,604,247 $1,576,727 $1,183,745 $ 940,849 $ 794,0218996- -------------------------------------------------------------------------------------------------------------------------------8997OTHER DATA:8998Diluted weighted average8999shares outstanding 185,377 183,002 178,767 171,634 169,4709000===============================================================================================================================9001</TABLE>90029003FISCAL YEAR 2003 CONSISTED OF 53 WEEKS. ALL OTHER FISCAL YEARS NOTED ABOVE9004CONSISTED OF 52 WEEKS. THE COMPANY DID NOT DECLARE OR PAY ANY CASH DIVIDENDS9005DURING 1999 THROUGH 2003.90069007(a) RESULTS FOR 2002 INCLUDE A CASH RECEIPT OF $18.5 MILLION RELATING TO THE9008SETTLEMENT OF CERTAIN PATENT LITIGATION, WHICH WAS RECORDED AS A REDUCTION9009OF SG&A EXPENSE. ALSO, THE COMPANY RECORDED IN SG&A AN $11 MILLION CHARGE TO9010INCREASE THE RESERVE FOR EXPENSES RELATED TO THE SILZONE(R) RECALL AND A9011$7.5 MILLION DISCRETIONARY CONTRIBUTION TO THE COMPANY'S CHARITABLE9012FOUNDATION, THE ST. JUDE MEDICAL FOUNDATION.90139014(b) RESULTS FOR 2001 INCLUDE A $32.8 MILLION SPECIAL CHARGE AND PURCHASED9015IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES OF $10 MILLION. THE IMPACT OF9016THESE ITEMS ON 2001 NET EARNINGS WAS $30.5 MILLION, OR $0.17 PER DILUTED9017SHARE.90189019(c) RESULTS FOR 2000 INCLUDE A $26.1 MILLION SPECIAL CHARGE AND A PURCHASED9020IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF $5 MILLION. THE IMPACT OF9021THESE ITEMS ON 2000 NET EARNINGS WAS $27.2 MILLION, OR $0.16 PER DILUTED9022SHARE.90239024(d) RESULTS FOR 1999 INCLUDE A $9.8 MILLION SPECIAL CHARGE AND PURCHASED9025IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES TOTALING $115.2 MILLION. THE9026IMPACT OF THESE ITEMS ON 1999 NET EARNINGS WAS $119.8 MILLION, OR $0.71 PER9027DILUTED SHARE.90289029(e) TOTAL CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.90309031559032<PAGE>9033903490359036INVESTOR INFORMATION903790389039TRANSFER AGENT9040Requests concerning the transfer or exchange of shares, lost stock certificates,9041duplicate mailings, or change of address should be directed to the Company's9042Transfer Agent at:90439044EquiServe Trust Company, N.A.9045P.O. Box 430239046Providence, Rhode Island 02940-302390471.877.498.88619048www.equiserve.com (Account Access Availability)9049Hearing impaired #TDD: 1.800.952.9245905090519052ANNUAL MEETING OF SHAREHOLDERS9053The annual meeting of shareholders will be held at 9:30 a.m. on Wednesday, May905412, 2004, at the Minnesota Historical Center, 345 Kellogg Boulevard West, St.9055Paul, Minnesota, 55102. Parking is available.905690579058INVESTOR CONTACT9059Laura C. Merriam, Director, Investor Relations90609061To obtain information about the Company call 1.800.552.7664, visit our Web site9062at www.sjm.com, or write to:90639064Investor Relations9065St. Jude Medical, Inc.9066One Lillehei Plaza9067St. Paul, Minnesota 55117-998390689069The Investor Relations (IR) section on St. Jude Medical's9070Web site includes all SEC filings, a list of analyst coverage, and a calendar of9071upcoming earnings announcements and IR events. St. Jude Medical's Newsroom9072features news releases, company background information, fact sheets, executive9073bios, a product photo portfolio, and other media resources. Patient profiles can9074be found on our Web site, including the patients featured in this year's annual9075report.9076907790789079CORPORATE GOVERNANCE9080(SEE COMPANY INFORMATION ON WEB SITE- WWW.SJM.COM)9081o Corporate Governance Charter9082o Code of Business Conduct9083o SEC Filings908490859086COMPANY STOCK SPLITS90872:1 on 4/27/79, 1/25/80, 9/30/86, 3/15/89, 4/30/90 and 6/10/02;90883:2 on 11/16/95908990909091STOCK EXCHANGE LISTINGS9092New York Stock Exchange9093Symbol: STJ90949095The range of high and low prices per share for the Company's common stock for9096fiscal 2003 and 2002 is set forth below. As of February 17, 2004, the Company9097had 3,234 shareholders of record.90989099Fiscal Year Ended December 31 2003 20029100========================================================================9101Quarter High Low High Low9102========================================================================9103First $49.48 $38.76 $40.80 $35.759104Second $63.60 $47.50 $43.13 $36.209105Third $59.10 $48.10 $41.00 $30.529106Fourth $64.00 $52.49 $40.35 $31.1691079108TRADEMARKS9109Aescula(TM), AF Suppression(TM), Alliance(TM), Angio-Seal(TM),9110Apeel(TM), Atlas(R), AutoCapture(TM), BEAT-BY-BEAT(TM), BiLinx(TM), Epic(TM),9111Fast Cath(TM), Fast Cath Duo(TM), FaSt Path(TM), FlexCuff(TM), Frontier(TM),9112GuideRight(TM), Housecall Plus(TM), HydraSteer(TM), Identity(R), Integrity(R),9113IsoFlex(R), Linx(TM), LIvewire(TM), Livewire Cannulator(TM), Livewire Spiral9114HP(TM), Livewire TC(TM), Microny(R), Maximum(TM), NaviFlex(TM), Pacel(TM),9115Passive PLus(R), Photon(R), QuickSite(TM), Reflexion(TM), Reflexion9116Cannulator(TM), Response(TM), Riata(R), Seal-Away(TM), SJM(R), SJM Biocor(TM),9117SJM Epic(TM), SJM Regent(TM), SJM Tailor(TM), Spyglass(TM), St. Jude Medical(R),9118Supreme(TM), Symmetry(TM), Telesheath(TM), Tendril(R), Toronto Root(TM), Toronto9119SPV(R), TVL(R), Ultimum(TM), Verity(TM), Victory(TM).912091219122(C)2004 ST. JUDE MEDICAL, INC.91239124912591269127912891295691309131</TEXT>9132</DOCUMENT>9133<DOCUMENT>9134<TYPE>EX-219135<SEQUENCE>69136<FILENAME>stjude041330_ex21.txt9137<TEXT>91389139EXHIBIT 2191409141ST. JUDE MEDICAL, INC.91429143SUBSIDIARIES OF THE REGISTRANT914491459146St. Jude Medical, Inc. Wholly Owned Subsidiaries:9147- -------------------------------------------------91489149o Pacesetter, Inc. - Sylmar, California, Scottsdale, Arizona, and Maven,9150South Carolina (Delaware corporation) (doing business as St. Jude Medical9151Cardiac Rhythm Management Division)91529153o St. Jude Medical S.C., Inc. - St. Paul, Minnesota (Minnesota corporation)91549155- Bio-Med Sales, Inc. (Pennsylvania corporation)91569157- HeartBeat Medical, Inc. (Utah corporation)91589159o St. Jude Medical Europe, Inc. - St. Paul, Minnesota (Delaware corporation)91609161- Brussels, Belgium branch91629163o St. Jude Medical Canada, Inc. - Mississauga, Ontario and St. Hyacinthe,9164Quebec (Ontario, Canada corporation)91659166o St. Jude Medical (Shanghai) Ltd. - Shanghai, China (Chinese corporation)91679168o St. Jude Medical (Hong Kong) Limited - Kowloon, Hong Kong (Hong Kong9169corporation)91709171- Shanghai and Beijing, China representative offices91729173- Korean and Taiwan branch offices91749175- Mumbai, New Delhi, Calcutta and Chennai, India branch offices91769177- Singapore representative office91789179o St. Jude Medical, Inc., Cardiac Assist Division - St. Paul, Minnesota9180(Delaware corporation)9181(Assets of St. Jude Medical, Inc., Cardiac Assist Division sold to Bard91821/19/96)91839184o St. Jude Medical Australia Pty., Ltd. - Sydney Australia (Australian9185corporation)91869187o St. Jude Medical Brasil, Ltda. - Sao Paulo and Belo Horizonte, Brazil9188(Brazilian corporation)91899190o St. Jude Medical, Daig Division, Inc.- Minnetonka, Minnesota (Minnesota9191corporation)91929193o St. Jude Medical Colombia, Ltda. - Bogota, Colombia (Colombian corporation)91949195o St. Jude Medical ATG, Inc. - Maple Grove, Minnesota (Minnesota corporation)91969197o SJM International, Inc. - St. Paul, Minnesota (Delaware corporation)91989199- Tokyo, Japan branch9200920192029203<PAGE>920492059206SJM International, Inc. Wholly Owned Legal Entities (Directly and Indirectly):9207- ------------------------------------------------------------------------------92089209o St. Jude Medical Puerto Rico, Inc. - Caguas, Puerto Rico (Delaware9210corporation)92119212- St. Jude Medical Delaware Holding LLC (Delware corporation)9213(wholly owned subsidiary of St.Jude Medical Puerto Rico, Inc.)92149215o St. Jude Medical Holland Finance C.V. (Netherlands limited partnership)9216(ownership of St. Jude Medical Holland Finance C.V. is shared by SJM9217International, Inc., St. Jude Medical Delaware Holding LLC, and the general9218partner, St. Jude Medical Puerto Rico, Inc.)92199220- St. Jude Medical Investments B.V. (Netherlands corporation9221headquartered in Luxembourg) (wholly owned subsidiary of St. Jude9222Medical Holland Finance C.V.)92239224- St. Jude Medical Nederland B.V. (Netherlands corporation)9225(wholly owned subsidiary of St. Jude Medical Investments9226B.V.)92279228- Telectronics B.V. (Netherlands corporation) (wholly9229owned subsidiary of St. Jude Medical Nederland B.V.)92309231- St. Jude Medical Enterprise AB (Swedish corporation headquartered9232in Luxembourg) (wholly owned subsidiary of St. Jude Medical9233Investments B.V.)92349235- St. Jude Medical Puerto Rico B.V. (Netherlands9236corporation) (wholly owned subsidiary of St. Jude9237Medical Enterprise AB)92389239- Puerto Rico branch of St. Jude Medical Puerto9240Rico B.V.92419242- St. Jude Medical Coordination Center (Belgium branch of9243St. Jude Medical Enterprise AB)92449245- St. Jude Medical AB (Swedish corporation) (wholly owned9246subsidiary of St. Jude Medical Enterprise AB)92479248- St. Jude Medical Holdings B.V. (Netherlands corporation) (wholly9249owned subsidiary of St. Jude Medical Investments B.V.)92509251- Getz Bros. Co. Ltd. (Japanese corporation) (wholly owned9252subsidiary of St. Jude Medical Holdings B.V.)92539254o St. Jude Medical Sweden AB (Swedish corporation)92559256o St. Jude Medical Danmark A/S (Danish corporation)92579258o St. Jude Medical (Portugal) - Distribuicao de Produtos Medicos, Lda.9259(Portuguese corporation)92609261o St. Jude Medical Export Ges.m.b.H. (Austrian corporation)92629263o St. Jude Medical Medizintechnik Ges.m.b.H. (Austrian corporation)92649265o St. Jude Medical Italia S.p.A. (Italian corporation)92669267o N.V. St. Jude Medical Belgium, S.A. (Belgian corporation)92689269o St. Jude Medical Espana, S.A. (Spanish corporation)92709271o St. Jude Medical France S.A. (French corporation)92729273o St. Jude Medical Finland O/y (Finnish corporation)92749275o St. Jude Medical Sp.zo.o. (Polish corporation)92769277o St. Jude Medical GmbH (German corporation)92789279o St. Jude Medical Kft (Hungarian corporation)92809281o St. Jude Medical UK Limited (United Kingdom corporation)92829283o St. Jude Medical AG (Swiss corporation)9284928592869287</TEXT>9288</DOCUMENT>9289<DOCUMENT>9290<TYPE>EX-239291<SEQUENCE>79292<FILENAME>stjude041330_ex23.txt9293<TEXT>9294EXHIBIT 2392959296CONSENT OF INDEPENDENT AUDITORS92979298We consent to the incorporation by reference in this Annual Report on Form 10-K9299of St. Jude Medical, Inc. of our report dated January 26, 2004, included in the93002003 Annual Report to Shareholders of St. Jude Medical, Inc.93019302Our audits also included the financial statement schedule of St. Jude Medical,9303Inc. listed in Item 15(a) of this Annual Report on Form 10-K. This schedule is9304the responsibility of the Company's management. Our responsibility is to express9305an opinion based on our audits. In our opinion, the financial statement schedule9306referred to above, when considered in relation to the basic financial statements9307taken as a whole, presents fairly in all material respects the information set9308forth therein.93099310We also consent to the incorporation by reference in Registration Statement No.931133-9262, Registration Statement No. 33-41459, Registration Statement No.931233-48502, Registration Statement No. 33-54435, Registration Statement No.9313333-42945, Registration Statement No. 333-42658, Registration Statement No.9314333-42668 and Registration Statement No. 333-96697 on Form S-8 of our report9315dated January 26, 2004, with respect to the consolidated financial statements9316incorporated herein by reference, and our report in the preceding paragraph with9317respect to the financial statement schedule included in this Annual Report on9318Form 10-K of St. Jude Medical, Inc.93199320/s/ ERNST & YOUNG LLP93219322Minneapolis, Minnesota9323March 12, 20049324932593269327</TEXT>9328</DOCUMENT>9329<DOCUMENT>9330<TYPE>EX-249331<SEQUENCE>89332<FILENAME>stjude041330_ex24.txt9333<TEXT>93349335EXHIBIT 2493369337POWER OF ATTORNEY93389339KNOW ALL BY THESE PRESENTS, that each person whose signature appears below9340constitutes and appoints Terry L. Shepherd, John C. Heinmiller and Kevin T.9341O'Malley, each with full power to act without the other, his or her true and9342lawful attorney-in-fact and agent with full power of substitution, for him or9343her and in his or her name, place and stead, in any and all capacities, to sign9344the Annual Report on Form 10-K of St. Jude Medical, Inc. for the fiscal year9345ended December 31, 2003, and any or all amendments to said Annual Report, and to9346file the same, with all exhibits thereto, and other documents in connection9347therewith, with the Securities and Exchange Commission, and to file the same9348with such other authorities as necessary, granting unto each such9349attorney-in-fact and agent full power and authority to do and perform each and9350every act and thing requisite and necessary to be done in and about the9351premises, as fully to all intents and purposes as he or she might or could do in9352person, hereby ratifying and confirming all that each such attorney-in-fact and9353agent, or his substitute, may lawfully do or cause to be done by virtue hereof.93549355IN WITNESS WHEREOF, this Power of Attorney has been signed on this 23rd day9356of February, 2004, by the following persons.9357935893599360/s/ TERRY L. SHEPHERD /s/ DANIEL J. STARKS9361- ------------------------------------- -------------------------------------9362Terry L. Shepherd Daniel J. Starks9363Chairman and Chief Executive Officer Director9364(Principal Executive Officer)93659366/s/ JOHN C. HEINMILLER /s/ DAVID A. THOMPSON9367- ------------------------------------- -------------------------------------9368John C. Heinmiller David A. Thompson9369Vice President, Finance and Director9370Chief Financial Officer (Principal9371Financial and Accounting Officer)93729373/s/ RICHARD R. DEVENUTI /s/ STEFAN K. WIDENSOHLER9374- ------------------------------------- -------------------------------------9375Richard R. Devenuti Stefan K. Widensohler9376Director Director93779378/s/ STUART M. ESSIG /s/ WENDY L. YARNO9379- ------------------------------------- -------------------------------------9380Stuart M. Essig Wendy L. Yarno9381Director Director93829383/s/ THOMAS H. GARRETT III /s/ FRANK C-P YIN9384- ------------------------------------- -------------------------------------9385Thomas H. Garrett III Frank C-P Yin9386Director Director9387938893899390IN WITNESS WHEREOF, this Power of Attorney has been signed on this 12th day9391of March, 2004, by the following persons.93929393/s/ Michael A. Rocca9394- --------------------9395Michael A. Rocca9396Director93979398</TEXT>9399</DOCUMENT>9400<DOCUMENT>9401<TYPE>EX-31.19402<SEQUENCE>99403<FILENAME>stjude041330_ex31-1.txt9404<TEXT>94059406EXHIBIT 31.194079408CERTIFICATION PURSUANT TO SECTION 3029409OF THE SARBANES-OXLEY ACT OF 200294109411I, Terry L. Shepherd, certify that:941294131. I have reviewed this annual report on Form 10-K of St. Jude Medical,9414Inc.;941594162. Based on my knowledge, this report does not contain any untrue9417statement of a material fact or omit to state a material fact9418necessary to make the statements made, in light of the circumstances9419under which such statements were made, not misleading with respect to9420the period covered by this report;942194223. Based on my knowledge, the financial statements, and other financial9423information included in this report, fairly present in all material9424respects the financial condition, results of operations and cash flows9425of the registrant as of, and for, the periods presented in this9426report;942794284. The registrant's other certifying officer and I are responsible for9429establishing and maintaining disclosure controls and procedures (as9430defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the9431registrant and have:94329433a) Designed such disclosure controls and procedures, or caused9434such disclosure controls and procedures to be designed under9435our supervision, to ensure that material information9436relating to the registrant, including its consolidated9437subsidiaries, is made known to us by others within those9438entities, particularly during the period in which this9439report is being prepared;94409441b) Evaluated the effectiveness of the registrant's disclosure9442controls and procedures and presented in this report our9443conclusions about the effectiveness of the disclosure9444controls and procedures, as of the end of the period covered9445by this report based on such evaluation; and94469447c) Disclosed in this report any change in the registrant's9448internal controls over financial reporting that occurred9449during the registrant's most recent fiscal quarter (the9450registrant's fourth fiscal quarter in the case of an annual9451report) that has materially affected, or is reasonably9452likely to materially affect, the registrant's internal9453controls over financial reporting; and945494555. The registrant's other certifying officer and I have disclosed, based9456on our most recent evaluation of internal controls over financial9457reporting, to the registrant's auditors and the audit committee of the9458registrant's board of directors (or persons performing the equivalent9459functions):94609461a) All significant deficiencies and material weaknesses in the9462design or operation of internal controls over financial9463reporting which are reasonably likely to adversely affect9464the registrant's ability to record, process, summarize and9465report financial information; and94669467b) Any fraud, whether or not material, that involves management9468or other employees who have a significant role in the9469registrant's internal controls over financial reporting.94709471Date: March 12, 20049472--------------947394749475/s/ TERRY L. SHEPHERD9476- ------------------------------------9477Terry L. Shepherd9478Chairman and Chief Executive Officer9479948094819482</TEXT>9483</DOCUMENT>9484<DOCUMENT>9485<TYPE>EX-31.29486<SEQUENCE>109487<FILENAME>stjude041330_ex31-2.txt9488<TEXT>94899490EXHIBIT 31.294919492CERTIFICATION PURSUANT TO SECTION 3029493OF THE SARBANES-OXLEY ACT OF 200294949495I, John C. Heinmiller, certify that:949694971. I have reviewed this annual report on Form 10-K of St. Jude Medical,9498Inc.;949995002. Based on my knowledge, this report does not contain any untrue9501statement of a material fact or omit to state a material fact9502necessary to make the statements made, in light of the circumstances9503under which such statements were made, not misleading with respect to9504the period covered by this report;950595063. Based on my knowledge, the financial statements, and other financial9507information included in this report, fairly present in all material9508respects the financial condition, results of operations and cash flows9509of the registrant as of, and for, the periods presented in this9510report;951195124. The registrant's other certifying officer and I are responsible for9513establishing and maintaining disclosure controls and procedures (as9514defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the9515registrant and have:95169517a) Designed such disclosure controls and procedures, or caused9518such disclosure controls and procedures to be designed under9519our supervision, to ensure that material information9520relating to the registrant, including its consolidated9521subsidiaries, is made known to us by others within those9522entities, particularly during the period in which this9523report is being prepared;95249525b) Evaluated the effectiveness of the registrant's disclosure9526controls and procedures and presented in this report our9527conclusions about the effectiveness of the disclosure9528controls and procedures, as of the end of the period covered9529by this report based on such evaluation; and95309531c) Disclosed in this report any change in the registrant's9532internal controls over financial reporting that occurred9533during the registrant's most recent fiscal quarter (the9534registrant's fourth fiscal quarter in the case of an annual9535report) that has materially affected, or is reasonably9536likely to materially affect, the registrant's internal9537controls over financial reporting; and953895395. The registrant's other certifying officer and I have disclosed, based9540on our most recent evaluation of internal controls over financial9541reporting, to the registrant's auditors and the audit committee of the9542registrant's board of directors (or persons performing the equivalent9543functions):95449545a) All significant deficiencies and material weaknesses in the9546design or operation of internal controls over financial9547reporting which are reasonably likely to adversely affect9548the registrant's ability to record, process, summarize and9549report financial information; and95509551b) Any fraud, whether or not material, that involves management9552or other employees who have a significant role in the9553registrant's internal controls over financial reporting.95549555Date: March 12, 20049556--------------955795589559/s/ JOHN C. HEINMILLER9560- ------------------------------------9561John C. Heinmiller9562Chief Financial Officer956395649565</TEXT>9566</DOCUMENT>9567<DOCUMENT>9568<TYPE>EX-32.19569<SEQUENCE>119570<FILENAME>stjude041330_ex32-1.txt9571<TEXT>95729573EXHIBIT 32.195749575CERTIFICATION PURSUANT TO9576SECTION 906 OF THE SARBANES-OXLEY ACT OF 200295779578In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")9579on Form 10-K for the period ended December 31, 2003 as filed with the Securities9580and Exchange Commission on the date hereof (the "Report"), I, Terry L. Shepherd,9581Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350,9582as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:958395841. The Report fully complies with the requirements of Section 13(a) or958515(d) of the Securities Exchange Act of 1934; and958695872. The information contained in the Report fairly presents, in all9588material respects, the financial condition and results of operations9589of the Company.959095919592/s/ TERRY L. SHEPHERD9593------------------------------------9594Terry L. Shepherd9595Chairman and Chief Executive Officer9596March 12, 20049597959895999600</TEXT>9601</DOCUMENT>9602<DOCUMENT>9603<TYPE>EX-32.29604<SEQUENCE>129605<FILENAME>stjude041330_ex32-2.txt9606<TEXT>96079608EXHIBIT 32.296099610CERTIFICATION PURSUANT TO9611SECTION 906 OF THE SARBANES-OXLEY ACT OF 200296129613In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")9614on Form 10-K for the period ended December 31, 2003 as filed with the Securities9615and Exchange Commission on the date hereof (the "Report"), I, John C.9616Heinmiller, Chief Financial Officer of the Company, certify, pursuant to 189617U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of96182002, that:961996201. The Report fully complies with the requirements of Section 13(a) or962115(d) of the Securities Exchange Act of 1934; and962296232. The information contained in the Report fairly presents, in all9624material respects, the financial condition and results of operations9625of the Company.9626962796289629/s/ JOHN C. HEINMILLER9630-------------------------------------9631John C. Heinmiller9632Vice President - Finance and9633Chief Financial Officer9634March 12, 20049635963696379638</TEXT>9639</DOCUMENT>9640</SEC-DOCUMENT>9641-----END PRIVACY-ENHANCED MESSAGE-----964296439644