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Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<SEC-DOCUMENT>0000897101-01-500059.txt : 20010330
<SEC-HEADER>0000897101-01-500059.hdr.sgml : 20010330
ACCESSION NUMBER: 0000897101-01-500059
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ST JUDE MEDICAL INC
CENTRAL INDEX KEY: 0000203077
STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
IRS NUMBER: 411276891
STATE OF INCORPORATION: MN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-12441
FILM NUMBER: 1583808
BUSINESS ADDRESS:
STREET 1: ONE LILLEHEI PLAZA
CITY: ST PAUL
STATE: MN
ZIP: 55117
BUSINESS PHONE: 6514832000
MAIL ADDRESS:
STREET 1: ONE LILLEHEI PLAZA
CITY: ST PAUL
STATE: MN
ZIP: 55117
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>stjude010431_10-k.txt
<DESCRIPTION>ST. JUDE MEDICAL FORM 10-K
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 0-8672
------------------------------
ST. JUDE MEDICAL, INC.
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1276891
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE LILLEHEI PLAZA
ST. PAUL, MINNESOTA 55117
(Address of principal executive offices)
(651) 483-2000
(Registrant's telephone number, including area code)
------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK ($.10 PAR VALUE) PREFERRED STOCK PURCHASE RIGHTS
(Title of class) (Title of class)
NEW YORK STOCK EXCHANGE AND CHICAGO BOARD OPTIONS EXCHANGE
(Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months; and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $5.1 billion at February 21, 2001, when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $60.00 per share.
The Registrant had 85,640,177 shares of its $0.10 par value Common
Stock outstanding as of February 21, 2001.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 2000, are incorporated by reference in Parts I, II and
IV. Portions of the Company's definitive Proxy Statement dated March 28, 2001,
are incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
GENERAL
St. Jude Medical, Inc., together with its subsidiaries (collectively
"St. Jude" or the "Company") is a global leader in the development,
manufacturing and distribution of medical technology products for the cardiac
rhythm management, cardiology and vascular access, and cardiac surgery markets.
St. Jude has two reportable segments: Cardiac Rhythm Management (CRM)
and Cardiac Surgery (CS - formerly known as Heart Valve Disease Management). The
CRM segment, which includes the results from the Company's Cardiac Rhythm
Management Division and Daig Division, develops, manufactures and distributes
bradycardia pulse generator and tachycardia implantable cardioverter
defibrillator (ICD) systems, electrophysiology and interventional cardiology
catheters, and vascular closure devices. The CS segment develops, manufactures
and distributes mechanical and tissue heart valves and valve repair products,
and suture-free devices to facilitate coronary artery bypass graft anastomoses.
Effective September 27, 1999, St. Jude acquired Vascular Science, Inc.
("VSI"), a development-stage company focused on the development of suture-free
devices to facilitate coronary artery bypass graft anastomoses.
Effective March 16, 1999, St. Jude purchased the Angio-Seal(TM)
business of Tyco International Ltd. Angio-Seal(TM) manufactured and marketed
hemostatic puncture closure devices.
During 2000 and 1999, the Company acquired various businesses used in
the distribution of the Company's products.
The Company markets its products primarily in the United States,
Western Europe and Japan through both a direct employee-based sales organization
and independent distributors. In addition, St. Jude maintains geographically
based sales and marketing organizations that are responsible for marketing,
sales and distribution of the Company's products in Eastern Europe, Africa, the
Middle East, Canada, Latin America and the Asia-Pacific region.
Typically, the Company's net sales are somewhat higher in the first and
second quarters and lower in the third and fourth quarters. Lower net sales in
the third quarter result from patient tendency to defer, if possible, cardiac
procedures during the summer months and from the seasonality of the U.S. and
Western European markets where summer vacation schedules normally result in
fewer surgical procedures. Lower net sales in the fourth quarter result from
fewer selling days in the quarter because of holidays in the U.S. and other
markets, and patient tendency to defer, if possible, cardiac procedures during
these holiday seasons. Independent distributors randomly place large orders that
can distort the net
2
<PAGE>
sales pattern just described. In addition, new product introductions,
acquisitions, and regulatory approvals can modify the typical net sales pattern.
In 2000, approximately 78% of net sales were derived from cardiac
rhythm management segment products, and approximately 22% from cardiac surgery
segment products. Approximately 63% of the Company's 2000 net sales were in the
U.S. market, as compared with 62% in 1999. Additional segment information is set
forth in the Company's 2000 Annual Report to Shareholders on pages 21 and 22 of
the Financial Report and is incorporated herein by reference.
CARDIAC RHYTHM MANAGEMENT
The Cardiac Rhythm Management Division ("CRMD") is headquartered in
Sylmar, California and has manufacturing facilities in California, Arizona,
South Carolina and Sweden. The Daig Division ("Daig") is headquartered in
Minnesota and has manufacturing facilities in Minnesota and Puerto Rico.
CRMD pacemakers and related systems treat patients with hearts that
beat inappropriately slow, a condition known as bradycardia. ICDs and related
systems treat patients with hearts that beat inappropriately fast, a condition
known as tachycardia. Daig's specialized disposable cardiovascular catheters and
related devices are used in the electrophysiology portion of the cardiac rhythm
management market and the cardiology and vascular access market.
Typically implanted pectorally, just below the collarbone, pacemakers
monitor the heart's rate and, when necessary, deliver low-level electrical
impulses that stimulate an appropriate heartbeat. The pacemaker is connected to
the heart by one or two leads that carry the electrical impulses to the heart
and information from the heart back to the pacemaker. An external programmer
enables the physician to retrieve diagnostic information from the pacemaker and
reprogram the pacemaker in accordance with the patient's changing needs.
Single-chamber pacemakers stimulate only one chamber of the heart (atrium or
ventricle), while dual-chamber devices can sense and pace in both the upper and
lower chambers.
CRMD's current pacing products include the advanced featured
Integrity(TM) AFx Micro and the Integrity(TM) AFx models, FDA approved in
December 2000 and May 2000, respectively. The Integrity(TM) models build on the
successful platform of the Affinity(R) product line with the beat-by-beat
AutoCapture(TM) pacing system. Also available are the January 1999 FDA approved
Affinity(R), and the August 1999 FDA approved Entity(TM) family of pacemakers,
containing the proven Omnisense(TM) activity-based sensor, and the Tempo(R)
pacemaker family, which uses fifth-generation Minute Ventilation sensor
technology. These pacemaker families are highly automatic and contain many
advanced features and diagnostic capabilities to optimize cardiac therapy. All
are small and physiologic in shape to enhance patient comfort.
Outside the United States, CRMD also offers the Integrity(TM) AFx
Micro, the world's smallest dual-chamber pacemaker, with an Atrial Suppression
algorithm called DAO (Dynamic Atrial Overdrive(TM)). DAO is a therapy designed
to suppress atrial fibrillation, a common heart arrhythmia, and is currently
under clinical investigation in the United States. The single-chamber
pacemakers, the Microny(R) SR+ and the Regency(R) pacemaker families, are also
available outside the United States; while the Microny(R) II SR+ is awaiting FDA
approval in the United States.
The Integrity(TM), Affinity(R), Entity(TM) and Regency(R) families of
pacemakers, as well as the Microny(R) SR+, all offer the unique feature of the
beat-by-beat AutoCapture(TM) pacing system. The AutoCapture(TM) pacing system
enables the pacemaker to monitor every paced beat to verify that the heart has
been stimulated ("capture"), deliver a back-up pulse in the event of noncapture,
continuously measure threshold, and make adjustments in energy output to match
changing patient needs.
3
<PAGE>
CRMD's current pacing leads include the active-fixation Tendril(R) DX
and SDX families and the passive-fixation Passive Plus(R) DX family which are
available worldwide, and the passive-fixation Membrane(TM) EX family which is
currently available outside the United States. All three lead families feature
steroid elution, which helps suppress the body's inflammatory response to a
foreign object.
CRMD's ICDs monitor the heartbeat and deliver higher energy electrical
impulses, or "shocks," to terminate ventricular tachycardia (VT) and ventricular
fibrillation (VF). In ventricular tachycardia, the lower chambers of the heart
contract at an abnormally rapid rate and typically deliver less blood to the
body's tissues and organs. VT can progress to VF, in which the heart beats so
rapidly and erratically that it can no longer pump blood. Like pacemakers, ICDs
are typically implanted pectorally, connected to the heart by leads, and
programmed non-invasively.
St. Jude received FDA approval on its first dual-chamber ICD, the
Photon(R) DR, in October 2000. The Photon(R) DR is a dual chamber ICD, offering
the features of Morphology Discrimination (MD) and AV Rate Branch designed to
enhance the precision of ventricular-based arrhythmia detection. The full CRMD
ICD product offering includes the Photon(R), Profile(TM) MD, and Contour(R) MD.
The Company's ICDs are used with the dual electrode and single
electrode TVL and TVL-ADX (active-fix) transvenous leads. The Photon(TM) DR ICD
is programmable with the APS III universal programmer. The Contour(R) MD and
Profile(TM) ICDs are currently programmable with the PR-3500 and PR-1500
programmers, and will be programmable by the APS III by mid-2001.
The CRMD APS(R) III universal pacemaker and ICD programmer is an
intuitive, easy-to-use programmer that supports St. Jude's ICDs and pacemakers,
including the recently FDA approved Photon(R) DR dual-chamber ICD and the
Integrity(TM) pacemaker family. Older pacemaker and ICD products continue to be
supported by the APS(R) II and the PR-3500 and PR-1500 patient management
systems. All CRMD programmers allow the physician to efficiently utilize the
extensive diagnostic and therapeutic capabilities of CRMD's pacemakers and ICDs.
Specialized disposable cardiovascular devices, sold by Daig, include
percutaneous (through the skin) catheter introducers, diagnostic guidewires,
vascular sealing devices, angiography catheters, electrophysiology (EP)
catheters and bipolar temporary pacing catheters (used with external
pacemakers). Percutaneous catheter introducers are used to create passageways
for cardiovascular catheters from outside the human body through the skin into a
vein, artery or other location inside the body. Daig's percutaneous catheter
introducer products consist primarily of peel-away and non peel-away sheaths,
sheaths with and without hemostasis valves, dilators, guidewires, repositioning
sleeves, obturators and needles. All of these products are offered in a variety
of sizes and packaging configurations. Diagnostic guidewires are used in
conjunction with percutaneous catheter introducers to aid in the introduction of
intravascular catheters. Daig's diagnostic guidewires are available in multiple
lengths and incorporate a surface finish for lasting lubricity. Vascular sealing
devices are used to close femoral artery puncture wounds following angioplasty,
stenting and diagnostic procedures.
Angiography catheters are used in coronary angiography procedures to
obtain images of coronary arteries to identify structural cardiac diseases. EP
catheters are placed into the human body percutaneously to aid in the diagnosis
and treatment of cardiac arrhythmias (abnormal heart rhythms). Between two and
five EP catheters are generally used in each electrophysiology procedure. Daig's
EP catheters are available in multiple configurations. Bipolar temporary pacing
catheters are inserted percutaneously for temporary use (less than one hour to a
maximum of one week) with external pacemakers to provide patient stabilization
prior to implantation of a permanent pacemaker, following a heart attack, or
during surgical procedures. Daig produces and markets several designs of bipolar
temporary pacing catheters.
4
<PAGE>
CARDIAC SURGERY
The Cardiac Surgery Division (CSD) is headquartered in St. Paul,
Minnesota and has manufacturing facilities in Minnesota, Puerto Rico, Canada and
Brazil. CSD is comprised of its Heart Value Group (HVG) and its Anastomotic
Technology Group (ATG). Heart valve replacement or repair may be necessary
because the natural heart valve has deteriorated due to congenital defects or
disease. Heart valves facilitate the one-way flow of blood in the heart and
prevent significant backflow of blood into the heart and between the heart's
chambers.
HVG offers both mechanical and tissue replacement heart valves and
valve repair products. The St. Jude Medical(R) mechanical heart valve has been
implanted in over one million patients to date. The SJM Regent(TM) mechanical
heart valve was approved for sale in Europe in December 1999 and is currently in
a clinical trial in the United States. The Company markets the Toronto SPV(R)
stentless tissue valve, a stentless tissue valve and the SJM(R) Biocor(TM)
tissue valve. The Company received FDA approval for the U.S. market release of
the Toronto SPV(R) in November 1997 at which time the product was launched and
physician training commenced. The SJM Epic(TM) tissue heart valve received
European regulatory approval in late 1998 and was launched in Europe in 1999. On
January 21, 2000 the Company discontinued sales of CSD products, including heart
valves, with Silzone(R) cuffs due to a higher incidence of perivalvular leak
associated with this product in a clinical study. The Company also recalled
unimplanted inventory of this product.
Annuloplasty rings are prosthetic devices used to repair diseased or
damaged mitral heart valves. The Company has executed a license agreement with
Professor Jacques Seguin to manufacture and market an advanced semi-rigid
annuloplasty ring, known as the SJM(R) Seguin annuloplasty ring. HVG also
markets the SJM Tailor(TM) annuloplasty ring.
HVG has also entered into an agreement with LifeNet Transplant
Services, which enables it to assist in the marketing of human donated allograft
heart valves.
ATG has developed a suture-free device to facilitate coronary artery
bypass graft proximal anastomoses and commenced marketing of this product in
Western Europe in 2000. This product has been submitted to the FDA for approval,
which is expected in 2001. ATG is also developing a distal anastomoses
suture-free device and next generation proximal devices.
SUPPLIERS
The Company purchases raw materials and other items from numerous
suppliers for use in its products. For certain materials that the Company
believes are critical and may be difficult to obtain from an alternative
supplier, the Company maintains sizable inventories of up to three years of its
projected requirements for certain materials, some of which are available only
from a single supplier. The Company has been advised from time to time that
certain of these suppliers may terminate sales of products to customers that
manufacture implantable medical devices in an effort to reduce their potential
products liability exposure. Some of these suppliers have modified their
positions and have indicated a willingness to either temporarily continue to
provide product until such time as an alternative vendor or product can be
qualified or to reconsider the supply relationship. While the Company believes
that alternative sources of raw materials are available and that there is
sufficient lead time in which to qualify such other sources, any supply
interruption could have a material adverse effect on the Company's ability to
manufacture its products.
5
<PAGE>
COMPETITION
Within the medical technology industry, competitors range from small
start-up companies to companies with significant resources. The Company's
customers consider many factors when choosing supplier partners including
product reliability, clinical outcomes, product availability, inventory
consignment, price and product services provided by the manufacturer. Market
share can shift as a result of technological innovation, product recalls and
product safety alerts, as well as other business factors. This emphasizes the
need to provide the highest quality products and services. St. Jude expects the
competition to continue to increase by using tactics such as consigned
inventory, bundled product sales and reduced pricing.
CRMD has traditionally been a technological leader in the bradycardia
pacemaker market. The Company has strong bradycardia market share positions in
all major developed markets. There are three principal manufacturers and
suppliers of ICDs, one of which is the Company. ICD therapy is a highly
competitive market. The Company's other two competitors account for more than
80% of the worldwide ICD sales. These two competitors are larger than the
Company and have invested substantial amounts in ICD research and development.
The market areas Daig focuses on are the cardiac catheterization laboratories
and the electrophysiology laboratories throughout the world. These are growing
markets with numerous competitors.
The Company is the world's leading manufacturer and supplier of
mechanical heart valves. There are two other principal and several other smaller
mechanical heart valve manufacturers. The Company also competes against two
principal and a large number of other smaller tissue heart valve manufacturers.
The medical technology market is a dynamic market currently undergoing
significant change due to cost of care considerations, regulatory reform,
industry consolidation and customer consolidation. The ability to provide cost
effective clinical outcomes is becoming increasingly more important for medical
technology manufacturers.
MARKETING
The Company's products are sold in over 100 countries throughout the
world. No distributor organization or single customer accounted for more than
10% of 2000, 1999 or 1998 consolidated net sales.
In the United States, St. Jude sells directly to hospitals through a
combination of independent distributors and an employee based sales
organization. In Western Europe, the Company has employee based sales
organizations selling in 14 countries. Throughout the rest of the world the
Company uses a combination of independent distributor and direct sales
organizations.
Group purchasing organizations (GPOs) in the U.S. continue to
consolidate the purchasing for some of the Company's customers. A few GPOs have
executed contracts with the Company's CRM market competitors, which exclude the
Company. These contracts, if enforced, may adversely affect the Company's sales
of CRM products to members of these GPOs.
Payment terms worldwide are consistent with local practice. Orders are
shipped as they are received and, therefore, no material backlog exists.
6
<PAGE>
RESEARCH AND DEVELOPMENT
The Company is focused on the development of new products and
improvements to existing products. In addition, research and development expense
reflects the Company's efforts to obtain FDA approval of certain new products
and processes, and to maintain the highest quality standards of existing
products. The Company's research and development expenses, exclusive of
purchased in-process research and development, were $137,814,000 (11.7% of net
sales), $125,059,000 (11.2% of net sales) and $99,756,000 (9.8% of net sales) in
2000, 1999 and 1998, respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in most instances, by state and foreign
governmental authorities or their designated representatives. Under the U.S.
Federal Food, Drug and Cosmetic Act (the "Act"), and regulations thereunder,
manufacturers of medical devices must comply with certain policies and
procedures that regulate the composition, labeling, testing, manufacturing,
packaging and distribution of medical devices. Medical devices are subject to
different levels of government approval requirements, the most comprehensive of
which requires the completion of an FDA approved clinical evaluation program and
submission and approval of a pre-market approval ("PMA") application before a
device may be commercially marketed. The Company's mechanical and tissue heart
valves, ICDs, certain pacemakers and leads and certain electrophysiology
catheter applications are subject to this level of approval or as a supplement
to a PMA approval. Other pacemakers and leads, annuloplasty ring products and
other electrophysiology and interventional cardiology products are currently
marketed under the 510(k) pre-market notification procedure of the Act.
In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized and it
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. The FDA also conducts inspections
prior to approval of a PMA to determine compliance with the quality system
regulations which covers manufacturing and design and may, at any time after
approval of a PMA or granting of a 510(K), conduct periodic inspections to
determine compliance with both good manufacturing practice regulations and/or
current medical device reporting regulations. If the FDA were to conclude that
St. Jude was not in compliance with applicable laws or regulations, it could
institute proceedings to detain or seize products, issue a recall, impose
operating restrictions, assess civil penalties and recommend criminal
prosecution to the Department of Justice. Furthermore, the FDA could proceed to
ban, or request recall, repair, replacement or refund of the cost of, any device
manufactured or distributed.
The FDA also regulates record keeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA authorized devices. Aggressive regulatory action may
be taken due to adverse experience reports.
Diagnostic-related groups ("DRG") reimbursement schedules regulate the
amount the United States government, through the Health Care Financing
Administration ("HCFA"), will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. In response to rising Medicare and Medicaid
costs, several legislative proposals have been advanced which would restrict
future funding increases for these programs. Changes in current DRG
reimbursement levels could have an adverse effect on its domestic pricing
flexibility.
7
<PAGE>
St. Jude's business outside the United States is subject to medical
device laws in individual foreign countries. These laws range from extensive
device approval requirements in some countries for all or some of the Company's
products, to requests for data or certifications in other countries. Generally,
regulatory requirements are increasing in these countries. In the European
Economic Community ("EEC"), the regulatory systems have been harmonized and
approval to market in EEC countries (the CE Mark) can be obtained through one
agency. In addition, government funding of medical procedures is limited and in
certain instances is being reduced.
A number of medical device regulatory agencies have begun considering
whether to continue to permit the sale of medical devices that incorporate any
bovine material because of concerns about Bovine Spongiform Encephalopathy
(BSE), sometimes referred to as "mad cow disease." It is believed that in some
instances this disease has been transmitted to humans through the consumption of
beef. There have been no reported cases of BSE in the U.S. Some of the Company's
products use bovine collagen (Angio-Seal(TM) and vascular grafts) which is
derived from the bovine component scientifically rated as least likely to
transmit the disease. Some of the Company's tissue heart valves incorporate a
strip of bovine pericardial material. The Company is cooperating with these
regulatory agencies.
In 1994 the predecessor organization to Pacesetter, Inc. ("Pacesetter"
- - a wholly owned subsidiary of St. Jude) entered a consent decree which settled
a lawsuit brought by the United States in U.S. District Court for the District
of New Jersey. The consent decree which remains in effect indefinitely requires
that Pacesetter comply with the FDA's good manufacturing practice regulations
and identifies several specific provisions of those regulations. The consent
decree provides for FDA inspections and that Pacesetter is obligated to pay
certain costs of the inspections.
In May 1995 Telectronics Pacing Systems, Inc. ("Telectronics" - now
part of Pacesetter) and its President entered into a consent decree with the
FDA. The consent decree, which remains in effect indefinitely, requires that
Telectronics comply with the FDA's good manufacturing practice regulations and
identifies several specific provisions of those regulations. The consent decree
provides for FDA inspections and that Telectronics is obligated to pay certain
costs of the inspections.
PATENTS AND LICENSES
The Company's policy is to protect its intellectual property rights
related to its medical devices. Where appropriate, St. Jude applies for United
States and foreign patents. In those instances where the Company has acquired
technology from third parties, it has sought to obtain rights of ownership to
the technology through the acquisition of underlying patents or licenses.
While the Company believes design, development, regulatory and
marketing aspects of the medical device business represent the principal
barriers to entry into such business, it also recognizes that its patents and
license rights may make it more difficult for its competitors to market products
similar to those produced by the Company. St. Jude can give no assurance that
any of its patent rights, whether issued, subject to license, or in process,
will not be circumvented or invalidated. Further, there are numerous existing
and pending patents on medical products and biomaterials. There can be no
assurance that the Company's existing or planned products do not or will not
infringe such rights or that others will not claim such infringement. No
assurance can be given that the Company will be able to prevent competitors from
challenging the Company's patents or entering markets currently served by the
Company.
INSURANCE
The medical technology industry has historically been subject to
significant products liability claims. Such claims could be asserted against the
Company in the future for events not known to
8
<PAGE>
management at this time. Management has adopted risk management practices,
including products liability insurance coverage, which management believes are
prudent.
California earthquake insurance is currently difficult to procure,
extremely costly, and restrictive in terms of coverage. The Company's earthquake
and related business interruption insurance for its CRMD operations located in
Sylmar and Sunnyvale, California provides for limited coverage above a
significant self-insured retention. There are several factors that preclude the
Company from determining the effect an earthquake may have on its business.
These factors include, but are not limited to, the severity and location of the
earthquake, the extent of any damage to the Company's manufacturing facilities,
the impact of such an earthquake on the Company's California workforce and the
infrastructure of the surrounding communities, and the extent, if any, of damage
to the Company's inventory and work in process. While the Company's exposure to
significant losses occasioned by a California earthquake would be partially
mitigated by its ability to manufacture certain of the CRMD products at its
Swedish manufacturing facility, any such losses could have a material adverse
effect on the Company, the duration of which cannot be reasonably predicted. The
Company has expanded the manufacturing capabilities at its Swedish facility and
has constructed a pacemaker component manufacturing facility in Arizona. In
addition, the Company has moved significant finished goods inventory to
locations outside California. These facilities and inventory transfers would
further mitigate the adverse impact of a California earthquake.
EMPLOYEES
As of December 31, 2000, the Company had 4,951 full-time employees. It
has never experienced a work stoppage as a result of labor disputes and none of
its employees are represented by a labor organization, with the exception of the
Company's Swedish employees and certain employees in France.
INTERNATIONAL OPERATIONS
The Company's foreign business is subject to such special risks as
exchange controls, currency devaluation, the imposition or increase of import or
export duties and surtaxes, and international credit or financial problems.
Currency exchange rate fluctuations vis-a-vis the U.S. dollar can affect
reported net earnings. The Company may hedge a portion of this exposure, from
time to time, to reduce the effect of foreign currency rate fluctuations on net
earnings. See the "Market Risk" section on pages 4 and 5 of "Management's
Discussion and Analysis of Results of Operations and Financial Condition",
incorporated herein by reference from the Company's 2000 Annual Report to
Shareholders. Operations outside the United States present complex tax and cash
management issues that necessitate sophisticated analysis and diligent
monitoring to meet the Company's financial objectives.
ITEM 2. PROPERTIES
St. Jude's principal executive offices are owned and are located in St.
Paul, Minnesota. Manufacturing facilities are located in California, Minnesota,
Arizona, South Carolina, Canada, Brazil, Puerto Rico and Sweden. The Company
owns approximately 62%, or 380,000 square feet, of the total manufacturing space
and the balance is leased.
The Company also maintains sales and administrative offices inside the
United States at 17 locations in 7 states and outside the United States at 34
locations in 23 countries. With the exception of one location, all of these
locations are leased.
9
<PAGE>
In management's opinion, all buildings, machinery and equipment are in
good condition, suitable for their purposes and are maintained on a basis
consistent with sound operations. Currently the Company is using substantially
all of its available space to develop, manufacture and market its products.
ITEM 3. LEGAL PROCEEDINGS
IRS MATTERS
During 2000, the Company and the Internal Revenue Service ("IRS")
settled the IRS Tax Court suit for the tax periods 1990-1991 and subsequent year
disputes for the tax periods 1992-1997. The issues raised by the IRS related
primarily to the Company's Puerto Rican operations. The settlement did not have
a material impact on the Company's consolidated financial statements.
SILZONE(R) LITIGATION
The Company has been sued by patients alleging defects in the Company's
mechanical heart valves with a Silzone(R) coating. The Company recalled products
with a Silzone(R) coating on January 21, 2000, and sent a Recall notice and
Advisory concerning the recall to physicians and others. Some of these cases are
seeking monitoring of patients implanted with Silzone(R)-coated valves who
allege no injury to date. Some of these cases are seeking class action status.
The Company intends to vigorously defend these cases.
GUIDANT LITIGATION
GUIDANT'S CLAIMS AGAINST SJM On November 26, 1996, Guidant Corporation
(a competitor of St. Jude Medical) ("Guidant") and related parties filed a
lawsuit against St. Jude Medical, Inc. ("St. Jude Medical"), Pacesetter, Inc.
("Pacesetter" - a wholly owned subsidiary of St. Jude Medical), Ventritex, Inc.
("Ventritex") and certain members of the Telectronics Group in State Superior
Court in Marion County, Indiana (the "Telectronics Action"). The lawsuit
alleges, among other things, that, pursuant to an agreement entered into in
1993, certain Guidant parties granted Ventritex intellectual property licenses
relating to cardiac stimulation devices, and that such licenses would terminate
upon the consummation of the merger of Ventritex into Pacesetter (the "Merger").
The lawsuit further alleges that, pursuant to an agreement entered into in 1994
(the "Telectronics Agreement"), certain Guidant parties granted the Telectronics
Group intellectual property licenses relating to cardiac stimulation devices.
The lawsuit seeks declaratory and injunctive relief, among other things, to
prevent and invalidate the transfer of the Telectronics Agreement to Pacesetter
in connection with Pacesetter's acquisition of Telectronics' assets (the
"Telectronics Acquisition") and the application of license rights granted under
the Telectronics Agreement to the manufacture and sale by Pacesetter of
Ventritex's products following the consummation of the Merger. The court
overseeing this case issued a stay of this matter in July 1998 so that the
issues could be addressed in an arbitration requested by the Telectronics Group
and Pacesetter.
Guidant and related parties also filed suit against St. Jude Medical,
Pacesetter and Ventritex on November 26, 1996, in the United States District
Court for the Southern District of Indiana. This second lawsuit seeks (i) a
declaratory judgment that Pacesetter's manufacture, use or sale of cardiac
stimulation devices of the type or similar to the type which Ventritex
manufactured and sold at the time the Guidant parties filed their complaint
would, upon consummation of the Merger, be unlicensed and constitute an
infringement of patent rights owned by certain Guidant parties, (ii) to enjoin
the manufacture, use or sale by St. Jude Medical, Pacesetter or Ventritex of
cardiac stimulation devices of the type which Ventritex manufactured at the time
the Guidant parties filed their complaint, and (iii) certain damages and costs.
This second lawsuit was stayed by the court in July 1998 given the order to
arbitrate, as discussed below.
10
<PAGE>
St. Jude Medical believes that the foregoing state and federal court
complaints contain a number of significant factual inaccuracies concerning the
Telectronics Acquisition and the terms and effects of the various intellectual
property license agreements referred to in such complaints. For these reasons
and others, St. Jude Medical believes that the allegations set forth in the
complaints are without merit. St. Jude Medical has vigorously defended its
interests in these cases and will continue to do so.
ORDER TO ARBITRATE As a result of the state and federal lawsuits
brought by Guidant and related parties, the Telectronics Group and Pacesetter
filed a lawsuit in the United States District Court for the District of
Minnesota seeking (i) a declaratory judgment that the Guidant parties' claims,
as reflected in the Telectronics Action, are subject to arbitration pursuant to
the arbitration provisions of the Telectronics Agreement, (ii) an order that the
defendants arbitrate their claims against the Telectronics Group and Pacesetter
in accordance with the arbitration provisions of the Telectronics Agreement,
(iii) to enjoin the defendants preliminarily and permanently from litigating
their dispute with the Telectronics Group and Pacesetter in any other forum, and
(iv) certain costs. After the Eighth Circuit Court of Appeals ruled on an appeal
in favor of the Telectronics Group and Pacesetter in May 1998, the United States
District Court for the District of Minnesota issued an order on July 8, 1998
directing the arbitration requested by the Telectronics Group and Pacesetter to
proceed.
STATUS OF ARBITRATION The arbitrator selected for the arbitration
initially ruled that Pacesetter and St. Jude Medical should not participate in
the arbitration proceeding which would determine whether the Telectronics
Agreement transferred to Pacesetter. Based on this ruling, the Telectronics
Group and the Guidant parties participated in the arbitration proceeding. This
proceeding occurred in late April 2000, and, on July 10, 2000, the arbitrator
issued a ruling that the attempted assignment and transfer of patent licenses in
the Telectronics Agreement by the Telectronics Group to Pacesetter was
ineffective. As a result of this decision, the Guidant parties filed papers with
the U.S. District Court for the Southern District of Indiana seeking to lift the
stay of the patent infringement court proceedings in that court which had been
entered in June 1998. The court granted Guidant's request to lift the stay and
the matter involving Guidant's patent infringement claims against St. Jude
Medical is scheduled for trial in June 2001.
BACKGROUND CONCERNING PATENTS INVOLVED IN GUIDANT'S CLAIMS In the
patent infringement case in federal court in Indiana, the Guidant parties
initially asserted claims against St. Jude Medical and Pacesetter involving four
separate patents. One of these patents (`678) expired May 3, 1998. The other
patents involved expire, according to their terms, on March 7, 2001 (`472
patent), February 25, 2003 (`191 patent), and December 22, 2003 (`288 patent),
respectively, although St. Jude Medical has claims in the court action which, if
upheld, would cause some of the patents to expire earlier, if they apply at all.
Although Guidant has requested injunctive relief and damages as part of the
federal court lawsuit in Indiana, the request for an injunction would be barred
for any expired patent. Guidant is seeking damages for the time period prior to
expiration of the patents.
MARKMAN RULINGS The federal district court in Indiana has issued
decisions as part of the court's Markman's process which interpret what the
claims in the patents mean. These decisions are available on the court's website
at HTTP://WWW.INSD.USCOURTS.GOV.
Although Guidant asserted patent infringement claims against St. Jude
Medical involving four patents when it initiated the litigation in 1996, the
number of patents involving the claims Guidant is asserting against St. Jude
Medical has changed over time. First, Guidant elected to withdraw its claims
against St. Jude Medical involving the `678 patent prior to the court issuing
its Markman decisions. After the Markman decisions, St. Jude Medical moved for
summary judgment asking the court to rule that the
11
<PAGE>
`191 patent is invalid. However, before the court issued a ruling on this
summary judgment motion, Guidant and St. Jude Medical entered into a stipulation
regarding the claims involving the `191 patent. Based on this stipulation, the
court entered an order ruling that claims 1-14 in the `191 patent are invalid.
In this order, the court also dismissed Guidant's claims against St. Jude
Medical involving the `191 patent with prejudice. The order also provided that
Guidant may make an immediate appeal of the `191 patent claim construction
issues, and on February 8, 2001, Guidant filed a notice of appeal concerning the
court's rulings on the `191 patent.
Thus, at the present time, Guidant's claims against St. Jude Medical
involving two patents (`288 and `472) remain in the case set for trial. St. Jude
Medical continues to believe that the patent infringement claims asserted by
Guidant in this litigation are without merit, and will continue to vigorously
defend its interest in this litigation.
OTHER LITIGATION AND PROCEEDINGS
The Company is unaware of any other pending legal proceedings which it
regards as likely to have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The information set forth under the captions "Dividends" and "Stock
Exchange Listings" on pages 6 and 24 of the Financial Report included in the
Company's 2000 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary
Financial Data" on page 23 of the Financial Report included in the Company's
2000 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition" on pages 1
through 6 of the Financial Report included in the Company's 2000 Annual Report
to Shareholders is incorporated herein by reference.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under the caption "Market Risk" on pages 4
and 5 of the Financial Report included in the Company's 2000 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors set forth on pages 7 through 22 of the Financial
Report included in the Company's 2000 Annual Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Earnings - Fiscal Years ended December 31,
2000, 1999 and 1998
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Shareholders' Equity - Fiscal Years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows - Fiscal Years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Board of Directors" in the
Company's definitive Proxy Statement dated March 28, 2001, is incorporated
herein by reference. Information on executive officers is as follows:
<TABLE>
<CAPTION>
Name Age Position*
- ---------------------- ----- --------------------------------------------------------
<S> <C> <C>
Terry L. Shepherd 48 Chief Executive Officer (1999)
Daniel J. Starks 46 President and Chief Operating Officer (2001)
David W. Adinolfi 45 President, Daig Division (2001)
Robert Cohen 43 Vice President, Business & Technology Development (1998)
Michael J. Coyle 38 President, Cardiac Rhythm Management Division (2001)
George J. Fazio 41 President, Health Care Services (1999)
Peter L. Gove 53 Vice President, Corporate Relations (1994)
Steven J. Healy 43 President, Cardiac Surgery Division (1999)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
John C. Heinmiller 46 Vice President, Finance and Chief Financial Officer (1998)
Jeri L. Jones 43 Vice President, Information Technology and Chief Information
Officer (2000)
Kevin T. O'Malley 49 Vice President and General Counsel (1994)
Frieda J. Valk 47 Vice President, Administration (1999)
</TABLE>
- -----------------------
*Dates in brackets indicate period during which the named executive officers
began serving in such capacity.
Executive officers serve at the pleasure of the Board of Directors.
Mr. Shepherd's business experience is set forth in the Company's
definitive Proxy Statement dated March 28, 2001 under the section "Board of
Directors." Such information is incorporated herein by reference.
Mr. Stark's business experience is set forth in the Company's
definitive Proxy Statement dated March 28, 2001 under the section "Board of
Directors." Such information is incorporated herein by reference.
Mr. Adinolfi joined St. Jude in 1994 as a result of the acquisition of
Pacesetter, Inc. In February 2001, he was appointed as President of the Daig
Division after having several management positions at the Company's Cardiac
Rhythm Management Division. Prior to joining Pacesetter in 1989 as Director of
Marketing, Mr. Adinolfi spent five years at Cordis and Telectronics in a variety
of marketing, sales and management positions.
Mr. Cohen joined the Company in 1998 as Vice President, Business &
Technology Development. Prior to joining the Company, he was employed by Sulzer
Medica. During his 16-year career in the medical device industry, Mr. Cohen has
been associated with Pfizer Inc. and GCI Medical, an investment firm focused on
the medical technology industry.
Mr. Coyle joined St. Jude in 1994 as Director, Business Development and
was appointed President of the Cardiac Rhythm Management Division in February
2001. Mr. Coyle previously served as the Chief Operating Officer of Daig since
1997. Prior to joining St. Jude, he spent nine years with Eli Lilly & Company in
a variety of technical and business management roles in both its Pharmaceutical
and Medical Device Divisions.
Mr. Fazio joined St. Jude in 1992 as a Heart Valve Division territory
sales representative. In 1999, he was appointed as the President, Health Care
Services. From 1997 to 1999, Mr. Fazio served as the General Manager of the
Company's Canadian affiliate.
Mr. Gove joined the Company in 1994 as Vice President, Corporate
Relations. Prior to joining the Company, Mr. Gove was Vice President, Marketing
and Communications of Control Data Systems, Inc., a computer services company,
from 1991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions
with Control Data Corporation. From 1970 to 1981, Mr. Gove held various
management positions with the State of Minnesota and the U.S. Government.
14
<PAGE>
Mr. Healy first joined the Company in 1983 as a Heart Valve Division
sales representative. In 1999 he was appointed as the President, Cardiac Surgery
Division (formerly known as the Heart Valve Division). From 1996 to 1999, Mr.
Healy was the Vice President of Sales and Marketing for the Heart Valve
Division. He served as the Heart Valve Division's Vice President of Marketing
from 1993 to 1996.
Mr. Heinmiller joined the Company in 1998 as Vice President of
Corporate Business Development. In September 1998 he was appointed Vice
President, Finance and Chief Financial Officer. Prior to joining the Company,
Mr. Heinmiller was president of F3 Corporation, a privately held asset
management company, and was vice president of finance and administration for
Daig Corporation. Mr. Heinmiller is also a former audit partner in the
Minneapolis office of Grant Thornton LLP, a national public accounting firm. Mr.
Heinmiller is a director of Lifecore Biomedical, Inc. and Arctic Cat, Inc.
Ms. Jones joined St. Jude in 1999 as Vice President, Information
Technology, and was appointed Vice President, Information Technology and Chief
Information Officer in 2000. Prior to joining the Company, Ms. Jones was Vice
President of Systems Development at U.S. Bancorp from 1993 to 1999. From 1990 to
1993, Ms. Jones was a Senior Manager in Information Technology Consulting with
Ernst & Young, LLP. From 1979 to 1990, she held several positions in Accounting
and then Information Technology with General Mills, Inc.
Mr. O'Malley joined the Company in 1994 as Vice President and General
Counsel. Prior to joining St. Jude, Mr. O'Malley was employed by Eli Lilly &
Company for 15 years in various positions, including his last position of
General Counsel of the Medical Device and Diagnostics Division.
Ms. Valk joined the Company in 1996 as Human Resources Director of St.
Jude Medical Europe. She was appointed as Vice President, Administration in
1999. Prior to joining the Company, Mrs. Valk was employed by Eli Lilly &
Company for sixteen years in various positions including pharmaceutical sales,
sales management, sales training and human resources.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Company's definitive Proxy Statement dated March 28, 2001, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information set forth under the caption "Share Ownership of
Management and Directors and Certain Beneficial Owners" in the Company's
definitive Proxy Statement dated March 28, 2001, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Governance of the
Company" and "Executive Compensation" in the Company's definitive Proxy
Statement dated March 28, 2001, is incorporated herein by reference.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors as set forth on pages 7 through 22
of the Financial Report included in the Company's 2000 Annual
Report to Shareholders (see Exhibit 13) are incorporated herein by
reference:
Consolidated Statements of Earnings - Fiscal Years ended December
31, 2000, 1999 and 1998
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Shareholders' Equity - Fiscal Years
ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows - Fiscal Years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II, Valuation and Qualifying Accounts, is filed as part
of this Form 10-K Annual Report (see Item 14(d)).
The report of the Company's Independent Auditors with respect to the
financial statement schedule is incorporated herein by reference from Exhibit 23
attached hereto.
All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable.
(3) EXHIBITS
EXHIBIT EXHIBIT INDEX
- ---------------- ------------------------------------------------------------
3.1 Articles of Incorporation as amended on September 5, 1996,
are incorporated by reference from Exhibit 3.2 of the
Company's Form 10-K filed on March 27, 1997.
16
<PAGE>
EXHIBIT EXHIBIT INDEX
- ---------------- ------------------------------------------------------------
3.2 Bylaws are incorporated by reference from Exhibit 3(ii) of
the Company's Form 10-Q filed on November 10, 1997.
4.1 Rights Agreement dated as of June 16, 1997, between the
Company and American Stock Transfer and Trust Company, as
Rights Agent including the Certificate of Designation,
Preferences and Rights of Series B Junior Preferred Stock is
incorporated by reference from Exhibit 4 of the Company's
Form 10-Q dated August 12, 1997.
4.2 Indenture dated as of August 21, 1996, between the Company
and State Street Bank and Trust Company, as Trustee is
incorporated by reference from Ventritex's Form S-3/A (no.
333-07651) filed on August 2, 1996.
10.1 Employment letter dated as of March 9, 1993, between the
Company and Ronald A. Matricaria is incorporated by
reference from Exhibit 10.1 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.2 Employment letter dated as of November 8, 1996, between the
Company to Ronald A. Matricaria is incorporated by reference
from Exhibit 10.2 of the Company's Form 10-K Annual Report
for the year ended December 31, 1998.*
10.3 Employment letter dated as of February 23, 1999, between the
Company and Ronald A. Matricaria is incorporated by
reference from Exhibit 10.13 of the Company's Form 10-K
Annual Report for the year ended December 31, 1998.*
10.4 Employment Agreement effective as of May 5, 1999 between the
Company and Terry L. Shepherd is incorporated by reference
from Exhibit 10.15 of the Company's Form 10-K Annual Report
for the year ended December 31, 1998.*
10.5 Form of Indemnification Agreement that the Company has
entered into with officers and directors. Such agreement
recites the provisions of Minnesota Statutes Section
302A.521 and the Company's Bylaw provisions (which are
substantially identical to the Statute) and is incorporated
by reference from Exhibit 10(d) of the Company's Form 10-K
Annual Report for the year ended December 31, 1986.*
17
<PAGE>
EXHIBIT EXHIBIT INDEX
- ---------------- ------------------------------------------------------------
10.6 Form of Employment Agreement that the Company has entered
into with officers relating to severance matters in
connection with a change in control is incorporated by
reference from Exhibit 10.4 of the Company's Form 10-K
Annual Report for the year ended December 31, 1998.*
10.7 The Management Incentive Compensation Plan is incorporated
by reference from Appendix A of the Company's definitive
Proxy Statement dated March 26, 1999.*
10.8 Management Savings Plan dated February 1, 1995, is
incorporated by reference from Exhibit 10.7 of the Company's
Form 10-K Annual Report for the year ended December 31,
1994.*
10.9 Retirement Plan for members of the Board of Directors as
amended on March 15, 1995, is incorporated by reference from
Exhibit 10.6 of the Company's Form 10-K Annual Report for
the year ended December 31, 1994.*
10.10 The St. Jude Medical, Inc. 1992 Employee Stock Purchase
Savings Plan is incorporated by reference from the Company's
Form S-8 Registration Statement dated June 10, 1992,
(Commission File No. 33-48502). *
10.11 The St. Jude Medical, Inc. 1991 Stock Plan is incorporated
by reference from the Company's Form S-8 Registration
Statement dated June 28, 1991 (Commission File No.
33-41459).*
10.12 The St. Jude Medical, Inc. 1994 Stock Option Plan is
incorporated by reference from the Company's Form S-8
Registration Statement dated July 1, 1994 (Commission File
No. 33-54435).*
10.13 The St. Jude Medical Inc. 1997 Stock Option Plan is
incorporated by reference from the Company's Form S-8
Registration Statement dated December 22, 1997 (Commission
File No. 333-42945).*
10.14 A Split Dollar Insurance Agreement as amended April 29, 1999
between St. Jude Medical, Inc. and Ronald A. and Lucille E.
Matricaria is incorporated by reference from Exhibit 10.14
of the Company's Form 10-K Annual Report for the year ended
December 31, 1999.*
18
<PAGE>
EXHIBIT EXHIBIT INDEX
- ---------------- ------------------------------------------------------------
10.15 The St. Jude Medical Inc. 2000 Stock Option Plan is
incorporated by reference from the Company's Form S-8
Registration Statement dated July 31, 2000 (Commission File
No. 333-42668).*
10.16 The St. Jude Medical, Inc. 2000 Employee Stock Purchase
Savings Plan is incorporated by reference from the Company's
Form S-8 Registration Statement dated July 31, 2000
(Commission File No. 333-42658).*
10.17 Amended and Restated Employment Agreement dated as of March
25, 2001, between the Company and Daniel J. Starks. * #
10.18 Form of Severance Agreement that the Company has entered
into with officers relating to severance matters in
connection with a change in control.* #
10.19 Amended and Restated Employment Agreement dated as of March
25, 2001, between the Company and Terry L. Shepherd. * #
13 Portions of the 2000 Annual Report to Shareholders are
incorporated by reference in this Annual Report on Form 10-K
#
21 Subsidiaries of the Company #
23 Consent of Independent Auditors #
- -----------------------------
* Management contract or compensatory plan or arrangement.
# Filed as an exhibit to this Annual Report on Form 10-K.
(B) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 2000
A Form 8-K was filed on December 1, 2000, and on December 22, 2000,
announcing certain rulings by the U.S. District Court in Indianapolis as part of
the court's Markman process, which further interprets certain ambiguous terms
used in the patents which are the subject of litigation between Guidant and St.
Jude Medical.
(C) EXHIBITS: Reference is made to Item 14(a)(3).
(D) SCHEDULES:
19
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------ ----------------- ----------------- ------------------ -----------------
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION YEAR EXPENSE DEDUCTIONS(1) YEAR
- ------------------------------ ----------------- ----------------- ------------------ -----------------
Allowance for doubtful accounts
<S> <C> <C> <C> <C>
Fiscal Year Ended:
December 31, 2000 $13,529 $6,913 $6,611 $13,831
December 31, 1999 12,352 5,421 4,244 13,529
December 31, 1998 12,712 14 374 12,352
- --------------------------------
(1) Uncollectible accounts written off, net of recoveries.
</TABLE>
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the undersigned Company
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Company's Registration Statements of Form S-8 Nos. 33-9262
(filed October 3, 1986), 33-41459 (filed June 28, 1991), 33-48502 (filed June
10, 1992), 33-54435 (filed July 1, 1994), 333-42945 (filed December 22, 1997),
333-42658 (filed July 31, 2000), and 333-42668 (filed July 31, 2000):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ST. JUDE MEDICAL, INC.
Date: March 26, 2001 By /s/ TERRY L. SHEPHERD
-----------------------
Terry L. Shepherd
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
By /s/ JOHN C. HEINMILLER
----------------------
John C. Heinmiller
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/s/ RONALD A. MATRICARIA Director March 26, 2001 /s/ DANIEL J. STARKS Director March 26, 2001
- --------------------------- -----------------------
Ronald A. Matricaria Daniel J. Starks
/s/ LOWELL C. ANDERSON Director March 26, 2001 /s/ TERRY L. SHEPHERD Director March 26, 2001
- --------------------------- -----------------------
Lowell C. Anderson Terry L. Shepherd
/s/ STUART M. ESSIG Director March 26, 2001 /s/ DAVID A. THOMPSON Director March 26, 2001
- --------------------------- -----------------------
Stuart M. Essig David A. Thompson
/s/ THOMAS H. GARRETT III
- --------------------------- Director March 26, 2001 _______________________ Director March 26, 2001
Thomas H. Garrett III Gail R. Wilensky
/s/ WALTER L. SEMBROWICH Director March 26, 2001
- ---------------------------
Walter L. Sembrowich
</TABLE>
21
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>2
<FILENAME>stjude010431_ex10-17.txt
<DESCRIPTION>AMENDED AND RESTATED EMPLOYMENT AGREEMENT
<TEXT>
EXHIBIT 10.17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made effective as of the 25TH day of March, 2001, by and between St. Jude
Medical, Inc., a Minnesota corporation with its principal place of business at
One Lillihei Plaza, Little Canada, Minnesota (the "Company"), and Daniel J.
Starks, an individual residing at 7880 County Road #26, Maple Plain, MN 55359
(the "Executive") and amends and restates the EMPLOYMENT AGREEMENT dated
February 1, 2001 between the Company and Executive.
RECITALS
--------
Prior to the original EMPLOYMENT AGREEMENT Executive was employed by
the Company in the capacity of President and CEO, CRM Division. The Company
desires to continue to employ the Executive, due to his certain unique skills,
talents, contacts, judgment and knowledge of the Company's business, strategies,
ethics and objectives and the Executive desires to be employed by the Company.
The parties, intending to be legally bound, agree as follows:
1. Term of Employment. The Term of this Agreement shall commence on the
effective date and, subject to the further provisions of this Agreement, shall
end on the 31st day of January, 2006.
2. Title; Capacity. The Executive shall serve as President and Chief
Operating Officer of the Company or in such other position as the Company's
Board of Directors (the "Board") and CEO may determine from time to time. The
Executive shall be subject to the supervision of, shall report directly to, and
shall have such authority as is delegated to him by, the CEO.
Executive's initial responsibilities, which shall be subject to
changes as determined from time to time by the CEO and the Board shall include
the operations of the Company. The following functions and units shall initially
report to Executive:
CRMD, Cardiac Surgery Division, Daig Division, International,
HealthCare Services, Legal, Human Resources and Information Systems.
The Executive accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Executive shall devote his entire business time, attention
and energies to the business and interests of the Company (and its affiliates as
required by the Company's investments and the Executive's positions therein)
during the Employment Period. The Executive shall abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted
1
<PAGE>
from time to time. The Executive acknowledges receipt of copies of all such
rules and policies committed to writing as of the date of this Agreement.
3. Compensation and Benefits.
a. Salary. The Company shall pay the Executive an annual base salary
of $500,000.00 for the one-year period commencing on the Commencement Date in
the same intervals as other exempt employers. Such salary shall be subject to
annual increases thereafter as determined by the Board, in its sole discretion.
b. Bonus. The Executive's target bonus under the MICP shall be 100%
of base salary (and shall be prorated for 2001).
c. Perk Package. The Executive shall be eligible for the Company's
executive perk package at the level of $26,000.
d. Fringe Benefits. The Executive shall be entitled to participate
in all bonus and benefit programs that the Company establishes and makes
available to its Executives, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
e. Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers and/or such
other supporting information in accordance with standard company policies.
In addition, the Company shall provide Executive with relocation
expenses under the Company's relocation policy for employees of Executive's
level.
f. Stock Options. Under separate agreement, the Executive is being
granted a non-qualified stock option to purchase 200,000 shares of stock,
vesting at the rate of 20% per year for five years and another non-qualified
stock option to purchase 200,000 shares which will vest based upon performance
criteria.
4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
a. Expiration of the Employment Period in accordance with Section 1;
b. At the election of the Company, for "Cause", immediately upon
written notice by the Company to the Executive. "Cause" for such termination
shall include, but not limited to, the following:
i. Dishonesty of the Executive with respect to the Company;
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<PAGE>
ii. Willful misfeasance or nonfeasance of duty intended to injure
or having the effect of injuring the reputation, business or business
relationships of the Company or its respective officers, directors or
Executives;
iii. Upon a charge by a governmental entity against the Executive
of any crime involving moral turpitude which is demonstrably and materially
injurious to the Company or upon the filing of any civil action involving a
charge of embezzlement, theft, fraud or other similar act which is demonstrably
and materially injurious to the Company;
iv. Willful or prolonged absence from work by the Executive
(other than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by the Executive to perform his duties and
responsibilities without the same being corrected upon ten (10) days prior
written notice; or
v. Breach by the Executive of any of the covenants contained in
this Agreement.
c. Immediately upon the death or disability of the Executive. As used
in this Agreement, the term "disability" shall mean the inability of the
Executive, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360 day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician to the Company.
d. At the election of the Company or the Executive, with or without
cause upon 90 days written notice by one party to the other.
5. Effect of Termination.
a. Termination Under Section 4.d. In the event the Executive's
employment is terminated at the election of the Company pursuant to Section
4(d), the Company shall immediately pay to the Executive an amount equal to two
times the Executive's then current salary and two times the Executive's then
current target bonus.
b. Termination for Death or Disability. If the Executive's employment
is terminated by death or because of disability pursuant to Section 4(c), the
Company shall pay to the estate of the Executive or to the Executive, as the
case may be, the compensation which would otherwise be payable to the Executive
up to the end of the month in which the termination of his employment because of
death or disability occurs.
c. Termination for Cause or Voluntary Resignation. In the event a
termination for cause pursuant to Section 4(b) or by the voluntary resignation
of Executive pursuant to Section 4(d), then no further compensation other than
that already accrued shall be due to Executive under this Agreement.
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<PAGE>
d. In the event Executive is entitled to, and actually receives the
full compensation he is entitled to, under the separate SEVERANCE AGREEMENT
dated the same date as this Agreement, then, notwithstanding the previous
subsections of Section 5, the Company shall have no additional obligation to
make a payment to Executive under Section 5 of this Agreement.
6. Notices. All notices required or permitted under this Agreement shall
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 9.
7. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
9. Other Agreements. This Agreement is intended to supplement and not
replace the following other agreements between the Executive and the Company:
Non-Disclosure and Non-Competition Agreement, Indemnification Agreement,
Severance Agreement (Change of Control), all previous stock option grants, 2001
MICP, and other employment benefits arising from Executive's prior employment
with the Company.
10. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Executive.
11. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Minnesota, without giving
effect to that State's conflict of laws provisions.
12. Choice of Venue. All actions or proceedings with respect to this
Agreement shall be instituted only in any state or federal court sitting in
Ramsey County, Minnesota, and by execution and delivery of this Agreement, the
parties irrevocably and unconditionally subject to the jurisdiction (both
subject matter and personal) of each such court and irrevocably and
unconditionally waive: (a) any objection that the parties might now or hereafter
have to the venue of any of such court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business, provided, however, that the
obligations of the Executive are personal and shall not be assigned by him.
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<PAGE>
14. Waiver. No delay or omission by the Company is exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any once occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15. Captions and Headings. The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope of substance of any section of this Agreement.
16. Severability. In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17. Counterparts. This Agreement may be executed in a number of couterparts
and all of such counterparts executed by the Company or the Executive, shall
constitute one and the same agreement, and it shall not be necessary for all
parties to execute the same counterpart hereof.
18. Facsimile Signatures. The parties hereby agree that, for purposes of
the execution of this Agreement, facsimile signatures shall constitute original
signatures.
19. Incorporation by Reference. The preamble and recitals to this Agreement
are hereby incorporated by reference and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
ST. JUDE MEDICAL, INC.,
A Minnesota Corporation
/s/ FRIEDA J. VALK
-------------------------------------
Name: Frieda J. Valk
Title: Vice President, Administration
Executive:
/s/ DANIEL J. STARKS
-------------------------------------
Name: Daniel J. Starks
Title: President/COO
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>3
<FILENAME>stjude010431_ex10-18.txt
<DESCRIPTION>SEVERANCE AGREEMENT
<TEXT>
9
EXHIBIT 10.18
SEVERANCE AGREEMENT
This agreement is made as of the 26th day of March, 2001, between St.
Jude Medical, Inc., a Minnesota corporation, with its principal offices at St.
Paul, Minnesota (the "Company") and ___________ ("Executive"), residing at
__________________________________.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial
arrangements that the Company will provide to Executive upon Executive's
separation from employment with the Company under any of the circumstances
described herein; and
WHEREAS, this Agreement is intended to replace and supersede the
existing Employment Agreement between the Company and Executive dated as of
____________ relating to payments to be made to Executive upon a change in
control of the Company (the "Prior Agreement"); and
WHEREAS, this Agreement is entered into by the Company in the belief
that it is in the best interests of the Company and its shareholders to provide
stable conditions of employment for Executive notwithstanding the possibility,
threat or occurrence of certain types of change in control, thereby enhancing
the Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Executive notwithstanding the possibility, threat or occurrence of
a bid to take over control of the Company, and to induce Executive to remain in
the employ of the Company, and for other good and valuable consideration, the
Company and Executive agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the
date hereof as first written above and shall continue through January 1, 2003;
provided that commencing on January 1, 2003 and each January 1st thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than December 31 of the preceding year, the Company shall have
given notice that it does not wish to extend this Agreement; and provided,
further, that notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 36 months beyond the term
provided herein if a Change in Control (as defined in Section 3(i) hereof) shall
have occurred during such term.
2. Termination of Employment.
(i) Prior to a Change in Control. Executive's rights upon termination
of employment prior to a Change in Control (as defined in Section 3(i) hereof)
shall be governed by the Company's standard employment termination policy
applicable to Executive in effect at the time of termination or, if applicable,
any written employment agreement between the Company and Executive other than
this Agreement in effect at the time of termination.
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(ii) After a Change in Control.
(a) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall not
terminate Executive from employment with the Company except as provided in this
Section 2(ii) or as a result of Executive's Disability (as defined in Section
3(iv) hereof), Retirement (as defined in Section 3(v) hereof) or death.
(b) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall have
the right to terminate Executive from employment with the Company at any time
during the term of this Agreement for Cause (as defined in Section 3(iii)
hereof), by written notice to Executive, specifying the particulars of the
conduct of Executive forming the basis for such termination.
(c) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement: (x) the Company shall
have the right to terminate Executive's employment without Cause (as defined in
Section 3(iii) hereof), at any time; and (y) Executive shall, upon the
occurrence of such a termination by the Company without Cause, or upon the
voluntary termination of Executive's employment by Executive for Good Reason (as
defined in Section 3(ii) hereof), be entitled to receive the benefits provided
in Section 4 hereof. Executive shall evidence a voluntary termination for Good
Reason by written notice to the Company given within 60 days after the date of
the occurrence of any event that Executive knows or should reasonably have known
constitutes Good Reason for voluntary termination. Such notice need only
identify Executive and set forth in reasonable detail the facts and
circumstances claimed by Executive to constitute Good Reason. Any notice give by
Executive pursuant to this Section 2 shall be effective five business days after
the date it is given by Executive.
3. Definitions.
(i) A "Change in Control" shall mean:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or successor
provision thereto, whether or not the Company is then subject to such reporting
requirement;
(b) any "person" (as such term is used in Sections 13(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 35% or more of the combined voting power of the
Company's then outstanding securities;
(c) the Continuing Directors (as defined in Section 3(vi) hereof)
cease to constitute a majority of the Company's Board of Directors; provided
that such change is the direct or indirect result of a proxy fight and contested
election or elections for positions on the Board of Directors; or
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<PAGE>
(d) the majority of the Continuing Directors (as defined in
Section 3(vi) hereof), excluding any Continuing Director who has this Severance
Agreement, determine in their sole and absolute discretion that there has been a
change in control of the Company.
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an even in connection with the
termination or reassignment of Executive's employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof), for Retirement (as defined in Section 3(v) hereof) or for death:
(a) the assignment to Executive of any duties inconsistent with
Executive's status or position with the Company, or a substantial alteration in
the nature or status of Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(b) a reduction by the Company in Executive's annual compensation
in effect immediately prior to the Change in Control;
(c) the Company's requiring Executive to be based anywhere other
than within 50 miles of Executive's office location immediately prior to a
Change in Control except for required travel on the Company's business to an
extent substantially consistent with Executive's business travel obligations
immediately prior to the Change in Control;
(d) the failure by the Company to continue to provide Executive
with benefits at least as favorable to those enjoyed by Executive under any of
the Company's pension, life insurance, medical, health and accident, disability,
deferred compensation, incentive, stock, stock purchase, stock option, savings,
Perk Package or other plans or programs in which Executive Company which would
directly or indirectly materially reduce any of such benefits or deprive
Executive of any material fringe benefit enjoyed immediately prior to the Change
in Control, or the failure by the Company to provide Executive with the number
of paid vacation days to which Executive is entitle immediately prior to the
Change in Control; or
(e) the failure of the Company to obtain, as specified in Section
6(i) hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.
Notwithstanding anything herein to the contrary, if the Change in
Control arises from a transaction or series of transactions which are not
authorized, recommended or approved by formal action taken by the Continuing
Directors (as defined in Section 3(vi) hereof), Executive may voluntarily
terminate his or her employment for any reason on the 180th day following the
Change in Control, and such termination shall be deemed "Good Reason" for all
purposes of this agreement.
(iii) "Cause" shall mean termination by the Company of Executive's
employment based upon the conviction of Executive by a court of competent
jurisdiction for felony criminal conduct.
(iv) "Disability" shall mean that, as a result of incapacity due to
physical or mental illness, Executive shall have been absent from the full-time
performance of Executive's duties
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<PAGE>
with the Company for six consecutive months, and within 30 days after written
notice of termination is given, Executive shall not have returned to the
full-time performance of Executive's duties. Any question as to the existence of
Executive's Disability upon which Executive and the Company cannot agree shall
be determined by a qualified independent physician selected by Executive (or, if
Executive is unable to make such selection, it shall be made by any adult member
of Executive's immediately family), and approved by the Company. The
determination of such physician made in writing to the Company and to Executive
shall be final and conclusive for all purposes of this Agreement.
(v) "Retirement" shall mean termination on or after attaining normal
retirement age in accordance with the Company's Profit Sharing Executive Savings
Plan and Trust.
(vi) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, and who (a) was a member of the Board of Directors on the date of
this Agreement as first written above or (b) subsequently becomes a member of
the Board of Directors, if such person's nomination for election or initial
election to the Board of Directors is recommended or approved by a majority of
the Continuing Directors.
4. Benefits upon Termination under Section 2(ii)(c).
(i) Upon the termination (voluntary or involuntary) of the employment
of Executive pursuant to Section 2(ii)(c) hereof, Executive shall be entitled to
receive the benefits specified in this Section 4. The amounts due to Executive
under this Section 4(i) shall be paid to Executive in a lump sum not later than
one business day prior to the date that the termination of Executive's
employment becomes effective. Subject to the provisions of Section 4(ii) hereof,
all benefits to Executive pursuant to this Section 4(i) shall be subject to any
applicable payroll or other taxes required by law to be withheld.
(a) The Company shall pay Executive, through the date the
termination of Executive's employment became effective, Executive's base salary
as in effect at the time of the notice of termination is given and any other
form or type of compensation otherwise payable for such period. Executive shall
be entitled to receive all benefits payable to Executive under the Company's
Profit Sharing Executive Savings Plan or any successor of such Plan and any
other plan or agreement relating to retirement benefits which shall be in
addition to, and not reduced by, any other amounts payable to Executive under
this Section 4. Executive shall be entitled to exercise all rights and to
receive all benefits accruing to Executive under any and all Company stock
purchase plans, stock option plans and other stock plans or programs, or any
successor to any such plans or programs, which shall be in addition to, and not
reduced by, any other amounts payable to Executive under this Section 4.
(b) In lieu of any further salary payments for periods subsequent
to the date the termination of Executive's employment became effective, the
Company shall pay a severance payment in an amount equal to three times
Executive's Annual Compensation, as defined below. For purposes of this Section
4, "Annual Compensation" shall mean Executive's annual salary (regardless of
whether all or any portion of such salary has been contributed to a deferred
compensation plan), the annual amount of Executive's Perk Package, the target
bonus for which Executive is eligible upon attainment of 100% of the target
(regardless of whether
4
<PAGE>
such target bonus has been achieved or whether conditions of such target bonus
are actually fulfilled), and any other type or form of compensation paid to
Executive by the Company (or any entity affiliated with the Company
("Affiliate") within the meaning of Section 1504 of the Internal Revenue Code of
1986, as may be amended from time to time (the "Code")) and included in
Executive's gross income for federal tax purposes during the twelve month period
ending immediately prior to the date that the termination of Executive's
employment became effective but reduced by: (i) any amount actually paid to
Executive as a cash payment of the target bonus (regardless of whether all or
any portion of such target bonus was contributed to a deferred compensation
plan); (ii) compensation income recognized as a result of the exercise of stock
options or sale of the stock so acquired; and (iii) any payments actually or
constructively received from a plan or arrangement of deferred compensation
between the Company and Executive. All of the factors included in Annual
Compensation shall be those in effect on the date that the termination of
Executive's employment became effective and shall be calculated without giving
effect to any reduction in such compensation that would constitute a breach of
this Agreement.
(c) For a period of 36 months following the date that the
termination of Executive's employment became effective or until Executive
reaches age 65 or dies, whichever is the shorter period, the Company shall
arrange to provide for Executive, at the Company's expense, the health,
accident, disability and life insurance benefits substantially similar to those
in effect for Executive immediately prior to the date that the termination of
Executive's employment became effective.
(d) The Company shall pay to Executive (1) any amount earned by
Executive as a bonus with respect to the fiscal year of the Company preceding
the termination of Executive's employment if such bonus has not theretofore been
paid to Executive, and (2) an amount representing credit for any vacation earned
or accrued by Executive but not taken.
(e) The Company shall also pay to Executive all legal fees and
expenses incurred by Executive as a result of such termination of employment
(including all fees and expenses, if any, incurred by Executive in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided to Executive by this Agreement whether by arbitration or
otherwise); and
(f) Any and all contracts, agreements or arrangements between the
Company and Executive prohibiting or restricting Executive from owning,
operating, participating in, or providing employment or consulting services to,
any business or company competitive with the Company at any time or during any
period after the date the termination of Executive's employment becomes
effective, shall be deemed terminated and of no further force or effect as of
the date the termination of Executive's employment becomes effective, to the
extent, but only to the extent, such contracts, agreements or arrangements so
prohibit or restrict Executive; provided that the foregoing provision shall not
constitute a license or right to use any proprietary information of the Company
and shall in no way affect any such contracts, agreements or arrangements
insofar as they relate to nondisclosure and nonuse or proprietary information of
the Company notwithstanding the fact that such nondisclosure and nonuse may
prohibit or restrict Executive in certain competitive activities.
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<PAGE>
(ii) In the event that any payment or benefit received or to be
received by Executive in connection with a Change in Control of the Company or
termination of Executive's employment (whether payable pursuant to the terms of
this Agreement or any other plan, contract, agreement or arrangement with the
company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Code, with the Company or with any person
whose actions result in a Change in Control of the Company (collectively, the
"Total Payments")) would be subject to the excise tax imposed by Section 4999 of
the Code, or any successor provision thereto, or any interest, penalties or
additions to tax with respect to such excise tax (such excise tax, together with
any such interest, penalties or additions to tax, are collectively referred to
as the "Excise Tax"), then Executive shall be entitled to receive from the
Company an additional cash payment (a "Gross-Up Payment") within thirty business
days of such determination in an amount such that after payment by Executive of
all taxes (including any interest, penalties or additions to tax imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Total Payments. All determinations required to be made
under this Section 4(ii), including whether a Gross-Up Payment is required and
the amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of the Change in Control (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days of the date that the
termination of Executive's employment becomes effective, or such earlier time as
is requested by the Company. If the Accounting Firm determines that no Excise
Tax is payable by Executive, it shall furnish Executive with an opinion that
Executive has substantial authority not to report any Excise Tax on Executive's
federal income tax return.
Any uncertainly in the application of Section 4999 of the Code, or any
successor provision thereto, at the time of the initial determination by the
Accounting Firm hereunder shall be resolved in favor of Executive. As a result
of the uncertainty in the application of Section 4999 of the Code, or any
successor provision thereto, at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were less than the
Gross-Up Payments that should have been made by the Company ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that Executive is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment, if any, that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive. As a result of the uncertainty in the application of
Section 4999 of the Code, or any successor provision thereto, at the time of the
initial determination by the Accounting Firm hereunder, it is possible that at a
later time there will be a determination that the Gross-Up Payments made by the
Company were more than the Gross-Up Payments that should have been made by the
Company ("Overpayment"), consistent with the calculations required to be made
hereunder. Executive agrees to refund the Company the amount of any Overpayment
that the Accounting Firm shall determine has occurred hereunder. Any good faith
determination by the Accounting Firm as to the amount of any Gross-Up Payment,
including the amount of any Underpayment or Overpayment, shall be binding upon
the Company and Executive.
(iii) Any payment not made to Executive when due hereunder shall
thereafter, until paid in full, bear interest at the rate of interest equal to
the reference rate announced from time to
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<PAGE>
time by Wells Fargo Bank Minnesota, National Association, plus two percent, with
such interest to be paid to Executive upon demand or monthly in the absence of a
demand.
(iv) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise.
The amount of any payment or benefit provided in this section 4 shall not be
reduced by any compensation earned by Executive as a result of any employment by
another employer, by any retirement benefits or otherwise.
5. Executive's Agreements.
Executive agrees that:
(i) Without the consent of the Company, Executive will not terminate
employment with the Company without giving 30 days prior notice to the Company,
and during such 30-day period Executive will assist the Company, as and to the
extent reasonably requested by the Company, in training the successor to
Executive's position with the Company. The provisions of this Section 5(i) shall
not apply to any termination (voluntary or involuntary) of the employment of
Executive pursuant to Section 2(ii)(c) hereof.
(ii) In the even that Executive has received any benefits from the
Company under Section 4 of this Agreement, then, during the period of 36 months
following the date that the termination of Executive's employment became
effective, Executive, upon request by the Company:
(a) Will consult with one or more of the executive officers
concerning the business and affairs of the Company for not to exceed four hours
in any month at times and places selected by Executive as being convenient to
him, all without compensation other than what is provided for in Section 4 of
this Agreement; and
(b) Will testify as a witness on behalf of the Company in any
legal proceedings involving the Company which arise out of events or
circumstances that occurred or existed prior to the date that the termination of
Executive's employment became effective (except for any such proceedings
relating to this Agreement), without compensation other than what is provided
for in Section 4 of this Agreement, provided that all out-of-pocket expenses
incurred by Executive in connection with serving as a witness shall be paid by
the Company.
Executive shall not be required to perform Executive's obligations
under this Section 5(ii) if an so long as the Company is in default with respect
to performance of any of its obligations under this Agreement.
6. Successors and Binding Agreement.
(i) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company), by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a
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breach of this Agreement and shall entitle Executive to compensation from the
Company in the same amount and on the same terms as Executive would be entitled
hereunder if Executive terminated employment after a Change in Control for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date that the
termination of Executive's employment becomes effective. As used in this
Agreement, "Company" shall mean the Company and any successor to its business
and/or assets which executes and delivers the agreement provided for in this
Section 6(i) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement is personal to Executive, and Executive may not
assign or transfer any part of Executive's rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding the
foregoing, this Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees.
7. Modification; Waiver. No provisions of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by Executive and such officer as may be
specifically designated by the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver or similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demand, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of an intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days
prior notice to the other party hereto.
9. Severability. If any term or provision of this agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. Governing Law. This Agreement has been executed and delivered in
the State of Minnesota and shall, in all respects, be governed by, and construed
and enforced in accordance with, the laws of the State of Minnesota, including
all matters of construction, validity and performance.
8
<PAGE>
12. Effect of Agreement; Entire Agreement. The Company and Executive
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof (including,
without limitation, the Prior Agreement) and constitutes the entire agreement of
the parties relating to the subject mater hereof; provided that this Agreement
shall not supersede or limit in any way Executive's rights under any benefit
plan, program or arrangements in accordance with their terms (including, without
limitation, the provisions of the Company's policy HR-1.02.25 entitled
"Severance Pay," effective January 1, 1994, as amended from time to time, or any
successor to such policy).
13. ERISA. For purposes of the Executive Retirement Income Security Act
of 1974, this Agreement is intended to be a severance pay Executive welfare
benefit plan, and not an Executive pension benefit plan, and shall be construed
and administered with that intention.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its name by a duly authorized director and officer, and Executive
has hereunto set his or her hand, all as of the date first written above.
ST. JUDE MEDICAL, INC.
By
--------------------------------
Its
------------------------------
EXECUTIVE
----------------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>4
<FILENAME>stjude010431_ex10-19.txt
<DESCRIPTION>AMENDED AND RESTATED EMPLOYMENT AGREEMENT
<TEXT>
EXHIBIT 10.19
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made effective as of the 25th day of March, 2001, by and between St. Jude
Medical, Inc., a Minnesota corporation with its principal place of business at
Lillihei Plaza, Little Canada, Minnesota (the "Company"), and Terry L. Shepherd,
an individual residing at 1370 Meadow Avenue, Shoreview, Minnesota (the
"Executive") and amends and restates the EMPLOYMENT AGREEMENT dated May 5, 1999
between the Company and Executive.
RECITALS
Prior to the original EMPLOYMENT AGREEMENT Executive was employed by
the Company in the capacity of President, Heart Valve Division. The Company
desires to continue the employ the Executive, due to his certain unique skills,
talents, contacts, judgment and knowledge of the Company's business, strategies,
ethics and objectives and the Executive desires to be employed by the Company.
In consideration of the mutual covenants and promises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the parties agree as follows:
1. Term of Employment. The Term of this Agreement shall commence on the
date hereof and, subject to the further provisions of this Agreement, shall end
on the 4th day of May, 2004.
2. Title; Capacity. The Executive shall serve as President and Chief
Executive Officer of the Company or in such other position as the Company's
Board of Directors (the "Board") may determine from time to time. The Executive
shall be subject to the supervision of, shall report directly to, and shall have
such authority as is delegated to him by, the Board of Directors.
The Executive shall be responsible for all operations of the Company
and all administrative functions, including strategic planning, annual profit
planning, diversification (M&A), public relations and investor relations. The
following functions and units shall report to the Executive: CRMD, Heart Valve
Division, International, Administration, Legal, Finance, Corporate
Communications, Business Development and Information Systems. Executive shall,
if appointed or elected to the Company's Board of Directors, serve as a member
at no additional compensation.
The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board or its designee shall from time to time
reasonably assign to him. The Executive agrees to devote his entire business
time, attention and energies to the business and interests of the Company (and
its affiliates as required by the Company's investments and the Executive's
positions therein) during the Employment Period. The Executive agrees to abide
by the rules, regulations, instructions, personnel practices and policies of the
Company and any changes therein which may be adopted from time to time. The
Executive acknowledges receipt of copies of all such rules and policies
committed to writing as of the date of this Agreement.
<PAGE>
3. Compensation and Benefits.
a. Salary. The Company shall pay the Executive an annual base salary
of $500,000.00 for the one-year period commencing on the Commencement Date in
the same intervals as other exempt employers. Such salary shall be subject to
annual increases thereafter as determined by the Board, in its sole discretion.
b. Bonus. The Executive's target bonus under the MICP shall be 100%
of base salary (and shall be prorated for 1999).
c. Perk Package. The Executive shall be eligible for the Company's
executive perk package at the level of $26,000.
d. Fringe Benefits. The Executive shall be entitled to participate
in all bonus and benefit programs that the Company establishes and makes
available to its Executives, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
e. Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers and/or such
other supporting information in accordance with standard company policies.
f. Stock Options. Under separate agreement, the Executive is being
granted a non-qualified stock option to purchase 200,000 shares of stock,
vesting at the rate of 20% per year for five years and another non-qualified
stock option to purchase 200,000 shares which will vest based upon performance
criteria.
4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
a. Expiration of the Employment Period in accordance with Section 1;
b. At the election of the Company, for "Cause", immediately upon
written notice by the Company to the Executive. "Cause" for such termination
shall include, but not limited to, the following:
i. Dishonesty of the Executive with respect to the Company;
ii. Willful misfeasance or nonfeasance of duty intended to injure
or having the effect of injuring the reputation, business or business
relationships of the Company or its respective officers, directors or
Executives;
iii. Upon a charge by a governmental entity against the Executive
of any crime involving moral turpitude which is demonstrably and materially
injurious to the
2
<PAGE>
Company or upon the filing of any civil action involving a charge of
embezzlement, theft, fraud or other similar act which is demonstrably and
materially injurious to the Company;
iv. Willful or prolonged absence from work by the Executive
(other than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by the Executive to perform his duties and
responsibilities without the same being corrected upon ten (10) days prior
written notice; or
v. Breach by the Executive of any of the covenants contained in
this Agreement.
c. Immediately upon the death or disability of the Executive. As
used in this Agreement, the term "disability" shall mean the inability of the
Executive, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360 day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician to the Company.
d. At the election of the Company or the Executive, with or without
cause upon 90 days written notice by one party to the other.
5. Effect of Termination.
a. Termination for Cause or at Election of Either Party. In the
event the Executive's employment is terminated at the election of the Company
pursuant to Section 4(d), the Company shall immediately pay to the Executive an
amount equal to the two times the Executive's then current salary and two times
the Executive's then current target bonus.
b. Termination for Death or Disability. If the Executive's
employment is terminated by death or because of disability pursuant to Section
4(c), the Company shall pay to the estate of the Executive or to the Executive,
as the case may be, the compensation which would otherwise be payable to the
Executive up to the end of the month in which the termination of his employment
because of death or disability occurs.
c. Terminate for Cause or Voluntary. In the event a termination for
cause pursuant to Section 4(b) or by the voluntary resignation of Executive
pursuant to Section 4(d), then no further compensation other than that already
accrued shall be due to Executive under this Agreement.
d. In the event Executive is entitled to, and actually receives the
full compensation he is entitled to, under the separate SEVERANCE AGREEMENT
dated the same date as this Agreement, then, notwithstanding the previous
subsections of Section 5, the Company shall have no additional obligation to
make a payment to Executive under Section 5 of this Agreement.
6. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at
3
<PAGE>
the address shown above, or at such other address or addresses as either party
shall designate to the other in accordance with this Section 9.
7. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
9. Other Agreements. This Agreement is intended to supplement and not
replace the following other agreements between the Executive and the Company:
Non-Disclosure and Non-Competition Agreement, Indemnification Agreement,
Severance Agreement (Change of Control), all previous stock option grants, 2001
MICP and other employment benefits arising from Executive's prior employment
with the Company.
10. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
11. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Minnesota, without giving
effect to that State's conflict of laws provisions.
12. Choice of Venue. All actions or proceedings with respect to this
Agreement shall be instituted only in any state or federal court sitting in
Ramsey County, Minnesota, and by execution and delivery of this Agreement, the
parties irrevocably and unconditionally subject to the jurisdiction (both
subject matter and personal) of each such court and irrevocably and
unconditionally waive: (a) any objection that the parties might now or hereafter
have to the venue of any of such court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
14. Waiver. No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any once occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15. Captions and Headings. The captions of the sections of this
Agreement are for convenience of reference only and in no way define, limit or
affect the scope or substance of any section of this Agreement.
4
<PAGE>
16. Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
17. Counterparts. This Agreement may be executed in a number of
counterparts and all of such counterparts executed by the Company or the
Executive, shall constitute one and the same agreement, and it shall not be
necessary for all parties to execute the same counterpart hereof.
18. Facsimile Signatures. The parties hereby agree that, for purposes
of the execution of this Agreement, facsimile signatures shall constitute
original signatures.
19. Incorporation by Reference. The preamble and recitals to this
Agreement are hereby incorporated by reference and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
ST. JUDE MEDICAL, INC.,
A MINNESOTA CORPORATION
/s/ FRIEDA J. VALK
------------------------------
Name: Frieda J. Valk
Title: Vice President, Administration
EXECUTIVE:
/s/ TERRY L. SHEPHERD
------------------------------
Name: Terry L. Shepherd
Title: Chairman/CEO
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>stjude010431_ex-13.txt
<DESCRIPTION>EXHIBIT 13 - 2000 ANNUAL REPORT
<TEXT>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
INTRODUCTION
St. Jude Medical, Inc. ("St. Jude Medical" or the "Company") is a global leader
in the development, manufacturing and distribution of medical technology
products for the cardiac rhythm management, cardiology and vascular access, and
cardiac surgery markets. The Company has two reportable segments: Cardiac Rhythm
Management (CRM) and Cardiac Surgery (CS - formerly known as Heart Valve Disease
Management). The CRM segment, which includes the results from the Company's
Cardiac Rhythm Management Division and Daig Division, develops, manufactures and
distributes bradycardia pulse generator and tachycardia implantable cardioverter
defibrillator (ICD) systems, electrophysiology and interventional cardiology
catheters, and vascular closure devices. The CS segment develops, manufactures
and distributes mechanical and tissue heart valves and valve repair products,
and suture-free devices to facilitate coronary artery bypass graft anastomoses.
The Company utilizes a fifty-two, fifty-three week fiscal year ending on the
Saturday nearest December 31, but for clarity of presentation describes all
periods as if the year end is December 31. Fiscal years 2000, 1999 and 1998 each
consisted of fifty-two weeks.
The commentary that follows should be read in conjunction with the Company's
consolidated financial statements and related notes.
ACQUISITIONS
Following is a discussion on the businesses acquired by the Company during the
last three years:
VASCULAR SCIENCE, INC. (VSI): On September 27, 1999, the Company purchased the
outstanding common stock of VSI for $75,071 in cash, net of cash acquired, plus
additional contingent consideration related to product development milestones
for regulatory approvals and to future sales. VSI was a development-stage
company focused on the development of suture-free devices to facilitate coronary
artery bypass graft anastomoses.
ANGIO-SEAL(TM): On March 16, 1999, the Company purchased the
Angio-Seal(TM)business of Tyco International Ltd. for $167,000 in cash.
Angio-Seal(TM)manufactured and marketed hemostatic puncture closure devices.
OTHER: During 2000 and 1999, the Company acquired various businesses used in the
distribution of the Company's products. Aggregate consideration paid during 2000
and 1999 was $3,264 and $21,056, respectively, in cash and common stock.
The above acquisitions were recorded using the purchase method of accounting.
The operating results of each of these acquisitions were included in the
Company's consolidated financial statements from the date of each acquisition.
Pro forma results of operations have not been presented for these acquisitions
since the effects of these business acquisitions were not material to the
Company either individually or in aggregate.
NET SALES
Net sales by geographic markets were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
United States $ 745,793 $ 689,051 $ 604,524
Western Europe 235,412 259,300 248,070
Other foreign countries 197,601 166,198 163,400
- --------------------------------------------------------------------------------
Total net sales $ 1,178,806 $ 1,114,549 $ 1,015,994
================================================================================
Overall, foreign exchange rate movements had an unfavorable year-to-year impact
of $33,900 and $14,900 in 2000 and 1999, due primarily to the strengthening of
the U.S. dollar against the major Western European currencies. This negative
effect is not necessarily indicative of the impact on net earnings due to
partially offsetting favorable foreign currency changes on operating costs and
to the Company's hedging activities.
Segment net sales were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
CRM $ 921,857 $ 843,117 $ 735,123
CS 256,949 271,432 280,871
- --------------------------------------------------------------------------------
Total net sales $ 1,178,806 $ 1,114,549 $ 1,015,994
================================================================================
1
<PAGE>
CRM 2000 net sales increased 9.3% over 1999 due primarily to increased
bradycardia, electrophysiology (EP) catheter, and Angio-Seal(TM) unit sales,
offset partially by the negative impact of the strengthening U.S. dollar on
foreign sales. The increase in bradycardia sales is mainly due to the Company's
ongoing rollout of the Affinity(R) pacemaker family and to an expanded U.S.
sales organization. CRM 1999 net sales increased 14.7% over 1998 due primarily
to increased bradycardia and electrophysiology (EP) catheter unit sales, and the
acquisition of Angio-Seal(TM). The bradycardia sales increase relates to the
Company's introduction of the Affinity(R) pacemaker family in the second quarter
of 1999 and to an expanded U.S. sales force.
CS 2000 net sales decreased 5.3% from 1999 due to the effects of the stronger
U.S. dollar, the impact of the first quarter 2000 recall of valve products
incorporating a Silzone(R) coating, and a slight clinical preference shift from
mechanical valves to tissue valves in the U.S. market where CS holds significant
mechanical valve market share and a smaller share of the tissue valve market. CS
1999 net sales decreased 3.4% from 1998 due to the effects of the stronger U.S.
dollar, reduced sales to certain distributors in emerging markets, and a slight
clinical preference shift from mechanical valves to tissue valves in the U.S.
market.
GROSS PROFIT
Gross profits were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Gross profit $ 787,657 $ 733,647 $ 643,054
Percentage of net sales 66.8% 65.8% 63.3%
================================================================================
The Company's 2000 gross profit margin increased one percentage point over 1999
due primarily to CRM's manufacturing efficiencies, offset partially by the
unfavorable impact on sales due to the stronger U.S. dollar. The Company's 1999
gross profit margin increased 2.5 percentage points over 1998 due primarily to
CRM's manufacturing efficiencies and higher CRM unit sales, offset partially by
the impact on sales of the stronger U.S. dollar and lower CS unit sales.
OPERATING EXPENSES
Certain operating expenses were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Selling, general and administrative $ 416,383 $ 394,418 $ 349,346
Percentage of net sales 35.3% 35.4% 34.4%
Research and development $ 137,814 $ 125,059 $ 99,756
Percentage of net sales 11.7% 11.2% 9.8%
================================================================================
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense as a percentage
of net sales in 2000 was comparable to 1999. During the third quarter of 2000,
the Company received a cash payment related to a non-product arbitration
judgement pertaining to business matters occurring in 1997 and 1998. This cash
receipt, net of other provisions for legal matters and fees, was $15,158 and was
credited to SG&A expense. In addition, during the third quarter of 2000, the
Company recorded additional expenses related to a $3,500 discretionary
contribution to its charitable foundation, $6,672 primarily for write-offs of
certain assets and related costs, and a $4,900 increase to its allowance for
doubtful accounts. These additional costs and expenses were also recorded in
SG&A expense for 2000.
SG&A expense as a percentage of net sales increased in 1999 over 1998 due
primarily to increased sales activities, increased litigation, Year 2000 related
expenses, and to higher intangible asset amortization related to the
Angio-Seal(TM) acquisition.
RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expense increased in 2000 and 1999
due to increased CRM activities relating primarily to ICDs and products to treat
emerging indications in atrial fibrillation and congestive heart failure, and CS
activities associated with the development of suture-free devices to facilitate
coronary artery bypass graft anastomoses.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES: In 1999, the Company
recorded purchased in-process research and development charges of $47,775 and
$67,453 in connection with the acquisitions of Angio-Seal(TM) and VSI. The
purchased in-process research and development charges were computed by an
independent third-party appraisal company and were expensed at close, except as
noted below, because technological feasibility had not been established and
because there were no alternative future uses for the technology. The values
assigned to purchased in-process
2
<PAGE>
research and development were determined primarily by the income approach,
utilizing discount rates ranging from 25% to 35%. Certain other factors
considered in these valuations included the stage of development of each
project, which ranged from 35% to 90% complete, complexity of the work completed
at the valuation date, and market introductions for products resulting from the
technology beginning in late 1999 for Angio-Seal(TM) and 2000 for VSI.
The purchased in-process technologies requires additional development to create
commercially viable products. This development includes completion of design,
prototyping, and testing to ensure the technologies meet their design
specifications, including functional, technical and economic performance
requirements. In addition, the technology is required to undergo both
international and domestic regulatory reviews and approvals prior to being
commercially released to the market.
The total appraised value of the VSI purchased in-process research and
development was $95,500, of which $67,453 was recorded at close. During 2000,
the Company paid $5,000 of contingent consideration for a milestone that was
achieved. The remaining balance of the in-process research and development
valuation ($23,047) will be recorded in the Company's financial statements as
purchased in-process research and development charges when payment of the
contingent consideration is assured beyond a reasonable doubt. Contingent
consideration payments in excess of the $23,047 will be capitalized as goodwill.
Management believes that the financial statement projections used in the
Angio-Seal(TM) and VSI acquisitions are still materially valid; however, there
can be no assurance that the projected results will be achieved. Certain
in-process technologies acquired in the Angio-Seal(TM) and VSI acquisitions have
been developed to the point of commercial production and sale to customers.
Management expects to continue the development of the other in-process
technologies acquired in the Angio-Seal(TM) and VSI acquisitions and continues
to believe that there is a reasonable chance of successfully completing such
development efforts. However, there is risk associated with the completion of
the in-process technologies, and there can be no assurance that any technologies
will meet with either technological or commercial success. Failure to
successfully develop and commercialize these in-process technologies would
result in the loss of the expected economic return inherent in the original fair
value allocation. Additionally, the value of other intangible assets acquired
may become impaired.
SPECIAL CHARGES: On January 21, 2000, the Company initiated a worldwide
voluntary recall of all field inventory of heart valve replacement and repair
products incorporating a Silzone(R) coating on the sewing cuff fabric. The
Company concluded that it will no longer utilize a Silzone(R) coating. The
Company recorded a special charge accrual totaling $26,101 during the first
quarter of 2000 relating to asset write-downs ($9,465) and other costs
($16,636), including monitoring expenses, associated with this recall and
product discontinuance. The Company has utilized $17,634 of this special charge
accrual through December 31, 2000. Other than the effect of this special charge,
management believes that this recall will not materially impact the Company's
future earnings or cash flows based primarily on the fact that the Company's
non-Silzone(R) coated products, which represented 75% of the Company's CS
shipments at the time of the recall, are not affected by this recall. However,
there can be no assurance that the final costs associated with this recall,
including litigation-related costs, will not exceed management's estimates.
The Company recorded a $9,754 special charge accrual in 1999 related to the
restructuring of its international operations, of which $8,622 has been utilized
through December 31, 2000.
OTHER INCOME (EXPENSE)
Interest expense was $28,569 in 2000, $28,104 in 1999, and $23,667 in 1998. The
increase in 1999 over 1998 was due to increased debt levels resulting primarily
from the Company's acquisitions and share repurchases during 1999.
Net investment gains of $4,062 in 2000, $848 in 1999, and $15,624 in 1998
resulted primarily from the periodic sales of the Company's marketable equity
security holdings.
INCOME TAXES
The Company's reported effective income tax rate was 27.2% in 2000 as compared
with 63.8% in 1999. Exclusive of the purchased in-process research and
development and special charges, the Company's effective income tax rate was 25%
for 2000 and 1999. The purchased in-process research and development and special
charges were either non-deductible for income tax purposes or were recorded in
taxing jurisdictions with low income tax rates.
3
<PAGE>
The Company's reported effective income tax rate was 30.5% in 1998. The decrease
in the effective income tax rate from 30.5% in 1998 to 25.0% in 1999, exclusive
of purchased in-process research and development and special charges, was
primarily attributable to higher research and development credits and foreign
sales corporation benefits relative to pre-tax earnings in 1999.
The Company has not recorded deferred income taxes on its foreign subsidiaries'
undistributed earnings as such amounts are currently intended to be reinvested
outside the U.S. indefinitely.
NET EARNINGS
Net earnings, exclusive of purchased in-process research and development and
special charges, were $156,307 in 2000, $143,989 in 1999, and $129,082 in 1998.
Reported net earnings and diluted net earnings per share were $129,094, or $1.51
per share, in 2000, $24,227, or $0.29 per share, in 1999, and $129,082, or $1.50
per share, in 1998.
OUTLOOK
The Company expects that market demand, government regulation and societal
pressures will continue to change the worldwide health care industry resulting
in further business consolidations and alliances. The Company participates with
industry groups to promote the use of advanced medical device technology in a
cost conscious environment. Customer service in the form of cost-effective
clinical outcomes will continue to be a primary focus for the Company.
The Company's CS business is in a highly competitive market. The market is
segmented among mechanical heart valves, tissue heart valves, and repair
products. During 1999 and 2000, the U.S. market continued its slight shift to
tissue valve and repair products from mechanical heart valves resulting in a
small overall market share loss for the Company. Competition is anticipated to
continue to place pressure on pricing and terms, and health care reform is
expected to result in further hospital consolidations over time.
The Company's CRM business is also in a highly competitive industry that has
undergone consolidation. There are currently three principal suppliers,
including the Company, and the Company's two principal competitors each have
substantially more assets and sales than the Company. Rapid technological change
is expected to continue, requiring the Company to invest heavily in R&D and to
effectively market its products.
The global medical technology market is highly competitive. Competitors have
historically employed litigation to gain a competitive advantage. In addition,
the Company's products must continually improve technologically and provide
improved clinical outcomes due to the competitive nature of the industry.
Group purchasing organizations (GPOs) in the U.S. continue to consolidate the
purchasing for some of the Company's customers. A few GPOs have executed
contracts with the Company's CRM market competitors, which exclude the Company.
These contracts, if enforced, may adversely affect the Company's sales of CRM
products to members of these GPOs.
MARKET RISK
The Company is exposed to foreign currency exchange rate fluctuations due to its
transactions denominated primarily in Euros, currencies tied to the Euro,
Canadian Dollars, British Pounds, and Swedish Kroners. The Company is also
exposed to interest rate risk on its interest-bearing debt and equity market
risk on its marketable equity security investments.
From time to time the Company minimizes a portion of its foreign currency
exchange rate risk through the use of forward exchange or option contracts. The
gains or losses on these contracts are intended to offset changes in the fair
value of the anticipated foreign currency transactions. It is the Company's
practice to not enter into contracts for trading purposes. The Company is
continuing to evaluate its foreign currency exchange rate risk and the different
mechanisms in which to help manage such risk.
The Company had no forward exchange contracts outstanding at December 31, 2000.
The Company's forward exchange contracts had a fair value of ($263) at December
31, 1999. Utilizing the Company's outstanding forward exchange contracts at
December 31, 1999, a hypothetical 10% unfavorable change in the foreign currency
spot rates would have negatively impacted the fair value of the Company's
forward exchange contracts by $2,745. A majority of any gains or losses on the
fair value of these contracts would ultimately be offset by gains or losses on
the anticipated transactions. Such offsetting gains or losses are not reflected
in the hypothetical 10% unfavorable change.
4
<PAGE>
A substantial portion of the Company's interest-bearing debt provides for
interest at variable rates tied to the London Interbank Offered Rate ("LIBOR").
The Company periodically enters into interest rate swap or option contracts to
reduce its exposures to interest rate fluctuations. During the third quarter of
1999, the Company entered into an interest rate swap contract to hedge a
substantial portion of its variable interest rate risk through January 2000 on
$138,000 of revolving credit facility borrowings. The fair market value of this
contract at December 31, 1999, and the impact of the contract on 1999 earnings
were not material. The Company did not enter into any other interest rate
contracts during 2000 or in 1998.
The Company periodically invests in marketable equity securities of emerging
technology companies. The Company's investments in these companies had a fair
value of $16,173 and $15,487 at December 31, 2000 and 1999, which is subject to
the underlying price risk of the public equity markets.
On January 1, 1999, eleven of the fifteen member countries of the European
Economic Community (EEC) established fixed conversion rates between their
existing sovereign currencies and the Euro, and adopted the Euro as the legal
common currency for their countries. The sovereign currencies of these countries
will remain legal tender as denominations of the Euro between January 1, 1999
and January 1, 2002. During this transition period, public and private parties
may pay for goods and services using either the Euro or the sovereign currency.
Beginning January 1, 2002, these countries will issue new Euro-denominated bills
and coins for use in cash transactions. The Company does not expect the Euro
conversion to have a short-term material affect on the Company's operations.
However, subsequent to December 31, 2001, cross-country pricing in the EEC may
become more transparent, which may impact the pricing of the Company's products.
The Company will continue to evaluate the need for changes to its computer
systems to accommodate the conversion to the Euro.
NEW ACCOUNTING PRONOUNCEMENT
The Company is required to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (Statement
133), as of January 1, 2001. Statement 133 requires companies to recognize all
derivatives on the balance sheet at fair value. Derivatives not qualifying as
hedges must be adjusted to fair value through earnings. If the derivative
qualifies as a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The impact of adopting Statement 133 on
January 1, 2001, was not material to the Company's consolidated results of
operations, financial position or cash flows.
FINANCIAL CONDITION
LIQUIDITY
The Company's liquidity and cash flows remained strong during 2000. Cash
provided by operating activities was $203,971 in 2000, down approximately
$52,000 from 1999 due primarily to the increased working capital requirements
associated with higher sales volumes. The Company's current ratio was 2.4 to 1
at December 31, 2000.
Accounts receivable increased $9,492 from December 31, 1999, due primarily to
higher sales, offset in part by a weakening of the Western European currencies
and the corresponding accounts receivable balances. Total interest bearing debt
decreased $182,995 from December 31, 1999, due to debt repayments as a result of
cash generated from operations and the conversion of $10,675 of convertible
debentures into the Company's common stock.
The Company maintains sufficient credit facilities to fund its operations and
investment opportunities. As of March 6, 2001, the Company had committed credit
facilities totaling $500,000 available to back the Company's commercial paper
program borrowings and for general purposes.
Management believes that cash generated from operations and cash available under
its credit facilities will be sufficient to meet the Company's working capital
and share repurchase plan needs in the near term. Should suitable investment
opportunities arise, management believes that the Company's earnings, cash flows
and balance sheet will permit the Company to obtain additional debt or equity
capital, if necessary.
5
<PAGE>
CAPITAL STRUCTURE
The Company's capital structure consists of interest-bearing debt and equity.
Interest-bearing debt as a percent of the Company's total interest-bearing debt
and equity decreased from 38% at December 31, 1999, to 24% at December 31, 2000,
due primarily to the paydown of debt using cash generated from operations.
During 1999, the Company's Board of Directors authorized the repurchase of up to
$250,000 of the Company's outstanding common stock over a three-year period. The
Company repurchased 977,500 shares of its common stock for $29,826 during 1999.
No shares were repurchased during 2000.
DIVIDENDS
The Company has not declared or paid any dividends during 2000, 1999 or 1998.
Management currently intends to utilize the Company's earnings for operating and
investment purposes, including the repurchase of its common stock.
CAUTIONARY STATEMENTS
In this discussion and in other written or oral statements made from time to
time, we have included and may include statements that may constitute
"forward-looking statements" within the meaning of the safe harbor provisions of
the Private Litigation Securities Reform Act of 1995. These forward-looking
statements are not historical facts but instead represent our belief regarding
future events, many of which, by their nature, are inherently uncertain and
beyond our control. These statements relate to our future plans and objectives,
among other things. By identifying these statements for you in this manner, we
are alerting you to the possibility that our actual results may differ, possibly
materially, from the results indicated by these forward-looking statements. We
undertake no obligation to update any forward-looking statements.
Various factors contained in the previous discussion and those described below
may affect the Company's operations and results. Since it is not possible to
foresee all such factors, you should not consider these factors to be a complete
list of all risks or uncertainties. Risk factors include the following:
1. Administrative or legislative reforms to the U.S. Medicare and Medicaid
systems or similar reforms of foreign reimbursement systems in a manner
that significantly reduces reimbursement for procedures using the Company's
medical devices or denies coverage for such procedures.
2. Acquisition of key patents by competitors that have the affect of excluding
the Company from new market segments.
3. Economic factors, including inflation, changes in interest rates and
changes in foreign currency exchange rates.
4. Product introductions by competitors which have advanced technology, better
features or lower pricing.
5. Price increases by suppliers of key components, some of which are
sole-sourced.
6. A reduction in the number of procedures using the Company's devices caused
by cost containment pressures or preferences for alternate therapies.
7. Safety, performance or efficacy concerns about the Company's marketed
products, many of which are expected to be implanted for many years,
leading to recalls and advisories with the attendant expenses and declining
sales.
8. Changes in laws, regulations or administrative practices affecting
government regulation of the Company's products, such as FDA laws and
regulations, that increase pre-approval testing requirements for products
or impose additional burdens on the manufacture and sale of medical
devices.
9. Difficulties obtaining, or the inability to obtain, appropriate levels of
product liability insurance.
10. A serious earthquake affecting the Company's facilities in Sunnyvale or
Sylmar, California.
11. Health care industry consolidation leading to demands for price concessions
or the exclusion of some suppliers from significant market segments.
12. Adverse developments in litigation including product liability litigation
and patent litigation or other intellectual property litigation including
that arising from the Telectronics and Ventritex acquisitions.
6
<PAGE>
REPORT OF MANAGEMENT
The management of St. Jude Medical, Inc. is responsible for the preparation,
integrity and objectivity of the accompanying financial statements. The
financial statements were prepared in accordance with accounting principles
generally accepted in the United States and include amounts which reflect
management's best estimates based on its informed judgement and consideration
given to materiality. Management is also responsible for the accuracy of the
related data in the annual report and its consistency with the financial
statements.
In the opinion of management, the Company's accounting systems and procedures,
and related internal controls, provide reasonable assurance that transactions
are executed in accordance with management's intention and authorization, that
financial statements are prepared in accordance with accounting principles
generally accepted in the United States, and that assets are properly accounted
for and safeguarded. The concept of reasonable assurance is based on the
recognition that there are inherent limitations in all systems of internal
control, and that the cost of such systems should not exceed the benefits to be
derived therefrom. Management reviews and modifies the system of internal
controls to improve its effectiveness. The effectiveness of the controls system
is supported by the selection, retention and training of qualified personnel, an
organizational structure that provides an appropriate division of responsibility
and a strong budgeting system of control.
St. Jude Medical, Inc. also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and business conduct. This responsibility is
reflected in the Company's business ethics policy.
The adequacy of the Company's internal accounting controls, the accounting
principles employed in its financial reporting, and the scope of independent and
internal audits are reviewed by the Audit Committee of the Board of Directors,
consisting solely of outside directors. The independent auditors meet with, and
have confidential access to, the Audit Committee to discuss the results of their
audit work.
/s/ Terry L. Shepherd
Terry L. Shepherd
Chief Executive Officer
/s/ John C. Heinmiller
John C. Heinmiller
Vice President, Finance and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
St. Jude Medical, Inc.
We have audited the accompanying consolidated balance sheets of St. Jude
Medical, Inc. and subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of St. Jude Medical,
Inc. and subsidiaries at December 31, 2000 and 1999 and the consolidated results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 6, 2001
7
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,178,806 $ 1,114,549 $ 1,015,994
Cost of sales 391,149 380,902 372,940
- --------------------------------------------------------------------------------------------------------------
Gross profit 787,657 733,647 643,054
Selling, general and administrative expense 416,383 394,418 349,346
Research and development expense 137,814 125,059 99,756
Purchased in-process research and development charges 5,000 115,228 --
Special charges 26,101 9,754 --
- --------------------------------------------------------------------------------------------------------------
Operating profit 202,359 89,188 193,952
Other income (expense) (25,050) (22,184) (8,222)
- --------------------------------------------------------------------------------------------------------------
Earnings before income taxes 177,309 67,004 185,730
Income tax expense 48,215 42,777 56,648
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 129,094 $ 24,227 $ 129,082
- --------------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE:
Basic $ 1.53 $ 0.29 $ 1.51
Diluted $ 1.51 $ 0.29 $ 1.50
- --------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 84,253 84,274 85,714
Diluted 85,817 84,735 86,145
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31 2000 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 50,439 $ 9,655
Marketable securities 57,423 79,238
Accounts receivable, less allowances for doubtful accounts 303,307 293,815
Inventories 222,238 235,407
Deferred income taxes 35,566 36,609
Other 35,669 35,575
- ------------------------------------------------------------------------------------------------
Total current assets 704,642 690,299
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 114,045 111,746
Machinery and equipment 328,553 299,028
Diagnostic equipment 176,794 163,757
- ------------------------------------------------------------------------------------------------
Property, plant and equipment at cost 619,392 574,531
Less accumulated depreciation (302,213) (231,751)
- ------------------------------------------------------------------------------------------------
Net property, plant and equipment 317,179 342,780
OTHER ASSETS
Goodwill and other intangible assets, net 430,896 452,519
Deferred income taxes 57,482 51,838
Other 22,517 16,602
- ------------------------------------------------------------------------------------------------
Total other assets 510,895 520,959
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,532,716 $ 1,554,038
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 81,340 $ 91,874
Income taxes payable 58,224 43,700
Accrued expenses
Employee compensation and related benefits 81,576 67,046
Other 76,227 79,902
- ------------------------------------------------------------------------------------------------
Total current liabilities 297,367 282,522
LONG-TERM DEBT 294,500 477,495
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 8,534 8,378
Additional paid-in capital 55,723 109
Retained earnings 962,317 833,223
Accumulated other comprehensive income:
Cumulative translation adjustment (93,380) (53,977)
Unrealized gain on available-for-sale securities 7,655 6,288
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 940,849 794,021
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,532,716 $ 1,554,038
- ------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
Number of Paid-In Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 91,911,496 $ 9,191 $244,347 $746,032 $(12,548) $ 987,022
Comprehensive income:
Net earnings 129,082 129,082
Other comprehensive income (loss)
Unrealized loss on investments, net of
taxes ($2,545) and reclassification
adjustment (see below) (4,153) (4,153)
Foreign currency translation adjustment (9,092) (9,092)
-------
Other comprehensive loss (13,245)
--------
Comprehensive income 115,837
--------
Issuance of common stock, including
exercise of stock options, net 263,203 26 7,054 7,080
Tax benefit from stock options 1,070 1,070
Repurchase of common stock (8,000,000) (800) (245,815) (58,174) (304,789)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 84,174,699 8,417 6,656 816,940 (25,793) 806,220
Comprehensive income:
Net earnings 24,227 24,227
Other comprehensive income (loss)
Unrealized loss on investments, net of
taxes ($712) and reclassification
adjustment (see below) (1,161) (1,161)
Foreign currency translation adjustment (20,735) (20,735)
--------
Other comprehensive loss (21,896)
--------
Comprehensive income 2,331
------
Issuance of common stock, including
exercise of stock options, net 381,206 38 8,855 8,893
Tax benefit from stock options 969 969
Issuance of common stock for
business acquisition 161,072 16 3,984 4,000
Issuance of common stock
in settlement of obligation 41,108 4 1,430 1,434
Repurchase of common stock (977,500) (97) (21,785) (7,944) (29,826)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 83,780,585 8,378 109 833,223 (47,689) 794,021
Comprehensive income:
Net earnings 129,094 129,094
Other comprehensive income (loss)
Unrealized gain on investments,
net of taxes ($838) and reclassification
adjustment (see below) 1,367 1,367
Foreign currency translation adjustment (39,403) (39,403)
--------
Other comprehensive loss (38,036)
--------
Comprehensive income 91,058
------
Issuance of common stock, including
exercise of stock options, net 1,245,166 125 38,506 38,631
Tax benefit from stock options 6,464 6,464
Issuance of common stock for conversion
of subordinated debentures 310,535 31 10,644 10,675
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 85,336,286 $ 8,534 $ 55,723 $962,317 $(85,725) $ 940,849
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income reclassification adjustments for net realized gains on the sale of marketable securities, net of
income taxes:
1998 $ 9,282
1999 2,875
2000 2,519
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 129,094 $ 24,227 $ 129,082
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation 56,699 54,588 45,959
Amortization 35,650 31,114 22,894
Purchased in-process research and development charges 5,000 115,228 --
Special charges 26,101 9,754 --
Net investment gain (4,062) (848) (15,624)
Deferred income taxes (5,439) 369 15,459
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable (40,845) (26,319) (35,236)
Inventories 4,621 14,466 (7,458)
Other current assets (6,519) (6,722) 4,897
Accounts payable and accrued expenses (17,317) (1,998) (35,853)
Income taxes 20,988 42,208 (15,651)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 203,971 256,067 108,469
INVESTING ACTIVITIES
Purchase of property, plant and equipment (39,699) (69,419) (74,197)
Proceeds from sale or maturity of marketable securities 29,082 17,552 82,879
Business acquisitions, net of cash acquired (8,264) (259,127) --
Other (10,752) (19,438) 561
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (29,633) (330,432) 9,243
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued 38,631 8,893 7,080
Common stock repurchased -- (29,826) (304,789)
Borrowings under debt facilities 3,703,287 989,500 785,036
Payments under debt facilities (3,856,287) (887,000) (602,536)
Repurchase of convertible subordinated debentures (19,320) -- (27,505)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (133,689) 81,567 (142,714)
Effect of currency exchange rate changes on cash 135 (1,322) 247
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 40,784 5,880 (24,755)
Cash and equivalents at beginning of year 9,655 3,775 28,530
- -------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 50,439 $ 9,655 $ 3,775
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
- -------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 32,467 $ 28,934 $ 21,703
Income taxes 35,704 21,200 55,031
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OVERVIEW: St. Jude Medical, Inc. (the "Company") is a global leader in
the development, manufacturing and distribution of medical technology products
for the cardiac rhythm management, cardiology and vascular access, and cardiac
surgery markets. The Company's principal products include pacemaker and
implantable cardioverter defibrillator (ICD) systems, prosthetic heart valve
replacement and repair products, electrophysiology and interventional cardiology
catheters, and vascular closure devices. The Company markets its products
primarily in the United States, Western Europe and Japan through both a direct
employee-based sales organization and independent distributors.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Significant
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications of previously reported amounts have been made to
conform to the current year presentation.
FISCAL YEAR: The Company utilizes a fifty-two, fifty-three week fiscal year
ending on the Saturday nearest December 31. For clarity of presentation, the
Company describes all periods as if the year end is December 31. Fiscal years
2000, 1999 and 1998 each consisted of fifty-two weeks.
USE OF ESTIMATES: Preparation of the Company's consolidated financial statements
in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual results could
differ from those estimates.
CASH EQUIVALENTS: The Company considers highly liquid temporary investments with
an original maturity of three months or less to be a cash equivalent. Cash
equivalents are stated at cost, which approximates market.
MARKETABLE SECURITIES: Marketable securities consist of equity securities, bank
certificates of deposit, U.S. government obligations, commercial paper, notes
and bonds. Marketable securities are classified as available-for-sale and
recorded at fair market value, based upon quoted market prices. Gross unrealized
gains totaling $12,347, $10,142 and $12,015, net of taxes of $4,692, $3,854 and
$4,566, were recorded in shareholders' equity at December 31, 2000, 1999 and
1998. Realized gains from the sale of marketable securities have been recorded
in other income and are computed using the specific identification method.
INVENTORIES: Inventories are stated at the lower of cost or market with cost
determined using the first-in, first-out method. Inventories consist of the
following:
2000 1999
- ------------------------------------------------------------------------------
Finished goods $ 123,696 $ 108,449
Work in process 35,640 41,466
Raw materials 62,902 85,492
- ------------------------------------------------------------------------------
$ 222,238 $ 235,407
==============================================================================
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are depreciated
using the straight-line method over their estimated useful lives, ranging from
31 to 39 years for buildings and improvements, three to seven years for
machinery and equipment, and five to eight years for diagnostic equipment.
Accelerated depreciation methods are used for income tax purposes.
GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of cost
over the fair value of identifiable net assets of businesses acquired. Other
intangible assets consist primarily of licensed and purchased technology,
patents and customer lists. Goodwill and other intangible assets are amortized
on a straight-line basis using lives ranging from 5 to 20 years. Accumulated
amortization totaled $149,904 and $115,239 at December 31, 2000 and 1999. The
Company periodically reviews its long-lived assets, including property, plant
and equipment, for indicators of impairment using an estimate of the
undiscounted cash flows generated by those assets.
12
<PAGE>
REVENUE RECOGNITION: The Company generally recognizes revenue at such time title
to the goods transfers to the customer. For certain products, the Company
maintains consigned inventory at customer locations. For these products, revenue
is recognized at the time the Company is notified that the customer has used the
inventory. The allowance for doubtful accounts was $13,831 at December 31, 2000
and $13,529 at December 31, 1999.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
among other guidance clarifies certain conditions to be met in order to
recognize revenue. The Company's adoption of SAB 101 in the fourth quarter of
2000 did not have a material impact on the results of operations, financial
position or cash flows.
RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense
as incurred. Purchased in-process research and development is recognized in
purchase business combinations for the portion of the purchase price allocated
to the appraised value of in-process technologies. The portion assigned to
in-process research and development technologies excludes the value of core and
developed technologies, which are recognized as intangible assets.
STOCK-BASED COMPENSATION: The Company utilizes the intrinsic value method of
accounting for its employee stock-based compensation. Pro forma information
related to the fair value method of accounting is provided in Note 5.
EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares, exclusive
of restricted shares, during the period. Diluted earnings per share is computed
by dividing net earnings, adjusted for convertible debenture interest, if
appropriate, by the weighted average number of outstanding common shares and
common share equivalents, when dilutive.
The table below sets forth the computation of basic and diluted net earnings per
share:
<TABLE>
<CAPTION>
2000 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net earnings $ 129,094 $ 24,227 $ 129,082
Convertible debenture interest, net of taxes 95 -- --
- -----------------------------------------------------------------------------------------------
Adjusted net earnings $ 129,189 $ 24,227 $ 129,082
Denominator:
Basic-weighted average shares outstanding 84,253,000 84,274,000 85,714,000
Effect of dilutive securities:
Employee stock options 1,448,000 414,000 401,000
Restricted shares 38,000 47,000 30,000
Convertible debentures 78,000 -- --
- -----------------------------------------------------------------------------------------------
Diluted-weighted average shares outstanding 85,817,000 84,735,000 86,145,000
===============================================================================================
Basic net earnings per share $ 1.53 $ 0.29 $ 1.51
===============================================================================================
Diluted net earnings per share $ 1.51 $ 0.29 $ 1.50
===============================================================================================
</TABLE>
Net earnings and diluted-weighted average shares outstanding for certain periods
have not been adjusted for the Company's convertible debentures or for certain
employee stock options and awards where the effect of those securities would
have been anti-dilutive.
FOREIGN CURRENCY TRANSLATION: Sales and expenses denominated in foreign
currencies are translated at average exchange rates in effect throughout the
year. Assets and liabilities of foreign operations are translated at year-end
exchange rates. Gains and losses from translation of net assets of foreign
operations are recorded in other comprehensive income. Foreign currency
transaction gains and losses are included in other income (expense).
13
<PAGE>
FOREIGN CURRENCY AND INTEREST RATE RISK MANAGEMENT CONTRACTS: Management
periodically utilizes derivative financial instruments to help manage a portion
of the Company's exposure to foreign currencies and interest rates. Management
generally utilizes forward exchange or option contracts to manage anticipated
foreign currency exposures and interest rate swaps to manage interest rate
exposures. Management does not enter into derivative financial instruments for
trading purposes. The Company records the fluctuation in the fair value of the
forward exchange or option contracts in other income (expense) and the
fluctuation in the fair value of the interest rate swaps in interest expense.
NEW ACCOUNTING PRONOUNCEMENT: The Company is required to adopt Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (Statement 133), as of January 1, 2001. Statement 133
requires companies to recognize all derivatives on the balance sheet at fair
value. Derivatives not qualifying as hedges must be adjusted to fair value
through earnings. If the derivative qualifies as a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The impact of adopting Statement 133 on January 1, 2001, was not material to the
Company's consolidated results of operations, financial position or cash flows.
NOTE 2 - ACQUISITIONS
VASCULAR SCIENCE, INC. (VSI): On September 27, 1999, the Company purchased the
outstanding common stock of VSI for $75,071 in cash, net of cash acquired, plus
additional contingent consideration related to product development milestones
for regulatory approvals and to future sales. VSI was a development-stage
company focused on the development of suture-free devices to facilitate coronary
artery bypass graft anastomoses.
An independent appraisal firm performed a valuation of VSI's identifiable
intangible assets ($580) and in-process research and development ($95,500). The
value assigned to in-process research and development was determined by the
income approach, utilizing discount rates ranging from 30% to 35% and
assumptions on product introductions which began in the year 2000. The total
consideration paid at close was allocated to the fair value of the net assets
acquired ($7,618) and in-process research and development ($67,453). During
2000, the Company paid $5,000 of contingent consideration for a milestone that
was achieved. The remaining balance of the in-process research and development
valuation ($23,047) will be recorded in the Company's financial statements as
purchased in-process research and development charges when payment of the
contingent consideration is assured beyond a reasonable doubt. Contingent
consideration payments in excess of the $23,047 will be capitalized as goodwill.
ANGIO-SEAL(TM): On March 16, 1999, the Company purchased the Angio-Seal(TM)
business of Tyco International Ltd. for $167,000 in cash. Angio-Seal(TM)
manufactured and marketed hemostatic puncture closure devices. Total
consideration for Angio-Seal(TM), including the fair value of the net assets
acquired and acquisition accounting adjustments, was $177,714, which was
allocated to in-process research and development ($47,775), various other
identifiable intangible assets ($90,025), and goodwill ($39,914). Valuation of
the in-process research and development and other identifiable intangible assets
was based upon an independent appraisal. The values assigned to in-process
research and development and other identifiable intangible assets were
determined primarily by the income approach, utilizing discount rates of 25% for
in-process research and development and 19.5% to 21.5% for the other intangible
assets, and assumptions on product introductions which began in late 1999.
OTHER: During 2000 and 1999, the Company acquired various businesses used in the
distribution of the Company's products. Aggregate consideration paid during 2000
and 1999 was $3,264 and $21,056, respectively, in cash and common stock.
14
<PAGE>
The above acquisitions have been recorded using the purchase method of
accounting. The operating results of each of these acquisitions are included in
the Company's consolidated statements of earnings from the date of each
acquisition. The values assigned to in-process research and development were
expensed at close, except as noted above, because technological feasibility had
not been established and because there were no alternative future uses for the
technology. Pro forma results of operations have not been presented for these
acquisitions since the effects of these business acquisitions were not material
to the Company either individually or in aggregate.
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following:
2000 1999
- --------------------------------------------------------------------------------
Commercial paper borrowings $ 223,000 $ --
Uncommitted credit facility borrowings 71,500 148,500
Committed credit facility borrowings -- 299,000
Convertible subordinated debentures -- 29,995
- --------------------------------------------------------------------------------
Total long-term debt $ 294,500 $ 477,495
================================================================================
COMMITTED CREDIT FACILITIES: The Company has a $350,000 unsecured, revolving
credit facility that expires in March 2003. The Company also has a $150,000
committed revolving credit facility that expires in March 2002. The Company's
credit facilities provide for variable interest tied primarily to the London
Interbank Offered Rate. The weighted-average interest rate on these borrowings
was 6.4% at December 31, 1999.
UNCOMMITTED CREDIT FACILITIES: The Company borrows from time to time under
unsecured, due-on-demand credit facilities with various banks. These credit
facilities provide for variable interest tied to the London Interbank Offered
Rate. The weighted-average interest rate on these borrowings was 7.1% and 6.9%
at December 31, 2000 and 1999.
COMMERCIAL PAPER BORROWINGS: During 2000, the Company began issuing short-term,
unsecured commercial paper with maturities up to 270 days. These commercial
paper borrowings are fully backed by the above committed credit facilities and
bear interest at varying market rates. The weighted-average interest rate on
these borrowings was 6.9% at December 31, 2000.
CONVERTIBLE SUBORDINATED DEBENTURES: During the first quarter of 2000, the
Company repurchased $19,320 of its convertible subordinated debentures in open
market transactions, recognizing an immaterial gain. During the third quarter of
2000, all of the remaining debenture holders converted their debentures, plus
accrued interest, into 310,535 shares of the Company's common stock.
OTHER: The Company's credit facility agreements contain various restrictive
covenants such as minimum financial ratios, limitations on additional liens or
indebtedness, and limitations on certain acquisitions and investments, which the
Company was in compliance with at December 31, 2000.
The Company classifies all of its credit facility and commercial paper
borrowings as long-term on its balance sheet as the Company has the ability to
repay any short-term maturity with available cash from its existing long-term,
committed credit facility. Management continually reviews the Company's cash
flow projections and may from time to time repay a portion of the Company's
borrowings.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
LEASES: The Company leases various facilities under noncancelable operating
lease arrangements. Future minimum lease payments under these leases are as
follows: $7,802 in 2001; $7,423 in 2002; $6,788 in 2003; $5,455 in 2004; $5,020
in 2005; $15,590 in years thereafter. Rent expense under all operating leases
was $7,028, $7,397 and $7,341 in 2000, 1999 and 1998.
15
<PAGE>
IRS MATTERS: During 2000, the Company and the Internal Revenue Service ("IRS")
settled the IRS Tax Court suit for the tax periods 1990-1991 and subsequent year
disputes for the tax periods 1992-1997. The issues raised by the IRS related
primarily to the Company's Puerto Rican operations. The settlement did not have
a material impact on the Company's consolidated financial statements.
SILZONE(R) LITIGATION: The Company has been sued by patients alleging defects in
the Company's mechanical heart valves with a Silzone(R) coating. The Company
recalled products with a Silzone(R) coating on January 21, 2000, and sent a
Recall Notice and Advisory concerning the recall to physicians and others. Some
of these cases are seeking monitoring of patients implanted with
Silzone(R)-coated valves who allege no injury to date. Some of these cases are
seeking class action status. The Company intends to vigorously defend these
cases. See also Note 6 regarding the fiscal year 2000 special charge for the
Silzone(R) recall.
GUIDANT LITIGATION:
GUIDANT'S CLAIMS AGAINST SJM On November 26, 1996, Guidant Corporation (a
competitor of St. Jude Medical) ("Guidant") and related parties filed a lawsuit
against St. Jude Medical, Inc. ("St. Jude Medical"), Pacesetter, Inc.
("Pacesetter" -- a wholly owned subsidiary of St. Jude Medical), Ventritex, Inc.
("Ventritex") and certain members of the Telectronics Group in State Superior
Court in Marion County, Indiana (the "Telectronics Action"). The lawsuit
alleges, among other things, that, pursuant to an agreement entered into in
1993, certain Guidant parties granted Ventritex intellectual property licenses
related to cardiac stimulation devices, and that such licenses would terminate
upon the consummation of the merger of Ventritex into Pacesetter (the "Merger").
The lawsuit further alleges that, pursuant to an agreement entered into in 1994
(the "Telectronics Agreement"), certain Guidant parties granted the Telectronics
Group intellectual property licenses relating to cardiac stimulation devices.
The lawsuit seeks declaratory and injunctive relief, among other things, to
prevent and invalidate the transfer of the Teletronics Agreement to Pacesetter
in connection with Pacesetter's acquisition of Telectronics' assets (the
"Telectronics Acquisition") and the application of license rights granted under
the Telectronics Agreement to manufacture and sale by Pacesetter of Ventritex's
products following the consummation of the Merger. The court overseeing this
case issued a stay of this matter in July 1998 so that the issues could be
addressed in an arbitration requested by the Telectronics Group and Pacesetter.
Guidant and related parties also filed suit against St. Jude Medical, Pacesetter
and Ventritex on November 26, 1996, in the United States District Court for the
Southern District of Indiana. This second lawsuit seeks (i) a declaratory
judgment that Pacesetter's manufacture, use or sale of cardiac stimulation
devices of the type or similar to the type which Ventritex manufactured and sold
at the time the Guidant parties filed their complaint would, upon consummation
of the Merger, be unlicensed and constitute an infringement of patent rights
owned by certain Guidant parties, (ii) to enjoin the manufacture, use or sale by
St. Jude Medical, Pacesetter or Ventritex of cardiac stimulation devices of the
type which Ventritex manufactured at the time the Guidant parties filed their
complaint, and (iii) certain damages and costs. This second lawsuit was stayed
by the court in July 1998 given the order to arbitrate, as discussed below.
St. Jude Medical believes that the foregoing state and federal court complaints
contain a number of significant factual inaccuracies concerning the Telectronics
Acquisition and the terms and effects of the various intellectual property
license agreements referred to in such complaints. For these reasons and others,
St. Jude Medical believes that the allegations set forth in the complaints are
without merit. St. Jude Medical has vigorously defended its interests in these
cases and will continue to do so.
16
<PAGE>
ORDER TO ARBITRATE As a result of the state and federal lawsuits brought by
Guidant and related parties, the Telectronics Group and Pacesetter filed a
lawsuit in the United States District Court for the District of Minnesota
seeking (i) a declaratory judgment that the Guidant parties' claims, as
reflected in the Telectronics Action, are subject to arbitration pursuant to the
arbitration provisions of the Telectronics Agreement, (ii) an order that the
defendants arbitrate their claims against the Telectronics Group and Pacesetter
in accordance with the arbitration provisions of the Telectronics Agreement,
(iii) to enjoin the defendants preliminarily and permanently from litigating
their dispute with the Telectronics Group and Pacesetter in any other forum, and
(iv) certain costs. After the Eighth Circuit Court of Appeals ruled on an appeal
in favor of the Telectronics Group and Pacesetter in May 1998, the United States
District Court for the District of Minnesota issued an order on July 8, 1998
directing the arbitration requested by the Telectronics Group and Pacesetter to
proceed.
STATUS OF ARBITRATION The arbitrator selected for the arbitration initially
ruled that Pacesetter and St. Jude Medical should not participate in the
arbitration proceeding which would determine whether the Telectronics Agreement
transferred to Pacesetter. Based on this ruling, the Telectronics Group and the
Guidant parties participated in the arbitration proceeding. This proceeding
occurred in late April 2000, and, on July 10, 2000, the arbitrator issued a
ruling that the attempted assignment and transfer of patent licenses in the
Telectronics Agreement by the Telectronics Group to Pacesetter was ineffective.
As a result of this decision, the Guidant parties filed papers with the U.S.
District Court for the Southern District of Indiana seeking to lift the stay of
the patent infringement court proceedings in that court which had been entered
in June 1998. The court granted Guidant's request to lift the stay and the
matter involving Guidant's patent infringement claims against St. Jude Medical
is scheduled for trial in June 2001.
BACKGROUND CONCERNING PATENTS INVOLVED IN GUIDANT'S CLAIMS In the patent
infringement case in federal court in Indiana, the Guidant parties initially
asserted claims against St. Jude Medical and Pacesetter involving four separate
patents. One of these patents ('678) expired May 3, 1998. The other patents
involved expire, according to their terms, on March 7, 2001 ('472 patent),
February 25, 2003 ('191 patent), and December 22, 2003 ('288 patent),
respectively, although St. Jude Medical has claims in the court action which, if
upheld, would cause some of the patents to expire earlier, if they apply at all.
Although Guidant has requested injunctive relief and damages as part of the
federal court lawsuit in Indiana, the request for an injunction would be barred
for any expired patent. Guidant is seeking damages for the time period prior to
expiration of the patents.
MARKMAN RULINGS The federal district court in Indiana has issued decisions as
part of the court's Markman's process which interpret what the claims in the
patents mean. These decisions are available on the court's website at
http://www.insd.uscourts.gov.
Although Guidant asserted patent infringement claims against St. Jude Medical
involving four patents when it initiated the litigation in 1996, the number of
patents involving the claims Guidant is asserting against St. Jude Medical has
changed over time. First, Guidant elected to withdraw its claims against St.
Jude Medical involving the '678 patent prior to the court issuing its Markman
decisions. After the Markman decisions, St. Jude Medical moved for summary
judgment asking the court to rule that the '191 patent is invalid. However,
before the court issued a ruling on this summary judgment motion, Guidant and
St. Jude Medical entered into a stipulation regarding the claims in the '191
patent. Based on this stipulation, the court entered an order ruling that claims
1-14 in the '191 patent are invalid. In this order, the court also dismissed
Guidant's claims against St. Jude Medical involving the '191 patent with
prejudice. The order also provided that Guidant may make an immediate appeal of
the '191 patent claim construction issues, and on February 8, 2001, Guidant
filed a notice of appeal concerning the court's rulings on the '191 patent.
Thus, at the present time, Guidant's claims against St. Jude Medical involving
two patents ('288 and '472) remain in the case set for trial. St. Jude Medical
continues to believe that the patent infringement claims asserted by Guidant in
this litigation are without merit, and will continue to vigorously defend its
interest in this litigation.
17
<PAGE>
OTHER LITIGATION MATTERS: The Company is involved in various product liability
lawsuits, claims and proceedings of a nature considered normal to its business.
Subject to self-insured retentions, management believes the Company has product
liability insurance sufficient to cover such claims and suits.
NOTE 5 - SHAREHOLDERS' EQUITY
CAPITAL STOCK: The Company's authorized capital consists of 25,000,000 shares of
$1.00 per share par value preferred stock and 250,000,000 shares of $0.10 per
share par value common stock. There were no shares of preferred stock issued or
outstanding during 2000, 1999 or 1998.
SHARE REPURCHASES: In 1999, the Company's Board of Directors authorized the
repurchase of up to $250,000 of the Company's outstanding common stock over a
three-year period. The Company repurchased 977,500 shares of its common stock
for $29,826 during 1999. No shares were repurchased during 2000. During 1998,
the Company repurchased 8,000,000 shares of its common stock for $304,789 under
a modified "Dutch Auction" self-tender offer.
EMPLOYEE STOCK PURCHASE SAVINGS PLAN: The Company's employee stock purchase
savings plan allows participating employees to purchase, through payroll
deductions, shares of the Company's un-issued common stock at 85% of the fair
market value at specified dates. Employees purchased 114,040, 94,386 and 107,545
shares in 2000, 1999 and 1998 under this plan. At December 31, 2000, 1,000,000
shares of additional un-issued common stock were available for purchase under
the plan.
STOCK COMPENSATION PLANS: The Company's stock compensation plans provide for the
issuance of stock-based awards, such as restricted stock or stock options, to
directors, officers and employees. Stock option awards under these plans
generally have an eight to ten year life, an exercise price equal to the fair
market value on the date of grant, and a four-year vesting term. At December 31,
2000, the Company had 3,140,510 shares of common stock available for grant under
these plans.
Stock option transactions under these plans during each of the three years in
the period ended December 31, 2000, are as follows:
WEIGHTED-
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
- --------------------------------------------------------------------------------
Balance at January 1, 1998 9,556,858 $ 32.60
Granted 1,350,300 30.21
Cancelled (979,284) 36.09
Exercised (158,593) 20.36
- --------------------------------------------------------------------------------
Balance at December 31, 1998 9,769,281 32.12
Granted 3,046,880 28.10
Cancelled (1,146,767) 35.39
Exercised (257,781) 22.88
- --------------------------------------------------------------------------------
Balance at December 31, 1999 11,411,613 30.93
Granted 3,731,633 50.86
Canceled (739,340) 33.19
Exercised (1,134,086) 30.11
- --------------------------------------------------------------------------------
Balance at December 31, 2000 13,269,820 $ 36.47
================================================================================
Stock options totaling 5,402,529, 4,976,093 and 3,961,943 were exercisable at
December 31, 2000, 1999 and 1998. The following table summarizes information
concerning currently outstanding and exercisable stock options at December 31,
2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGES OF NUMBER REMAINING AVERAGE AVERAGE
EXERCISE OUT- CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES STANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------------------------------------------------------------------------
$8.77-17.55 5,063 3.1 $ 17.11 5,063 $ 17.11
17.55-26.32 1,303,683 3.4 22.05 1,143,404 21.70
26.32-35.10 6,256,378 7.2 29.55 2,870,651 30.04
35.10-43.87 2,147,204 6.2 38.86 1,235,794 38.70
43.87-52.64 3,519,625 7.8 52.39 113,750 49.56
52.64-87.74 37,867 2.9 68.20 33,867 68.48
- --------------------------------------------------------------------------------
13,269,820 6.8 $ 36.47 5,402,529 $ 30.89
================================================================================
18
<PAGE>
The Company also granted 43,923 shares of restricted common stock during the
three years ended December 31, 2000, under the Company's stock compensation
plans. The value of restricted stock awards as of the date of grant is charged
to income over the periods during which the restrictions lapse.
The Company's net earnings and diluted net earnings per share would have been
reduced by $18,875, or $0.22 per share, in 2000, $18,614, or $0.22 per share, in
1999, and $11,822, or $0.14 per share, in 1998, had the fair value based method
of accounting been used for valuing the employee stock based awards.
The weighted-average fair value of options granted and the assumptions used in
the Black-Scholes options pricing model are as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Fair value of options granted $ 21.09 $ 11.12 $ 10.91
Assumptions used:
Expected life (years) 5 5 5
Risk-free rate of return 5.3% 5.8% 4.5%
Volatility 35.6% 33.2% 33.4%
Dividend yield 0% 0% 0%
================================================================================
SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholder rights plan that
entitles shareholders to purchase one-tenth of a share of Series B Junior
Preferred Stock at a stated price, or to purchase either the Company's shares or
shares of an acquiring entity at half their market value, upon the occurrence of
certain events which result in a change in control, as defined by the Plan. The
rights related to this plan expire in 2007.
NOTE 6 - SPECIAL CHARGES
2000 SPECIAL CHARGE: On January 21, 2000, the Company initiated a worldwide
voluntary recall of all field inventory of heart valve replacement and repair
products incorporating a Silzone(R) coating on the sewing cuff fabric. The
Company concluded that it will no longer utilize a Silzone(R) coating. The
Company recorded a special charge accrual totaling $26,101 during the first
quarter of 2000 relating to asset write-downs ($9,465) and other costs
($16,636), including monitoring expenses, associated with this recall and
product discontinuance. The Company has utilized $17,634 of this special charge
accrual through December 31, 2000. There can be no assurance that the final
costs associated with this recall, including litigation-related costs, will not
exceed management's estimates.
1999 SPECIAL CHARGE: The Company recorded a $9,754 special charge accrual in
1999 related to the restructuring of its international operations, of which
$8,622 has been utilized through December 31, 2000.
NOTE 7 - OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
2000 1999 1998
- --------------------------------------------------------------------------------
Interest expense $ (28,569) $ (28,104) $ (23,667)
Interest income 2,640 2,726 4,125
Net investment gain 4,062 848 15,624
Foreign currency transaction gain (loss) (2,540) 2,666 (3,304)
Other (643) (320) (1,000)
- --------------------------------------------------------------------------------
Other income (expense) $ (25,050) $ (22,184) $ (8,222)
================================================================================
NOTE 8 - INCOME TAXES
The Company's earnings before income taxes were generated from domestic and
foreign operations as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Domestic $ 75,538 $ 2,408 $ 132,574
Foreign 101,771 64,596 53,156
- --------------------------------------------------------------------------------
Earnings before income taxes $ 177,309 $ 67,004 $ 185,730
================================================================================
Income tax expense consists of the following:
2000 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal $ 31,859 $ 28,641 $ 28,409
State and Puerto Rico Section 936 3,815 2,810 5,771
Foreign 17,980 10,957 7,009
- --------------------------------------------------------------------------------
Total current 53,654 42,408 41,189
Deferred (5,439) 369 15,459
- --------------------------------------------------------------------------------
Income tax expense $ 48,215 $ 42,777 $ 56,648
================================================================================
19
<PAGE>
The tax effects of the cumulative temporary differences between the tax bases of
assets and liabilities and their carrying amount for financial statement
purposes are as follows:
2000 1999
- --------------------------------------------------------------------------------
Deferred income tax assets:
Net operating loss carryforwards $ 42,611 $ 46,399
Tax credit carryforwards 26,095 16,070
Inventories 30,212 25,678
Intangible assets 17,497 14,365
Accrued liabilities 741 7,913
- --------------------------------------------------------------------------------
Deferred income tax assets 117,156 110,425
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Unrealized gain on marketable securities (4,692) (3,854)
Property, plant and equipment (19,416) (18,124)
- --------------------------------------------------------------------------------
Deferred income tax liabilities (24,108) (21,978)
- --------------------------------------------------------------------------------
Net deferred income tax asset $ 93,048 $ 88,447
================================================================================
A reconciliation of the U.S. federal statutory income tax rate to the Company's
effective income tax rate is as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Income tax expense at the
U.S. federal statutory rate $ 62,058 $ 23,451 $ 65,006
State income taxes,
net of federal benefit 2,725 1,811 4,091
Foreign taxes at lower rates (12,451) (1,567) (6,212)
Tax benefits from foreign
sales corporation (2,280) (3,309) (5,662)
Research and development credits (3,758) (3,679) (2,906)
Non-deductible purchased
in-process research and
development charges 2,141 23,608 --
Other (220) 2,462 2,331
- --------------------------------------------------------------------------------
Income tax expense $ 48,215 $ 42,777 $ 56,648
================================================================================
Effective income tax rate 27.2% 63.8% 30.5%
================================================================================
At December 31, 2000, the Company has net operating loss and general business
and foreign tax credit carryforwards of approximately $121,746 and $21,443, that
will expire from 2002 through 2020 if not utilized; such amounts are subject to
annual usage limitations. The Company also has alternative minimum tax credit
carryforwards of $4,652 that have an unlimited carryforward period.
The Company has not recorded deferred income taxes on $123,865 of its foreign
subsidiaries' undistributed earnings as such amounts are currently intended to
be reinvested outside the U.S. indefinitely.
NOTE 9 - RETIREMENT PLANS
DEFINED CONTRIBUTION PLANS: The Company has 401(k) profit sharing plans that
provide retirement benefits to substantially all full-time U.S. employees.
Eligible employees may contribute a percentage of their annual compensation,
subject to IRS limitations, with the Company matching a portion of the
employees' contributions. The Company also contributes a portion of its profits
to the plans based upon Company performance. The Company's matching and profit
sharing contributions are at the discretion of the Company's Board of Directors.
In addition, the Company has defined contribution programs for employees outside
the United States. The benefits under the Company's plans are based primarily on
compensation levels. Company contributions under all defined contribution plans
totaled $13,170, $11,416 and $9,858 in 2000, 1999 and 1998.
DEFINED BENEFIT PLANS: The Company has unfunded defined benefit plans for
employees in certain countries outside the U.S. The Company has an accrued
liability totaling approximately $7,500 at December 31, 2000, which approximates
the actuarially calculated liability. The related pension expense was not
material.
NOTE 10 - MARKET AND CONCENTRATION RISK
FOREIGN CURRENCY CONTRACTS: The Company had no forward exchange contracts
outstanding at December 31, 2000. The Company had forward exchange contracts
totaling $27,451 at December 31, 1999, related primarily to the exchange of
Canadian Dollars, British Pounds, Swedish Kroner and the U.S. dollar. These
instruments typically had a maturity of one year or less.
20
<PAGE>
INTEREST RATE CONTRACT: During the third quarter of 1999, the Company entered
into an interest rate swap contract to hedge a substantial portion of its
variable interest rate risk through January 2000 on $138,000 of revolving credit
facility borrowings. The fair market value of this contract was not material at
December 31, 1999. The impact of interest rate contracts on the Company's net
earnings was not material during 1999. The Company did not enter into any other
interest rate contracts during 2000 or in 1998.
CONCENTRATION OF CREDIT RISK: The Company grants credit to customers in the
normal course of business but generally does not require collateral or any other
security to support its receivables. Within the European Economic Union and in
many emerging markets, payments of certain accounts receivable balances are made
by the individual countries' health care system. Although the Company does not
anticipate collection problems with these receivables, payment is dependent, to
a certain extent, upon the economic situation within those countries. The credit
risk associated with the Company's other trade receivables is mitigated due to
dispersion of the receivables over a large number of customers in many
geographic areas.
NOTE 11 - SEGMENT AND GEOGRAPHIC INFORMATION
SEGMENT INFORMATION: The Company has two reportable segments: Cardiac Rhythm
Management (CRM) and Cardiac Surgery (CS - formerly known as Heart Valve Disease
Management). The CRM segment, which includes the results from the Company's
Cardiac Rhythm Management Division and Daig Division, develops, manufactures and
distributes bradycardia pulse generator and tachycardia implantable cardioverter
defibrillator systems, electrophysiology and interventional cardiology catheters
and vascular closure devices. The CS segment develops, manufactures and
distributes mechanical and tissue heart valves and valve repair products, and
suture-free devices to facilitate coronary artery bypass graft anastomoses.
The following table presents certain financial information about the Company's
reportable segments:
<TABLE>
<CAPTION>
CRM CS ALL OTHER(1) TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 2000
External net sales $ 921,857 $ 256,949 $ -- $1,178,806
Operating profit (2) 130,916 129,468 (58,025) 202,359
Depreciation and
amortization expense 80,388 10,525 1,436 92,349
Assets (3) 1,176,541 219,651 136,524 1,532,716
Expenditures for
long-lived assets (4) 43,339 7,271 2,744 53,354
- -------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 1999
External net sales $ 843,117 $ 271,432 $ -- $1,114,549
Operating profit (2) 96,291 145,675 (152,778) 89,188
Depreciation and
amortization expense 74,626 9,581 1,495 85,702
Assets (3) 1,174,672 211,424 167,942 1,554,038
Expenditures for
long-lived assets (4) 71,190 5,717 1,771 78,678
- -------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 1998
External net sales $ 735,123 $ 280,871 $ -- $1,015,994
Operating profit 70,024 147,832 (23,904) 193,952
Depreciation and
amortization expense 59,679 7,810 1,364 68,853
Assets (3) 992,291 222,033 170,288 1,384,612
Expenditures for
long-lived assets (4) 58,323 14,546 1,328 74,197
- -------------------------------------------------------------------------------------------------
</TABLE>
(1)AMOUNTS RELATE PRIMARILY TO CORPORATE ACTIVITIES, SPECIAL CHARGES AND
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES.
(2)ALL OTHER AMOUNT INCLUDES SPECIAL CHARGES TOTALING $26,101 AND $9,754 IN 2000
AND 1999, AND PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES OF $5,000
AND $115,228 IN 2000 AND 1999.
(3)ASSETS ASSOCIATED WITH INCOME PRODUCING SEGMENTS ARE INCLUDED IN THE
SEGMENT'S ASSETS. CORPORATE ASSETS CONSIST PRINCIPALLY OF CASH, MARKETABLE
SECURITIES, AND DEFERRED INCOME TAXES.
(4)INCLUDES THE PURCHASE OF PROPERTY, PLANT AND EQUIPMENT, AND GOODWILL AND
INTANGIBLE ASSET ADDITIONS, EXCLUSIVE OF THE CRM SEGMENT ACQUISITION OF
ANGIO-SEAL(TM) AND THE CS SEGMENT ACQUISITION OF VSI IN 1999.
21
<PAGE>
GEOGRAPHIC INFORMATION: The following tables present certain geographical
financial information:
<TABLE>
<CAPTION>
NET SALES 2000 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 745,793 $ 689,051 $ 604,524
Western Europe 235,412 259,300 248,070
Other foreign countries 197,601 166,198 163,400
- ------------------------------------------------------------------------------------
$1,178,806 $1,114,549 $1,015,994
- ------------------------------------------------------------------------------------
LONG-LIVED ASSETS* 2000 1999 1998
- ------------------------------------------------------------------------------------
United States $ 599,480 $ 607,851 $ 538,403
Western Europe 43,914 57,082 44,860
Other foreign countries 104,681 130,366 67,430
- ------------------------------------------------------------------------------------
$ 748,075 $ 795,299 $ 650,693
- ------------------------------------------------------------------------------------
</TABLE>
*Long-lived assets exclude deferred income taxes and miscellaneous other assets.
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 2000
Net sales $ 295,499 $ 300,939 $ 286,969 $ 295,399
Gross profit 193,521 202,363 193,961 197,812
Net earnings 15,828(1) 34,119(2) 37,999(3) 41,148
Diluted net earnings
per share $ 0.19 $ 0.40 $ 0.44 $ 0.47
Fiscal Year Ended December 31, 1999
Net sales $ 266,734 $ 290,659 $ 275,814 $ 281,342
Gross profit 173,273 190,910 181,529 187,935
Net earnings (loss) (12,057)(4) 37,205 (36,994)(5) 36,073
Diluted net earnings
(loss) per share $ (0.14) $ 0.44 $ (0.44) $ 0.43
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1)INCLUDES PRE-TAX SPECIAL CHARGE OF $26,101 RELATING TO THE SILZONE(R)RECALL.
(2)INCLUDES PRE-TAX PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF
$5,000 RELATING TO THE VASCULAR SCIENCE, INC. ACQUISITION.
(3)INCLUDES A CASH RECEIPT RELATED TO A NON-PRODUCT ARBITRATION JUDGMENT
PERTAINING TO BUSINESS MATTERS OCCURRING IN 1997 AND 1998. THIS CASH RECEIPT,
NET OF OTHER PROVISIONS FOR LEGAL MATTERS AND FEES, WAS $15,158 AND WAS CREDITED
TO SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. ALSO, THE COMPANY RECORDED
EXPENSES FOR A $3,500 DISCRETIONARY CONTRIBUTION TO ITS CHARITABLE FOUNDATION,
$6,672 PRIMARILY FOR WRITE-OFFS OF CERTAIN ASSETS AND RELATED COSTS, AND A
$4,900 INCREASE TO ITS ALLOWANCE FOR DOUBTFUL ACCOUNTS. THESE ADDITIONAL COSTS
AND EXPENSES WERE ALSO RECORDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
(4)INCLUDES PRE-TAX PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF
$47,775 RELATING TO THE ANGIO-SEAL(TM) ACQUISITION.
(5)INCLUDES PRE-TAX PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF
$67,453 RELATING TO THE VASCULAR SCIENCE, INC. ACQUISITION, AND SPECIAL CHARGE
OF $9,754.
22
<PAGE>
FIVE-YEAR SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2000* 1999** 1998 1997*** 1996****
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:
Net sales $1,178,806 $1,114,549 $1,015,994 $ 994,396 $ 876,747
Gross profit $ 787,657 $ 733,647 $ 643,054 $ 628,679 $ 581,859
Percent of sales 66.8% 65.8% 63.3% 63.2% 66.4%
Operating profit $ 202,359 $ 89,188 $ 193,952 $ 86,817 $ 69,469
Percent of sales 17.2% 8.0% 19.1% 8.7% 7.9%
Net earnings $ 129,094 $ 24,227 $ 129,082 $ 53,140 $ 60,637
Percent of sales 11.0% 2.2% 12.7% 5.3% 6.9%
Diluted earnings per share $ 1.51 $ 0.29 $ 1.50 $ 0.58 $ 0.66
FINANCIAL POSITION AT YEAR END:
Cash and marketable securities $ 107,862 $ 88,893 $ 87,990 $ 184,536 $ 235,395
Working capital 407,275 407,777 479,067 497,188 429,451
Total assets 1,532,716 1,554,038 1,384,612 1,453,116 1,469,994
Long-term debt 294,500 477,495 374,995 220,000 229,500
Shareholders' equity 940,849 794,021 806,220 987,022 922,061
OTHER DATA:
Diluted weighted average
shares outstanding 85,817 84,735 86,145 92,052 92,372
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Except for 1997, all fiscal years noted above consisted of ?fty-two weeks.
Fiscal year 1997 consisted of ?fty-three weeks. The Company has not declared or
paid any dividends during 1996 through 2000.
* Results for 2000 include a $26,101 special charge and a purchased
in-process research and development charge of $5,000.
** Results for 1999 include a $9,754 special charge and purchased
in-process research and development charges totaling $115,228.
*** Results for 1997 include $58,669 of special charges.
****Results for 1996 include a $52,926 special charge and purchased
in-process research and development charges totaling $40,350.
23
<PAGE>
INVESTOR INFORMATION
TRANSFER AGENT
Requests concerning the transfer or exchange of shares, lost stock certificates,
duplicate mailings or change of address should be directed to the Company's
Transfer Agent at:
First Chicago Trust Company of New York
a division of EquiServe
P.O. Box 2500
Jersey City, New Jersey 07303-2500
1.800.317.4445
www.equiserve.com (Account Access Availability)
Hearing impaired #TDD: 201.222.4955
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held at 9:30 a.m. on Thursday, May
17, 2001, at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota.
INVESTOR CONTACT
Laura C. Merriam, Director of Investor Relations
To obtain information about the Company, call 1.800.552.7664, visit our Website
www.sjm.com, or write to:
Investor Relations
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, Minnesota 55117-9983
Latest Company news releases, including quarterly results, and other information
can be received by calling Investor Relations at a toll-free number
(1.800.552.7664). Company news releases are also available through "Company News
On-Call" by fax (1.800.758.5804 ext. 816662) or at http://www.prnewswire.com on
the Internet.
For more information on St. Jude Medical, visit our Website at www.sjm.com. The
Investor Relations section includes all SEC filings, a list of analyst coverage,
analyst estimates, and a calendar of upcoming earnings announcements and IR
events. Our NewsRoom features St. Jude Medical's press releases, company
background information, fact sheets, executive bios, a product photo portfolio,
and other media resources. Patient profiles can be found on our Website,
including the patients featured in this year's annual report. The Website also
has a special section with information for physicians and health care
professionals.
COMPANY STOCK SPLITS
2:1 on 4/27/79, 1/25/80, 9/30/86, 3/15/89 and 4/30/90
3:2 on 11/16/95
STOCK EXCHANGE LISTINGS
New York Stock Exchange
Chicago Board Options Exchange (CB)
Symbol: STJ
The range of high and low prices per share for the Company's common stock for
fiscal 2000 and 1999 is set forth below. As of February 7, 2001, the Company had
3,573 shareholders of record.
Fiscal Year Ended December 31 2000 1999
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
First $31.25 $23.63 $29.38 $22.94
Second $44.25 $24.19 $38.31 $23.88
Third $51.63 $36.88 $40.75 $29.75
Fourth $62.50 $46.38 $30.69 $25.13
TRADEMARKS
Aescula(TM), Affnity(R), Alliance(TM), Angio-Seal(TM), Angstrom(R),
AutoCapture(TM) Pacing System, BiLinx(TM), Contour(R), Duo(TM), Dynamic Atrial
Overdrive(TM), Entity(TM), Epic(TM), Flex Cuff(TM), Frontier(TM), Genesis(TM),
Integrity(TM), Isolator(TM), Lineage(TM), Linx(TM), Livewire(TM), Livewire
TC(TM), Microny(R), Photon(R), Response CV(TM), Silzone(R), SJM(R), SJM
Biocor(TM), SJM Epic(TM), SJM Quattro(TM), SJM Regent(TM), SJM Tailor(TM),
Spyglass(TM), St. Jude Medical(R), Supreme(TM), Swartz(TM), Symmetry(TM),
Trio(TM), Tendril(R), Toronto Duo(TM), Toronto Root(TM), Toronto SPV(R),
Trilogy(R), TVL(R), Ultimum(TM), UltraFlex(TM), Vectra(R).
24
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>stjude010431_ex-21.txt
<DESCRIPTION>EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
<TEXT>
EXHIBIT 21
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
St. Jude Medical, Inc. Wholly Owned Subsidiaries:
- -------------------------------------------------
* Pacesetter, Inc. - Sylmar, California, Scottsdale, Arizona, and Maven,
South Carolina (Delaware corporation) (doing business as St. Jude Medical
Cardiac Rhythm Management Division)
* St. Jude Medical S.C., Inc. - St. Paul, Minnesota (Minnesota corporation)
- Lifeline Medical Systems, Inc. (Illinois Corporation)
(wholly-owned subsidiary of St. Jude Medical S.C., Inc.)
* St. Jude Medical Sales Corporation - St. Paul, Minnesota (Barbados
corporation)
* St. Jude Medical Europe, Inc. - St. Paul, Minnesota (Delaware corporation)
- Brussels, Belgium branch
* St. Jude Medical Canada, Inc. - Mississauga, Ontario and St. Hyacinthe,
Quebec (Ontario, Canada corporation)
* 151703 Canada, Inc. - St. Paul, Minnesota (Ontario, Canada corporation)
* St. Jude Medical (Hong Kong) Limited - Kowloon, Hong Kong (Hong Kong
corporation)
- Shanghai and Beijing, China representative offices
- Korean and Taiwan branch offices
- Mumbai, New Delhi, Calcutta and Chennai, India branch offices
* St. Jude Medical, Inc., Cardiac Assist Division - St. Paul, Minnesota
(Delaware corporation), (Assets of St. Jude Medical, Inc., Cardiac Assist
Division sold to Bard 1/19/96)
* St. Jude Medical Australia Pty., Ltd. - Sydney Australia (Australian
corporation)
* St. Jude Medical Brasil, Ltda. - Sao Paulo, Brazil (Brazilian corporation)
- Telectronics Medica, Ltda. - Sao Paulo and Belo Horizonte Brazil
(Brazilian corporation)
* Medical Telectronics, Ltd. - Auckland, New Zealand (New Zealand
corporation)
* Daig Corporation - Minnetonka, Minnesota (Minnesota corporation)
* St. Jude Medical Colombia, Ltda. (Bogota, Colombia) (Colombian corporation)
* St. Jude Medical Cardiovascular Group, Inc. - Maple Grove, Minnesota
(Minnesota corporation)
* SJM Europe, Inc. - St. Paul, Minnesota (Delaware corporation)
- Tokyo, Japan branch
<PAGE>
SJM Europe Inc. Wholly Owned Subsidiaries
- -----------------------------------------
* St. Jude Medical Puerto Rico, Inc. - Caguas, Puerto Rico (Delaware
corporation)
- St. Jude Medical Puerto Rico Holding, B.V. (Netherlands
corporation) (wholly-owned subsidiary of St. Jude Medical Puerto
Rico, Inc.)
- St. Jude Medical Nederland B.V. (Netherlands corporation)
(wholly-owned subsidiary of St. Jude Medical Puerto Rico
Holding, B.V.)
- Telectronics B.V. (Netherlands corporation)
(wholly-owed subsidiary of St. Jude Medical B.V.)
- St. Jude Medical Netherlands Distribution AB (Swedish
corporation headquartered in the Netherlands) (wholly-owned
subsidiary of St. Jude Medical Puerto Rico Holding, B.V.)
- St. Jude Medical Puerto Rico B.V. (Netherlands)
(wholly-owned subsidiary of St. Jude Medical
Netherlands Distribution AB)
- Puerto Rico branch of St. Jude Medical Puerto Rico
B.V.
- St. Jude Medical Coordination Center (Belgium branch of
St. Jude Medical Netherlands Distribution AB)
* St. Jude Medical AB (Swedish corporation) (formerly known as Pacesetter AB)
* St. Jude Medical Sweden AB (Veddesta, Sweden) (Swedish corporation)
* St. Jude Medical Danmark A/S (Danish corporation)
- Telectronics Scandinavia Aps (Danish corporation) (wholly-owned
subsidiary of St. Jude Medical Danmark A/S)
* St. Jude Medical Pacesetter Sales AB (Swedish corporation)
* St. Jude Medical (Portugal) - Distribuicao de Produtos Medicos, Lda.
(Portuguese corporation)
* St. Jude Medical Export Ges.m.b.H. (Austrian corporation)
* St. Jude Medical Medizintechnik Ges.m.b.H. (Austrian corporation)
* St. Jude Medical Italia S.p.A. (Italian corporation)
* N.V. St. Jude Medical Belgium, S.A. (Belgian corporation)
- Portugal branch
* St. Jude Medical Espana, S.A. (Spanish corporation)
* St. Jude Medical France S.A. (French corporation)
* St. Jude Medical Finland O/y (Finnish corporation)
* St. Jude Medical Sp.zo.o. (Polish corporation)
* St. Jude Medical GmbH (German corporation)
* St. Jude Medical UK Limited (United Kingdom corporation)
* St. Jude Medical AG (Swiss corporation)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>stjude010431_ex-23.txt
<DESCRIPTION>EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS
<TEXT>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of St. Jude Medical, Inc. of our report dated February 6, 2001, included in the
2000 Annual Report to Shareholders of St. Jude Medical, Inc.
Our audits also included the financial statement schedule of St. Jude Medical,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in Registration Statement No.
33-9262, Registration Statement No. 33-41459, Registration Statement No.
33-48502, Registration Statement No. 33-54435, Registration Statement No.
333-42945, Registration Statement No. 333-42658, and Registration Statement No.
333-42668 on Form S-8 of our report dated February 6, 2001, with respect to the
consolidated financial statements and schedule of St. Jude Medical, Inc.
incorporated by reference in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
March 21, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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