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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000897101-02-000215.txt : 20020415
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ACCESSION NUMBER: 0000897101-02-000215
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020329
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: 1934 Act
SEC FILE NUMBER: 001-12441
FILM NUMBER: 02594426
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>
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<TYPE>10-K
<SEQUENCE>1
<FILENAME>stjude021570_10k.txt
<DESCRIPTION>ST. JUDE MEDICAL, INC. FORM 10K
<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, 2001
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 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 ___
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. ___
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $7.1 billion at February 22, 2002, when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $81.13 per share.
The Registrant had 87,754,141 shares of its $0.10 par value Common
Stock outstanding as of February 22, 2002.
================================================================================
<PAGE>
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
- ---- ----------- ----
PART I
1. Business.......................................................... 1
2. Properties........................................................ 9
3. Legal Proceedings................................................. 9
4. Submission of Matters to a Vote of Security Holders............... 11
4A. Executive Officers of the Registrant.............................. 11
PART II
5. Market for Registrant's Common Equity and Related
Shareholder Matters........................................... 13
6. Selected Financial Data........................................... 13
7. Management's Discussion and Analysis of Results of Operations
and Financial Condition....................................... 13
7A. Quantitative and Qualitative Disclosures About Market Risk........ 14
8. Financial Statements and Supplementary Data....................... 14
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 14
PART III
10. Directors and Executive Officers of the Registrant................ 14
11. Executive Compensation............................................ 14
12. Security Ownership of Certain Beneficial Owners and Management.... 14
13. Certain Relationships and Related Transactions.................... 15
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 15
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 2001, are incorporated by reference in Parts I and II.
Portions of the Company's definitive Proxy Statement dated March 28, 2002, 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 leader in the development, manufacturing and
distribution of cardiovascular medical devices for the global cardiac rhythm
management (CRM), cardiology and vascular access (C/VA), and cardiac surgery
(CS) markets. The Company's principal products in each of these markets are:
bradycardia pacemaker systems, tachycardia implantable cardioverter
defibrillator (ICD) systems, and electrophysiology (EP) catheters in CRM;
vascular closure devices, catheters, guidewires and introducers in C/VA; and
mechanical and tissue heart valves, valve repair products, and suture-free
devices to facilitate coronary artery bypass graft anastomoses in CS.
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. St. Jude also sells its products in Eastern
Europe, Africa, the Middle East, Canada, Latin America and the Asia-Pacific
region through employee-based sales organizations and independent distributors.
On 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.
On March 16, 1999, St. Jude purchased the Angio-Seal(TM) business of
Tyco International Ltd. Angio-Seal(TM) manufactured and marketed vascular
closure devices.
During 2001, 2000 and 1999, the Company acquired various businesses
involved in distribution of the Company's products.
The Company historically reported under two segments. During 2001, the
Company completed a reorganization of its global sales activities, which
resulted in changes to its internal management and financial reporting
structure. The Company now manages its business on the basis of one reportable
segment: the development, manufacture and distribution of cardiovascular medical
devices. In 2001, approximately 72% of net sales were derived from products sold
in the cardiac rhythm management market, 10% in the cardiology and vascular
access market, and 18% in the cardiac surgery market. In 2000, approximately 69%
of net sales were derived from products sold in the cardiac rhythm management
market, 9% in the cardiology and vascular access market, and 22% in the cardiac
surgery market. Approximately 65% of the Company's 2001 net sales were in the
U.S. market, as compared with 63% in 2000. Additional geographical information
is set forth in the Company's 2001 Annual Report to Shareholders on page 22 of
the Financial Report and is incorporated herein by reference.
St. Jude was incorporated in Minnesota in 1976.
1
<PAGE>
PRINCIPAL PRODUCTS
CARDIAC RHYTHM MANAGEMENT: The Company's pacemakers and related systems
treat patients with hearts that beat inappropriately slow, a condition known as
bradycardia. 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.
St. Jude's current pacing products include the advanced featured
Identity(TM) family of pacemakers, approved by the U.S. Food and Drug
Administration (FDA) in November 2001. The Identity(TM) pacemaker models
maintain all of the therapeutic advancements of previous St. Jude Medical
pacemakers, including the AF Suppression(TM) Pacing Algorithm and the
BEAT-BY-BEAT(TM) AutoCapture(TM) Pacing System. The Identity(TM) models expand
the Company's AFx(TM) feature set to include a suite of arrhythmia diagnostics,
including dual-channel stored electrograms. AFx(TM) features are designed to
help physicians better manage pacemaker patients suffering from atrial
fibrillation (AF) - the world's most common cardiac arrhythmia. Also available
are Integrity(R) u (Micro) and the Integrity AFx(R) pacemaker models. The
Integrity(R) models build on the platform of the Affinity(R) product line with
the Beat-by-Beat(TM) AutoCapture(TM) Pacing System. Other available products
include the Affinity(R) pacemakers, the Entity(R) family of pacemakers,
containing the 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. The Microny(R) II SR+ and
Microny(R) K SR are single chamber pacemakers available in the United States.
Other single-chamber pacemakers, the Microny(R) SR+ and the Regency(R) pacemaker
families, are also available outside the United States.
The Identity(TM), Integrity(R), Affinity(R), Entity(TM) and Regency(R)
families of pacemakers, as well as the Microny(R) SR+ pacemaker, all offer the
unique feature of the BEAT-BY-BEAT(TM) 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. In addition, the
Identity(TM) and Integrity(R) pacemakers include St. Jude Medical's AF
Suppression(TM) Pacing Algorithm, a therapy designed to suppress atrial
fibrillation.
St. Jude's current pacing leads include the active-fixation Tendril(R)
DX and SDX lead families and the passive-fixation Passive Plus(R) DX family
which are available worldwide, and the passive-fixation Membrane(TM) EX(TM)
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.
Outside the United States, St. Jude also markets the Genesis(TM)
System, a device-based ventricular resynchronization system designed for the
treatment of heart failure (HF) and suppression of atrial fibrillation. HF
impairs the heart's ability to pump blood efficiently, causing shortness of
breath, fatigue, swelling and other debilitating symptoms. The Genesis(TM)
System includes three components: the Frontier(TM) 3 x 2 biventricular
stimulation device, designed to enhance cardiac function by resynchronizing the
contractions of the heart's two ventricles, the Aescula(TM) LV lead, and the
Alliance(TM) Catheter Delivery System.
2
<PAGE>
ICDs and related systems treat patients with hearts that beat
inappropriately fast, a condition known as tachycardia. 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.
The full St. Jude ICD product offering includes the Atlas(TM) ICD,
Photon(R) u ICD, Photon(R) ICD, and Contour(R) MD ICD. St. Jude received FDA
approval on the Atlas(TM) ICD family, powerful rate-adaptive ICDs, in December
2001. Representing an improvement from conventional high-energy ICDs, Atlas(TM)
ICDs offer high energy and small size without compromising charge times,
longevity, or feature set flexibility. Other available ICDs include the
Photon(R) u (Micro) DR/VR ICD family, the second-generation ICD products in a
series of downsized dual- and single-chamber St. Jude Medical ICDs with advanced
technology. Like the clinically proven Photon(R) DR ICD, FDA-approved in October
2000, the Photon(R) Micro DR/VR ICD family maintains a comprehensive feature set
underscored by precise SVT discrimination and AV Rate Branch designed to enhance
the precision of ventricular-based arrhythmia detection in a compact,
physiologic-shaped package. In addition, the Profile(TM) MD ICD is available
outside the United States.
The Company's ICDs are used with the dual electrode SPL and single
electrode TVL and TVL-ADX (active-fix) transvenous leads. The Atlas(TM) ICD,
Photon(R) u ICD, Photon(R) ICD, Profile(TM) MD ICD, and Contour(R) MD ICD are
programmable with the Model 3510 universal programmer.
The Model 3510 universal pacemaker and ICD programmer is an easy-to-use
programmer that supports St. Jude's ICDs and pacemakers, including the AtlasTM
ICD family and the Identity(TM) pacemaker family. The Model 3510 universal
programmer allows the physician to utilize the diagnostic and therapeutic
capabilities of St. Jude's pacemakers and ICDs.
Electrophysiology is the study of the electrical activity of the heart,
which controls the heart rhythm. EP catheters are placed into the human body
percutaneously (through the skin) 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. St. Jude's EP catheters
are available in multiple configurations. St. Jude's Supreme(TM) product line
consists of mapping catheters for the diagnosis of various cardiac arrhythmias,
including the 4 French Supreme(TM) diagnostic catheter for standard mapping
applications, and the Supreme Spiral SC(TM) catheter to assist clinicians in the
diagnosis of paroxysmal atrial fibrillation. St. Jude also offers the Livewire
TC Compass(TM) ablation catheter, which aids in clinical management of focal
arrhythmias, and the Livewire TC(TM) Bi-Directional ablation catheter, launched
in January 2002 following FDA and European market approval.
CARDIOLOGY AND VASCULAR ACCESS: The Company produces specialized
disposable cardiovascular devices, including angiography catheters, bipolar
temporary pacing catheters, percutaneous catheter introducers, diagnostic
guidewires, and vascular closure devices. Angiography catheters, such as St.
Jude's Spyglass(TM) angiography catheters, are used in coronary angiography
procedures to obtain images of coronary arteries to identify structural cardiac
diseases. St. Jude bipolar temporary pacing catheters are inserted
percutaneously for temporary use (ranging from 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. The Company produces and markets several designs of bipolar
temporary pacing catheters, including its Pacel(TM) biopolar pacing catheters,
3
<PAGE>
which are available in both torque control and flow-directed models with a broad
range of curve choices and electrode spacing options. 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. St. Jude'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 and needles.
These products are offered in a variety of sizes and packaging configurations,
including St. Jude's newest introducer platform, the Ultimum(TM) hemostasis
introducer. Diagnostic guidewires, such as St. Jude's GuideRight(TM) and
HydroSteer(TM) guidewires, are used in conjunction with percutaneous catheter
introducers to aid in the introduction of intravascular catheters. St. Jude's
diagnostic guidewires are available in multiple lengths and incorporate a
surface finish for lasting lubricity.
The Company's vascular closure devices are used to close femoral artery
puncture wounds following angioplasty, stenting and diagnostic procedures. In
September 2001, St. Jude received FDA approval and European CE Marking for its
newest vascular closure product, the St. Jude Medical Angio-Seal(TM) STS
PLATFORM. The STS PLATFORM incorporates a self-tightening suture, which
eliminates the need for a post-placement spring, allowing for completion of the
entire procedure in the catheterization lab. It also integrates a
Secure-Cap(TM), which facilitates proper deployment through audible, tactile and
visual confirmations during the closure process.
CARDIAC SURGERY: 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. St. Jude 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 1.2 million patients to date. The SJM Regent(TM)
mechanical heart valve was approved for sale in Europe in December 1999 and
received FDA approval for U.S. market release in March 2002. In the United
States, the Company markets the Toronto SPV(R) stentless tissue valve, which
received FDA approval in November 1997. Outside the United States, the Company
markets the SJM Epic(TM) tissue heart valve, the SJM(R) Biocor(TM) stented
tissue valve, the Toronto SPV(R) stentless tissue valve and the Toronto Root(TM)
tissue valve. In August 2001, European regulatory approval was received to
market the next-generation Toronto Root(TM) tissue valve, a stentless aortic
root bioprosthesis used when aortic root disease accompanies valve disease.
Clinical trials for the Toronto Root(TM) valve began in the U.S. and Canada in
2001.
Annuloplasty rings are prosthetic devices used to repair diseased or
damaged mitral heart valves. The Company offers a line of valve repair products
including the semi-rigid SJM(R) Seguin annuloplasty ring and the fully flexible
SJM Tailor(TM) ring.
The Company has also entered into an agreement with LifeNet Transplant
Services, which enables it to assist in the marketing of human donated allograft
heart valves in the U.S.
In addition to prosthetic heart valves, St. Jude markets the
Symmetry(TM) Bypass System Aortic Connector (the "Aortic Connector"), a
suture-free device to facilitate coronary artery bypass graft aortic
anastomoses. St. Jude commenced marketing of this product in Western Europe in
2000 and in the U.S. during May 2001. Also in 2001, St. Jude received European
CE Marking for the first distal connector product, which mechanically connects
saphenous vein grafts to coronary arteries. The Company, however, intends to
make additional enhancements to this product in 2002 prior to filing for U.S.
regulatory approval and prior to releasing the product to either the European or
U.S. markets.
4
<PAGE>
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. 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
product 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.
COMPETITION
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.
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. St. Jude
believes that it competes on the basis of all these factors. 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 with the use of tactics such as consigned
inventory, bundled product sales and reduced pricing.
The Company has traditionally been a technological leader in the global
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 worldwide, one of which is the Company. ICD
therapy is a highly competitive market. The Company's other two competitors,
Medtronic, Inc. and Guidant Corporation, 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 global cardiology and vascular access market is also a growing
market 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 Company is the technological leader in mechanical anastomotic
connector devices. The Company is aware of several other companies who are
investing significant dollars into developing these technologies.
5
<PAGE>
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 2001, 2000 or 1999 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. In Japan, the Company primarily utilizes
independent distributors. Throughout the rest of the world the Company uses a
combination of independent distributor and direct sales organizations.
Group purchasing organizations (GPOs) in the United States continue to
consolidate the purchasing for some of the Company's customers. Several such
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 these products to members of these GPOs.
Payment terms worldwide are consistent with local country practices.
Orders are shipped as they are received and, therefore, no material backlog
exists.
SEASONALITY
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
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 United States and other
markets, and patient tendency to defer, if possible, cardiac procedures during
these holiday seasons. Independent distributors may randomly place large orders
that can distort the net sales pattern just described. In addition, new product
introductions, acquisitions, and regulatory approvals can impact the typical net
sales patterns.
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 with respect to
existing products. The Company's research and development expenses, exclusive of
purchased in-process research and development, were $164.1 million (12.2% of net
sales), $137.8 million (11.7% of net sales) and $125.1 million (11.2% of net
sales) in 2001, 2000 and 1999, 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
6
<PAGE>
electrophysiology and cardiology products are currently marketed under the less
rigorous 510(k) pre-market notification procedure of the Act.
In addition, the FDA may require testing and surveillance programs to
monitor the effects of approved products that 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 is 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 U.S. Department of Justice. Furthermore, the FDA could
proceed to ban, or request recall, repair, replacement or refund of the cost of,
any device previously manufactured or distributed.
The FDA also regulates recordkeeping 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 by the FDA due to adverse experience reports.
Diagnostic-related groups (DRG) reimbursement schedules regulate the
amount the United States government, through the Centers for Medicare and
Medicaid Services (CMS), 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 are under consideration, which would
restrict future funding increases for these programs. Changes in current DRG
reimbursement levels could have an adverse effect on the Company's domestic
pricing flexibility.
St. Jude's business internationally is subject to medical device laws
in individual countries outside the United States. 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 Union, the regulatory systems have been harmonized, and approval to
market in all European Union countries (represented by 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 transmission of BSE through medical
products and no reported cases of BSE in the United States. 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
bovine pericardial material. The Company is cooperating with the regulatory
agencies considering these issues.
7
<PAGE>
In May 1995, prior to the acquisition by St. Jude, Telectronics Pacing
Systems, Inc. (Telectronics), which is now part of St. Jude Medical Cardiac
Rhythm Management Division, 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 U.S. 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 it's the Company's
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. Furthermore, 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 Company operates in an industry that is susceptible to significant
product liability claims. These claims may be brought by individuals seeking
relief for themselves or, increasingly, by groups seeking to represent a class.
In addition, product liability claims may be asserted against the Company in the
future relative to events that are not known to management at the present time.
While it is not possible to predict the outcome of every claim, the Company
believes that it has adequate product liability insurance to cover the costs
associated with them.
Subsequent to the tragic events of September 2001, the product
liability insurance market has dramatically changed. The Company has secured
product liability coverage for 2002, however the self-insured retention and
insurance premiums are significantly higher than in prior years. There can be no
assurance that this trend will reverse in the future. As a result of the
increased self-insured retention for 2002, the Company has increased financial
exposure in the event of significant product liability matters.
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 CRM 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 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 some of its CRM products at its Swedish
manufacturing facility, the 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
8
<PAGE>
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, 2001, the Company had 5,568 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 employees in Sweden and certain employees in France. The Company
believes that its relationship with its employees is generally good.
INTERNATIONAL OPERATIONS
The Company's international business is subject to such special risks
as currency exchange controls, the imposition or increase of import or export
duties and surtaxes, and international credit, financial or political problems.
Currency exchange rate fluctuations relative to the U.S. dollar can affect
reported consolidated revenues and 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 page 5 of
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", incorporated herein by reference from the Financial Report included
in the Company's 2001 Annual Report to Shareholders. Operations outside the
United States also 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 59%, or 338,000 square feet, of its total manufacturing
space, and the balance is leased.
The Company also maintains sales and administrative offices in the
United States at 16 locations in six states and outside the United States at 33
locations in 24 countries. With the exception of one location, all of these
locations are leased.
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. The Company believes that it has sufficient
space for its current operations and for foreseeable expansion in the next few
years.
ITEM 3. LEGAL PROCEEDINGS
SILZONE(R) LITIGATION: The Company has been sued by patients alleging
defects in the Company's mechanical heart valves and valve repair products with
Silzone(R) coating. The Company voluntarily recalled products with 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 and repair products who
allege no injury to date. Some of these cases are seeking class action status.
On April 18, 2001, the U.S. Judicial Panel on Multi-Litigation ruled
that certain lawsuits filed in U.S. federal district court involving products
with Silzone(R) coating should be part of Multi District Litigation proceedings,
which will take place under the supervision of U.S. District court Judge John
9
<PAGE>
Tunheim in Minnesota. As a result, a number of actions involving products with
Silzone(R) coating are being transferred to Judge Tunheim's court in Minnesota
for coordinated or consolidated pretrial proceedings.
While it is not possible to predict the outcome of these cases, the
Company believes that it has adequate product liability insurance to cover the
costs associated with them. The Company further believes that any costs not
covered by product liability insurance will not have a material adverse impact
on the Company's financial position or liquidity, but may be material to the
consolidated results of operations of a future period.
GUIDANT LITIGATION: In November 1996 Guidant Corporation ("Guidant")
sued St. Jude Medical alleging that St. Jude Medical did not have a license to
certain patents controlled by Guidant covering ICD products and alleging that
St. Jude Medical was infringing those patents.
St. Jude Medical's contention that it had obtained its patent license
from Guidant to the patents in issue when it acquired certain assets of
Telectronics in November 1996 was rejected by an arbitrator in July 2000. In May
2001, a federal district court judge also ruled that the Guidant patent license
with Telectronics had not transferred to St. Jude Medical.
Guidant's suit in the United States District Court for the Southern
District of Indiana originally alleged infringement by St. Jude Medical of four
patents. Guidant later dismissed its claim on one patent (the `678 patent). In
addition, in response to a stipulation by the parties, the court ruled that a
second patent (the `191 patent) was invalid. Guidant has appealed the ruling of
invalidity concerning the `191 patent and the Court of Appeals for the Federal
Circuit held oral arguments on the `191 appeal on February 5, 2002.
A jury trial involving the two remaining patents asserted by Guidant
(the `288 and `472 patents) commenced in June 2001. The jury issued its verdict
on July 3, 2001, finding that both the `472 and `288 patents were valid and that
St. Jude Medical did not infringe the `288 patent. The jury also found that St.
Jude did infringe the `472 patent, which expired on March 4, 2001, but that the
infringement was not willful. The jury awarded damages of $140 million to
Guidant.
On February 13, 2002, the judge overseeing the jury trial issued his
rulings on the various post-trial motions. In particular, the judge ruled that
the `472 patent was invalid on two grounds: lack of proper written description
and double patenting. The judge also ruled that claim 18 was not infringed and
that claim 1 was infringed in only a limited manner.
The judge further ruled that the `288 patent was invalid for both
obviousness and failure to disclose the best mode.
The judge also found that St. Jude Medical was entitled to a new trial
on the issue of damages in the event the court's rulings on the other matters
were reversed on appeal. Finally, the judge held that in the event his other
rulings were reversed, St. Jude Medical would be entitled to a new trial because
of misconduct by Guidant and its attorneys during the first trial and that, in
such an event, Guidant would have to pay certain attorney's fees of St. Jude
Medical. The court ruled on several other motions, not summarized here.
The effect of the court's post-trial rulings was to eliminate the $140
million verdict against St. Jude Medical. The Company expects that Guidant will
appeal the judge's decision.
10
<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, the Company believes it has
product liability insurance sufficient to cover such claims and suits.
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 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
<S> <C>
Name Age Position*
- ----------------------- --- ----------------------------------------------------------------------------
Terry L. Shepherd 49 Chief Executive Officer (1999)
Daniel J. Starks 47 President and Chief Operating Officer (2001)
David W. Adinolfi 46 President, Daig (2001)
Robert Cohen 44 Vice President, Business and Technology Development (1998)
Michael J. Coyle 39 President, Cardiac Rhythm Management (2001)
Peter L. Gove 54 Vice President, Corporate Relations (1994)
Steven J. Healy 44 President, Cardiac Surgery (1999)
John C. Heinmiller 47 Vice President, Finance, Chief Financial Officer and Treasurer (1998)
Jeri L. Lose 44 Vice President, Information Technology and Chief Information Officer (2000)
Joseph H. McCullough 52 President, International (2001)
Kevin T. O'Malley 50 Vice President, General Counsel and Secretary (1994)
Michael T. Rousseau 46 President, U.S. Sales (2001)
Frieda J. Valk 48 Vice President, Administration (1999)
- -----------------------
</TABLE>
*Dates in brackets indicate year during which the named executive officers began
serving in such capacity.
Executive officers serve at the pleasure of the Board of Directors.
Mr. Shepherd joined the Company in 1994 as President of Cardiac
Surgery. In 1999, he was appointed President and Chief Executive Officer of St.
Jude, and since February 2001, has been the Company's Chief Executive Officer.
Mr. Shepherd has also served on St. Jude's Board of Directors since 1999.
11
<PAGE>
Mr. Starks joined St. Jude in 1996 as a result of the Company's
acquisition of Daig Corporation, where he continued as Chief Executive Officer.
In 1997, he was also appointed CEO of Cardiac Rhythm Management, and in April
1998, became President and CEO of Cardiac Rhythm Management. He was appointed
President and Chief Operating Officer of St. Jude in February 2001. Mr. Starks
has also served on the Company's Board of Directors since 1996.
Mr. Adinolfi joined St. Jude in 1994 as a result of the Company's
acquisition of Pacesetter, Inc. He served as Vice President, CRM Global Product
Planning and Identification from June 1996 to March 1998, and in March 1998
became Vice President of CRM Business Development, Planning and Research. He
also served as Senior Vice President, CRM Global Marketing beginning in April
1998, and in March 1999 became Senior Vice President of CRM Product Portfolio
Management. In February 2001, Mr. Adinolfi was appointed President of Daig.
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 and
Technology Development. Prior to joining the Company, he was employed by Sulzer
Medica, a medical device company. During his 19-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. He
was appointed President of Cardiac Rhythm Management in February 2001. Prior to
that appointment, 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, a pharmaceutical products company, in a variety of technical and
business management roles in both its Pharmaceutical and Medical Device
Divisions.
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.
Mr. Healy first joined the Company in 1983 as a heart valve sales
representative. In 1999 he was appointed President, Cardiac Surgery. From 1996
to 1999, Mr. Healy was Vice President of Heart Valve Sales and Marketing. He
served as Heart Valve Vice President of Marketing from 1993 to 1996.
Mr. Heinmiller joined the Company in May 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 from 1997 to 1998, a privately
held asset management company, and was Vice President of Finance and
Administration for Daig Corporation from 1995 to 1997. 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. Lose (formerly 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. Lose was Vice President of Systems Development at U.S. Bancorp, a
multi-state financial services holding company, from 1993 to 1999. From 1990 to
1993, Ms. Lose was a Senior Manager in Information Technology Consulting with
Ernst & Young LLP, an
12
<PAGE>
international public accounting firm. From 1979 to 1990, she held several
positions in Accounting and then Information Technology with General Mills, Inc,
a consumer food products company.
Mr. McCullough joined St. Jude in 1994 as a CRM Regional Sales
Director. He became Vice President, CRM Marketing in 1996 and in 1997 was named
Senior Vice President, CRM Europe, where his responsibilities included sales,
marketing and managing the Company's manufacturing facility in Veddesta, Sweden.
He was named President, International in July 2001. Prior to joining the
Company, Mr. McCullough worked for several medical technology companies for more
than 20 years.
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 General Counsel of the
Medical Device and Diagnostics Division.
Mr. Rousseau joined the Company in 1999 as Senior Vice President, CRM
Global Marketing, and in August 1999, CRM Marketing and Sales were combined
under his leadership. In January 2001, he was named President, U.S. CRM Sales,
and in July 2001, he was named President, U.S. Sales. Prior to joining St. Jude,
Mr. Rousseau worked for Sulzer Intermedics, Inc., a medical device company, for
11 years. At Sulzer, he served as Vice President, Tachycardia, in 1997 and was
appointed Vice President, U.S. Sales and Marketing in 1998.
Ms. Valk joined the Company in 1996 as Human Resources Director of St.
Jude Medical Europe. She was appointed 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.
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 2001 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
2001 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 2001 Annual Report
to Shareholders is incorporated herein by reference.
13
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under the caption "Market Risk" on page 5 of
the Financial Report included in the Company's 2001 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 2001 Annual Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Earnings - Fiscal Years ended December 31,
2001, 2000 and 1999
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Shareholders' Equity - Fiscal Years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows - Fiscal Years ended December 31,
2001, 2000 and 1999
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, 2002, is incorporated
herein by reference. Information on executive officers is incorporated herein by
reference to Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Company's definitive Proxy Statement dated March 28, 2002, 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, 2002, is incorporated herein by
reference.
14
<PAGE>
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, 2002, is incorporated herein by reference.
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 2001 Annual
Report to Shareholders (see Exhibit 13) are incorporated herein by
reference:
Consolidated Statements of Earnings - Fiscal Years ended December
31, 2001, 2000 and 1999
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Shareholders' Equity - Fiscal Years
ended December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows - Fiscal Years ended
December 31, 2001, 2000 and 1999
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 above have been
omitted because the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable.
(3) EXHIBITS
Pursuant to Item 601(b)(4)(iiii) of Regulation S-K, copies of
certain instruments defining the rights of holders of certain
long-term debt of the Company are not filed, and in lieu thereof,
15
<PAGE>
the Company agrees to furnish copies thereof to the Securities and
Exchange Commission upon request.
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 Annual
Report on Form 10-K for the year ended December 31, 1996.
3.2 Bylaws are incorporated by reference from Exhibit 3(ii) of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 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 Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.
10.1 Form of Indemnification Agreement that the Company has entered
into with officers and directors is incorporated by reference from
Exhibit 10(d) of the Company's Annual Report on Form 10-K for the
year ended December 31, 1986.*
10.2 St. Jude Medical, Inc. Management Incentive Compensation Plan.*#
10.3 Management Savings Plan dated February 1, 1995, is incorporated by
reference from Exhibit 10.7 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994.*
10.4 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 Annual Report on Form 10-K for the year ended
December 31, 1994.*
10.5 St. Jude Medical, Inc. 1991 Stock Plan is incorporated by
reference from the Company's Registration Statement on Form S-8
filed June 28, 1991 (Commission File No. 33-41459).*
16
<PAGE>
EXHIBIT EXHIBIT INDEX
- ----------- ------------------------------------------------------------------
10.6 St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by
reference from Exhibit 4(a) of the Company's Registration
Statement on Form S-8 filed July 1, 1994 (Commission File No.
33-54435).*
10.7 St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by
reference from Exhibit 4.1 of the Company's Registration Statement
on Form S-8 filed December 22, 1997 (Commission File No.
333-42945).*
10.8 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
Annual Report on Form 10-K for the year ended December 31, 1999.*
10.9 St. Jude Medical, Inc. 2000 Stock Plan.*#
10.10 St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings
Plan.*#
10.11 Amended and Restated Employment Agreement dated as of March 25,
2001, between the Company and Daniel J. Starks is incorporated by
reference from Exhibit 10.17 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.*
10.12 Form of Severance 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 10.18 of the
Company's Annual Report on Form 10-K for the year ended December
31, 2000.*
10.13 Amended and Restated Employment Agreement dated as of March 25,
2001, between the Company and Terry L. Shepherd is incorporated by
reference from Exhibit 10.19 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.*
13 Portions of the Company's 2001 Annual Report to Shareholders.#
21 Subsidiaries of the Registrant.#
17
<PAGE>
EXHIBIT EXHIBIT INDEX
- ----------- ------------------------------------------------------------------
23 Consent of Independent Auditors.#
24 Power of Attorney.#
- -------------------
* 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 FILED DURING THE QUARTER ENDED DECEMBER 31, 2001:
No reports on Form 8-K were filed by the Company during the fourth
quarter of 2001.
(c) EXHIBITS: Reference is made to Item 14(a)(3).
(d) SCHEDULES:
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 CHARGED TO END OF
DESCRIPTION OF YEAR EXPENSE DEDUCTIONS(1) YEAR
- ------------------------------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts
Fiscal Year Ended:
<S> <C> <C> <C> <C>
December 31, 2001 $ 13,831 $ 6,468 $ 3,089 $ 17,210
December 31, 2000 13,529 6,913 6,611 13,831
December 31, 1999 12,352 5,421 4,244 13,529
- -------------------------------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
18
<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 22, 2002 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> <C> <C>
/s/ RONALD A. MATRICARIA Director March 22, 2002 /s/ TERRY L. SHEPHERD Director March 22, 2002
- ------------------------- -------------------------
Ronald A. Matricaria Terry L. Shepherd
/s/ RICHARD R. DEVENUTI Director March 22, 2002 /s/ DAVID A. THOMPSON Director March 22, 2002
- ------------------------- -------------------------
Richard R. Devenuti David A. Thompson
/s/ STUART M. ESSIG Director March 22, 2002 /s/ STEFAN K. WIDENSOHLER Director March 22, 2002
- ------------------------- -------------------------
Stuart M. Essig Stefan K. Widensohler
/s/ THOMAS H. GARRETT III Director March 22, 2002 /s/ WENDY L. YARNO Director March 22, 2002
- ------------------------- -------------------------
Thomas H. Garrett III Wendy L. Yarno
/s/ WALTER L. SEMBROWICH Director March 22, 2002 /s/ FRANK C-P YIN Director March 22, 2002
- ------------------------- -------------------------
Walter L. Sembrowich Frank C-P Yin
/s/ DANIEL J. STARKS Director March 22, 2002
- -------------------------
Daniel J. Starks
</TABLE>
19
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>stjude021570_ex10-2.txt
<DESCRIPTION>MANAGEMENT INCENTIVE COMPENSATION PLAN
<TEXT>
EXHIBIT 10.2
ST. JUDE MEDICAL, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
(AS ADOPTED ON JANUARY 11, 1999)
1. PURPOSE
The St. Jude Medical, Inc. Management Incentive Compensation Plan (the
"Plan") is designed to attract, retain, and reward highly qualified executives
who are important to the Company's success and to provide incentives relating
directly to the financial performance and long-term growth of the Company.
2. DEFINITIONS
(a) BOARD -- The Board of Directors of St. Jude Medical, Inc.
(b) CODE -- The Internal Revenue Code of 1986, as amended.
(c) COMMITTEE -- The Compensation Committee of the Board, or such
other committee of the Board that is designated by the Board to
administer the Plan, in compliance with requirements of Section
162(m) of the Code.
(d) COMPANY -- St. Jude Medical, Inc. and any other corporation in
which St. Jude Medical, Inc. controls, directly or indirectly,
fifty percent or more of the combined voting power of all classes
of voting securities.
(e) EXECUTIVE OFFICER -- Any officer of the Company subject to the
reporting requirements of Section 16 of the Securities and
Exchange Act of 1934 ("Exchange Act").
(f) INCENTIVE COMPENSATION -- The cash incentive awarded to a
Participant pursuant to terms and conditions of the Plan.
(g) PARTICIPANT -- Any Executive Officer and any other employee or
class of management employees of the Company as may be designated
by the Committee.
(h) PLAN -- The St. Jude Medical, Inc., Management Incentive
Compensation Plan.
(i) SALARY -- The direct gross (as opposed to taxable) compensation
earned by the Participant as base salary during the fiscal year,
excluding any and all commissions, bonuses, incentive payments
payable during the fiscal year, and other similar payments.
3. ELIGIBILITY
The Committee shall, each fiscal year, designate those employees, including
Executive Offices of the Company who are eligible to receive Incentive
Compensation under this Plan for the fiscal year.
4. ADMINISTRATION
The awards under the Plan shall be based on the attainment of financial
performance goals for the fiscal year, as determined for each Participant by the
Committee. The Committee shall administer the Plan and shall have full power and
authority to construe, interpret, and administer the Plan necessary to comply
with the requirements of Section 162(m) of the Code. The Committee's decisions
shall be final, conclusive, and binding upon all persons. The Committee shall
certify in writing prior to commencement of payment of the bonus that the
performance goal or goals under which the bonus is to be paid has or have been
achieved. The Committee in its sole discretion has the authority to reduce or
eliminate the amount of a bonus otherwise payable to Executives upon attainment
of the performance goal established for a fiscal year. At the beginning of each
fiscal year consistent with the requirements of Section 162(m), the Committee
shall; (i) determine the percentage of the Participant's Salary that may be
awarded as Incentive Compensation for the fiscal year, up to a maximum award
under the Plan of the greater of $2,000,000 or 1.5% of the Company's
consolidated after tax net profits for the fiscal year; (ii) determine the
Participants eligible to participate in the Plan for the fiscal year; (iii)
determine the
A-1
<PAGE>
financial performance goals as set forth in Section 5 herein for each
Participant on which Incentive Compensation will be paid; (iv) determine each
Executive's Incentive Compensation for the fiscal year; and (v) determine the
frequency at which each Participant's Incentive Compensation will be paid when
attained.
Except with respect to Incentive Compensation payable to Executive
Officers of the Company, the Committee may delegate the establishment of
performance goals, and the general powers of the Committee described above with
respect to the Plan to the Chief Executive Officer of the Company.
The Committee may amend, modify, suspend, or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. The Committee will seek shareholder approval of
any amendment determined to require a shareholder approval or advisable under
the regulations of the Internal Revenue Service or other applicable law or
regulation.
5. FINANCIAL PERFORMANCE GOALS
With respect to any Participant who is an Executive Officer, the Committee
shall establish performance goals based on the stock price of the Company, the
Company's earnings per share, market share, sales, return on equity, asset
management or the expenses or profitability of the Company or any division or
subsidiary, or any combination of such goals for the fiscal year, or a portion
thereof. Any performance goal shall be established in a manner such that a third
party having knowledge of the relevant performance results could calculate the
amount to be paid to the Participant. Any such goal shall be established when
the outcome of the goal is substantially uncertain. The Committee shall not
increase the maximum amount of the Incentive Compensation payable upon
attainment of the goal after the goal has been established. The Incentive
Compensation may be paid in whole or in part upon the attainment of any one of
the goals. Any such goal shall comply with the applicable requirements of
Section 162(m) of the Code and any regulations promulgated thereunder.
With respect to any Participant other than an Executive Officer, the
Committee may establish performance goals based on other than the financial
performance of the Company specified above.
6. PAYMENT OF INCENTIVE COMPENSATION; NONASSIGNABILITY
The Incentive Compensation shall be paid only upon certification of the
attainment of the preestablished performance goals by the Committee. Such
Incentive Compensation shall be paid within 90 days of the end of the fiscal
year, but any Participant who is eligible to participate in the Company's
deferred compensation plan may elect to defer part or all of such Incentive
Compensation under such plan. No Incentive Compensation or any other benefit
under the Plan shall be assignable or transferable by the Participant during the
Participant's lifetime.
7. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall confer upon any employee any right to continue
in the employ of the Company or shall interfere with or restrict in any way the
right of the Company to discharge an employee at any time for any reason
whatsoever, with or without cause.
A-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>stjude021570_ex10-9.txt
<DESCRIPTION>2000 STOCK PLAN
<TEXT>
EXHIBIT 10.9
ST. JUDE MEDICAL, INC.
2000 STOCK PLAN
SECTION CONTENTS PAGE
- ------- -------- ----
1. General Purpose of Plan; Definitions ...................... 1
2. Administration ............................................ 3
3. Stock Subject to Plan ..................................... 4
4. Eligibility ............................................... 4
5. Stock Options ............................................. 5
6. Transfer, Leave of Absence, etc. .......................... 9
7. Restricted Stock .......................................... 9
8. Amendments and Termination ................................ 11
9. Unfunded Status of Plan ................................... 11
10. General Provisions ........................................ 11
11. Effective Date of Plan .................................... 12
<PAGE>
ST. JUDE MEDICAL, INC.
2000 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the St. Jude Medical, Inc. 2000 Stock Plan
(the "Plan"). The purpose of the Plan is to enable St. Jude Medical, Inc. and
its Subsidiaries (hereinafter, the "Company") to retain and attract executives
and other key employees, non-employee directors and consultants who contribute
to the Company's success by their ability, ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company as it may be
comprised from time to time.
b. "Cause" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, willful misconduct,
dishonesty or intentional violation of a statute, rule or regulation, any of
which, in the judgment of the Company, is harmful to the business or reputation
of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
d. "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board, unless the Plan
specifically states otherwise.
e. "Consultant" means any person, including an advisor, engaged by the
Company, the Parent Corporation or a Subsidiary of the Company to render
services and who is compensated for such services and who is not an employee of
the Company, the Parent Corporation or any Subsidiary of the Company. A
Non-Employee Director may serve as a Consultant.
f. "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator, provided that such leave of
absence is for a period of 90 days or less, unless reemployment after such leave
of absence is guaranteed by contract or statute.
g. "Company" means St. Jude Medical, Inc., a corporation organized
under the laws of the State of Minnesota (or any successor corporation).
1
<PAGE>
h. "Disability" means permanent and total disability as determined by
the Committee.
i. "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the Company and any
Subsidiary or Parent Corporation of the Company.
j. "Fair Market Value" of Stock on any given date shall be determined
by the Committee as follows: (a) if the Stock is listed for trading, on the New
York Stock Exchange or one of more national securities exchanges, the last
reported sales price on the New York Stock Exchange or such principal exchange
on the date in question, or if such Stock shall not have been traded on such
principal exchange on such date, the last reported sales price on the New York
Stock Exchange or such principal exchange on the first day prior thereto on
which such Stock was so traded; or (b) if (a) is not applicable, by any means
fair and reasonable by the Committee, which determination shall be final and
binding on all parties.
k. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
l. "Non-Employee Director" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option" or an Incentive Stock Option that ceases to so
quality due to an amendment to such Stock Option.
n. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on or after age
65.
o. "Outside Director" means a Director who: (a) is not a current
employee of the Company or any member of an affiliated group which includes the
Company; (b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does
not receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for good or services. This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
p. "Parent Corporation" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if each of the
corporations (other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
2
<PAGE>
q. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
r. "Retirement" means Normal Retirement or Early Retirement.
s. "Stock" means the Common Stock of the Company.
t. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
u. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Outside Directors and Non-Employee
Directors, who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to eligible
employees or Consultants, pursuant to the terms of the Plan: (i) Incentive Stock
Options, (ii) Non-Qualified Stock Options, and (iii) Restricted Stock.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the
Company and its Subsidiaries and other eligible persons to whom Stock
Options or Restricted Stock may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options or Restricted Stock or a
combination of each, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, any restriction on any Stock Option or other award
and/or the shares of Stock relating thereto), which authority shall be
exclusively vested in the Committee (and not the Board); provided,
however, that in the event of a merger or asset sale, the applicable
provisions of Sections 5(c) of the Plan shall govern the acceleration
of the vesting of any Stock Option;
3
<PAGE>
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the
election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to the President and/or Chief Executive Officer of the Company the
authority to exercise the powers specified in (i), (ii), (iii), (iv) and (v)
above with respect to persons who are not either the chief executive officer of
the Company or the four highest paid officers of the Company other than the
chief executive officer.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 5,000,000. Such shares may consist, in
whole or in part, of authorized and unissued shares. If any shares that have
been optioned cease to be subject to Stock Options, or if any shares that have
been optioned are forfeited, such shares shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, and in the number and option price of
shares subject to outstanding options granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees of the Company or any Parent Corporation
or Subsidiary, members of the Board of Directors, and Consultants who are
responsible for or contribute to the management, growth and profitability of the
business of the Company and its Subsidiaries are eligible to be granted Stock
Options under the Plan. The optionees and participants under the Plan shall be
selected from time to time by the Committee, in its sole discretion, from among
those eligible, and the Committee shall determine, in its sole discretion, the
number of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options under this Plan which exceed 500,000 shares during any fiscal year of
the Company.
4
<PAGE>
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after March 7, 2010.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of options.
To the extent that any option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be no less than 100% of Fair Market Value on the date the
option is granted. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the option price shall be no less than 110% of Fair Market Value of
the Stock on the date the option is granted. The Committee may not reprice
options without shareholder approval.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than eight years after
the date the option is granted. If an employee owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from the date
of grant.
5
<PAGE>
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant, subject to the
restrictions stated in Section 5(b) above. If the Committee provides, in its
discretion, that any option is exercisable only in installments, the Committee
may waive such installment exercise provisions at any time. Notwithstanding
anything contained in the Plan to the contrary, the Committee may, in its
discretion, extend or vary the term of any Stock Option or any installment
thereof, whether or not the optionee is then employed by the Company, if such
action is deemed to be in the best interests of the Company; provided, however,
that in the event of a merger or sale of assets, the provisions of this Section
5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless
the Stock Option provides otherwise, any Stock Option granted under this Plan
shall be exercisable in full, without regard to any installment exercise
provisions, for a period specified by the Committee, but not to exceed sixty
(60) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 50% or more of the outstanding
Stock of the Company.
The grant of an option pursuant to the Plan shall not limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by check,
or by any other form of legal consideration deemed sufficient by the Committee
and consistent with the Plan's purpose and applicable law, including promissory
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of Stock
already owned by the optionee (which in the case of Stock acquired upon exercise
of an option have been owned for more than six months on the date of surrender)
or, in the case of the exercise of a Non-Qualified Stock Option (based, in each
case, on Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of restricted
stock under another plan of the Company, the optionee will receive a portion of
the option shares in the form of, and in an amount equal to, the restricted
stock tendered as payment by the optionee. If the terms of an option so permit,
an optionee may elect to pay all or part of the option exercise price by having
the Company withhold from the shares of Stock that would otherwise be issued
upon exercise that number of shares of Stock having a Fair Market Value equal to
the aggregate option exercise price for the shares with respect to which such
election is made. No shares of Stock
6
<PAGE>
shall be issued until full payment therefor has been made. An optionee shall
generally have the rights to dividends and other rights of a shareholder with
respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 9.
(e) Non-transferability of Options. No Incentive Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all such Incentive Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee. Non-Qualified Stock
Options may be transferred by gift, without consideration, by the optionee under
a written instrument acceptable to the Committee, to a member of the optionee's
family, as defined in Section 267 of the Code, or to a trust or similar entity
whose sole beneficiaries are the optionee and/or members of the optionee's
family; provided, however, that such transfer and the exercise thereof shall not
violate any federal or state securities laws. Upon the transfer, the donee shall
have all rights of the optionee and shall be subject to all the terms and
conditions imposed on such Options.
(f) Termination by Death. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, any Stock
Option may thereafter be exercised, to the extent then exercisable, by the legal
representative of the estate or by the legatee of the optionee under the will of
the optionee, but may not be exercised after twelve months from the date of such
death or the expiration of the stated term of the option, whichever period is
shorter. In the event of termination of employment by reason of death, if,
pursuant to its terms, any Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability,
but may not be exercised after twelve months from the date of such termination
of employment or the expiration of the stated term of the option, whichever
period is the shorter. In the event of termination of employment by reason of
Disability, if, pursuant to its terms, any Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, the option will thereafter be treated as a Non-Qualified Stock
Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Retirement,
but may not be exercised after thirty-six months from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if, pursuant to its terms, any Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
7
<PAGE>
(i) Other Termination. If an optionee's Continuous Status as an Employee
or Consultant terminates (other than upon the optionee's death, Disability or
Retirement), any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such termination, but may not be
exercised after 90 days after such termination, or the expiration of the stated
term of the option, whichever period is the shorter. In the event of termination
of employment by reason other than death, Disability or Retirement and if
pursuant to its terms any Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option. In
the event an Optionee's employment with the Company is terminated for Cause, all
unexercised Options granted to such Optionee shall immediately terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) Grants of Stock Options to Non-Employee Directors. Each
Non-Employee Director who, after March 8, 2000 is (i) elected, re-elected or
serving an unexpired term as a Director of the Company at any annual meeting of
holders of the common Stock of the Company; or (ii) elected as a Director of the
Company at any special meeting of holders of common Stock of the Company, shall,
as of the date of such election, re-election or annual or special meeting,
automatically be granted a Stock Option to purchase 3,000 shares of Stock at an
option price per share equal to 100% of Fair Market Value of the Company's Stock
on such date. In the case of a special meeting, the action of the holders of
shares in electing a Non-Employee Director shall constitute the granting of the
Stock Option to such Director and, in the case of an annual meeting, the action
of the holders of shares in electing or re-electing a Non-Employee Director
shall constitute the granting of the Stock Option to such Director and to any
other Non-Employee Director who shall be designated as serving an unexpired term
as a Director of the Company in the notice or proxy materials for the meeting;
and the date when the holders of shares shall take such action shall be the date
of grant of the Stock Option. All such Options shall be designated as
Non-Qualified Stock Options and shall be subject to the same terms and
provisions as are then in effect with respect to the grant of Non-Qualified
Stock Options to officers and key employees of the Company, except that (1) the
term of each such Option shall be equal to eight years, which term,
notwithstanding the provisions in Section 5(i), shall not expire upon the
termination of service as a Director; and (2) the Option shall become
exercisable beginning six months after the date the Option is granted. Upon
termination of such Director's service as a Director of the Company, the
unvested portion of an Option held by such Director shall not thereafter be
exercisable. Subject to the foregoing, all provisions of this Plan not
inconsistent with the foregoing shall apply to Options granted pursuant to this
Section 5(k), except that any Options granted to a Non-Employee Director shall
be administered in accordance with the terms of this Plan solely by the Board of
Directors and not by the Committee. Options issued under this Section 5(k) shall
be in lieu of and in substitution for any
8
<PAGE>
new awards of Options in accordance with the St. Jude Medical, Inc. 1997 Stock
Option Plan from and after March 8, 2000. Nothing herein shall limit the right
of the Board of Directors to issue Stock Options to any Non-Employee Director
under the terms of this Plan in addition to those provided for under this
Section 5(k), provided that no Non-Employee Director shall be granted Stock
Options under this Plan, including the Options awarded under this Section 5(k),
in excess of 5,000 shares in any calendar year.
SECTION 6. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 7. Restricted Stock.
(a) Administration. Up to 50,000 shares of Restricted Stock may be
issued either alone or in addition to other awards granted under the Plan. The
Committee shall determine the officers and key employees of the Company and
Subsidiaries to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the time or times within which
such awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the
9
<PAGE>
name of the participant, and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of the certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) of the
St. Jude Medical, Inc. 2000 Stock Plan and an
Agreement entered into between the registered owner
and the Company.
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c) (i) of this Section
7, the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock to the
extent shares are available under Section 3. Certificates for shares of
unrestricted Stock shall be delivered to the grantee promptly after,
and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c) (iv) of this Section 7, upon termination of employment
for any reason during the Restriction Period, all shares still subject
to restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other that for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's
shares of Restricted Stock.
10
<PAGE>
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse, on
the date determined by the Committee, prior to, but in no event more
that sixty (60) days prior to, the occurrence of any of the following
events: (i) dissolution or liquidation of the Company, other than in
conjunction with a bankruptcy of the Company or any similar occurrence,
(ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the
assets of the Company or 50% or more of the outstanding Stock of the
Company.
SECTION 8. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option theretofore granted, without
the optionee's or participant's consent, or (ii) which without the approval of
the shareholders of the Company would cause the Plan to no longer comply with
Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code or
any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. However, the Committee may not reprice options, either by
lowering the exercise price of outstanding options or canceling outstanding
options and granting replacement options with lower exercise prices, without
shareholder approval.
SECTION 9. Unfunded Status Of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is
11
<PAGE>
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company, Parent
Corporation or a Subsidiary to terminate the employment of any of its employees
at any time.
(c) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company, Parent Corporation
and a Subsidiary shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant.
With respect to any award under the Plan, if the terms of such award so permit,
a participant may elect by written notice to the Company to satisfy part or all
of the withholding tax requirements associated with the award by (i) authorizing
the Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 9(c). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
SECTION 11. Effective Date of Plan
The Plan shall be effective on March 8, 2000 (the date of approval by
the Board of Directors), subject to the approval by shareholders of the Company.
If the Plan is not so approved by the shareholders on or before one year after
this Plan's adoption by the Board of Directors, this Plan shall not come into
effect. The offering of the shares hereunder shall be also
12
<PAGE>
subject to the effecting by the Company of any registration or qualification of
the shares under any federal or state law or the obtaining of the consent or
approval of any governmental regulatory body which the Company shall determine,
in its sole discretion, is necessary or desirable as a condition to or in
connection with, the offering or the issue or purchase of the shares covered
thereby. The Company shall make every reasonable effort to effect such
registration or qualification or to obtain such consent or approval.
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>stjude021570_ex10-10.txt
<DESCRIPTION>2000 EMPLOYEE STOCK SAVINGS PLAN
<TEXT>
EXHIBIT 10.10
ST. JUDE MEDICAL, INC.
2000 Employee Stock Purchase Savings Plan
I
Purpose
The purpose of the 2000 Employee Stock Purchase Savings Plan is to
provide a greater community of interest between St. Jude Medical, Inc.
shareholders and its employees, and to facilitate purchase by employees of
additional shares of common stock in the Company. It is believed the Plan will
encourage employees to remain in the employ of the Company and will also permit
the Company to compete with other corporations offering similar plans in
obtaining and retaining the services of competent employees. It is intended that
options issued pursuant to this Plan shall constitute options issued pursuant to
an "Employee Stock Purchase Plan" within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended.
II
Definitions
A. "Plan" means the 2000 St. Jude Medical, Inc. Employee Stock Purchase
Savings Plan.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Company" means St. Jude Medical, Inc., and any of its subsidiaries
(as that term is defined by Section 425(f) of the Code) to which St. Jude
Medical, Inc. and such respective subsidiaries, by action of their Boards of
Directors, shall make this Plan applicable.
D. "Employee" means any person, including an officer, who is
customarily employed twenty (20) hours or more per week and more than five (5)
months in a calendar year by the Company.
E. "Eligible Employee" means an Employee of the Company who is eligible
for participation in the Plan in accordance with Article IV.
F. "Participant" means an Eligible Employee who has elected to
participate in the Plan in accordance with Article V.
G. "Committee" means the committee provided for in Article XI.
H. The "Commencement Date" of the Plan means August l, 2000 or a date
established by the Committee not to exceed fourteen days following registration
of the options and shares reserved pursuant to the Plan with the United States
Securities and Exchange Commission.
<PAGE>
I. "Base Pay" means regular straight time earnings annualized as of the
date of commencement of a phase excluding payments, if any, for overtime,
incentive compensation, commissions, incentive payments, premiums, bonuses and
any other special remuneration.
J. "Termination Date" shall mean the earlier of (i) the date of the one
year anniversary following the commencement of a particular phase of the Plan,
or (ii) such time as any merger or consolidation in which St. Jude Medical, Inc.
is not the surviving corporation becomes effective.
K. "Shares" shall mean common shares of St. Jude Medical, Inc. of the
par value of $.10, subject to adjustments which may be made in accordance with
Articles XVI and XVII.
III
Term and Phases of the Plan
A. The Plan will commence on the Commencement Date and will terminate
ten (10) years and six (6) months thereafter, except that any phase commenced
prior to such termination shall, if necessary, be allowed to continue beyond
such termination until completion. Notwithstanding the foregoing, this Plan
shall be considered of no force or effect and any options granted shall be null
and void unless the holders of a majority of shares of the common stock of the
Company, represented at a meeting in person or by proxy, approve the Plan within
twelve (12) months before or after the date of its adoption by the Board of
Directors.
B. The Plan shall be carried out in ten (10) phases, each phase being
for a period of one year. No phase shall run concurrently. A phase may commence
immediately after the termination of the preceding phase. The commencement of
each phase shall be determined by the Committee, provided that the commencement
of the first phase shall be within twelve (12) months before or after the date
of approval of the Plan by the shareholders of the Company. In the event all of
the stock reserved for grant of options hereunder is issued pursuant to the
terms hereof prior to the commencement of one or more phases scheduled by the
Committee or the number of shares remaining is so small, in the opinion of the
Committee, as to render administration of any succeeding phase impracticable,
such phase or phases shall be canceled. Phases shall be numbered successively as
Phase 1, Phase 2, Phase 3, etc.
IV
Eligibility
A. Any Employee of the Company who has completed at least one month of
continuous service on or prior to the commencement of a phase of the Plan shall
be eligible to participate in the Plan, subject to the limitations imposed by
Section 423 of the Code.
B. Any Employee who is a member of the Board of Directors of the
Company shall be eligible to participate in the Plan.
2
<PAGE>
C. Notwithstanding any provision of the Plan to the contrary, no
Employee shall be granted an option:
1. if such Employee, immediately after the option is granted,
owns shares possessing five percent (5%) or more of the total combined
voting power or value of all classes of shares of the Company or a
parent or a subsidiary of the Company. For purposes of determining
share ownership, the rules of Section 424(d) of the Code shall apply,
and shares which the Employee may purchase under outstanding options
shall be treated as shares owned by the Employee; or
2. which permits the Employee to purchase shares under such
plans of the Company or a subsidiary of the Company to accrue at a rate
which exceeds $25,000 of the fair market value of such shares
(determined at the time such option is granted) for each calendar year
in which such option is outstanding at any time. The term "accrue"
shall be interpreted as in Section 423(b)(8) of the Code.
V
Participation
A. An Eligible Employee may elect to enroll as, and become a
Participant in, any phase of the Plan by completing a payroll deduction
authorization on the form provided by the Company and filing it the personnel
office prior to or on the date the phase commences.
B. Payroll deductions for a Participant shall commence on the date when
his or her payroll deduction authorization becomes effective and shall end on
the last payday immediately prior to or coinciding with the Termination Date of
the particular phase, unless sooner terminated by the Participant as provided in
Article IX or as otherwise provided herein.
C. A Participant who ceases to be an Eligible Employee, although still
employed by the Company, thereupon shall be deemed to discontinue his or her
participation in the Plan, and he or she shall have the rights provided in
Article IX.
D. Participation in the Plan shall be voluntary.
VI
Payroll Deductions
A. Upon enrollment, a Participant shall elect to make contributions to
the Plan by payroll deductions (in full dollar amounts calculated to be as
uniform as practicable throughout the period of the phase), in the aggregate
amount not in excess of the sum of 10% of such Participant's Base Pay for the
term of the phase, as determined on the basis of his or her annual or annualized
Base Pay at the commencement of the phase. The minimum authorized payroll
deduction must aggregate to not less than $10 per month.
3
<PAGE>
B. All payroll deductions made for Participants shall be credited to
their accounts under the Plan. The Participant may not make any separate cash
payments into such account.
C. A Participant may discontinue his or her participation in the phase
and terminate his or her payroll deduction authorized at any time as provided in
Article IX.
D. A Participant may reduce the amount of his or her payroll deduction
by completing an amended payroll deduction authorization on the form provided
and filing it with his or her personnel office, but no change can be made during
a phase of the Plan which would either change the time or increase the rate of
his or her payroll deductions.
VII
Terms and Conditions of Options
A. Stock options granted pursuant to the Plan may be evidenced by
agreements in such form as the Committee shall approve, provided that all
Employees shall have the same rights and privileges and provided further that
such options shall comply with and be subject to the following terms and
conditions. The Committee may conclude that agreements are not necessary.
B. As of the commencement of a phase when a Participant's payroll
deduction authorization becomes effective, the Participant shall be granted an
option for as many full shares as he or she will be able to purchase with the
payroll deduction credited to his or her account during his or her participation
in the phase, subject to the limitations of Article X. The maximum number of
shares subject to purchase by a Participant shall equal the total amount
credited to the Participant's account under Section VI hereof divided by the
option price set forth in Section VII, Paragraph C.1 hereof.
C. The option price of shares purchased with payroll deductions for an
Employee who becomes a Participant as of the commencement of a phase shall be
the lower of:
1. 85% of the fair market value of the shares on the date the
phase commences; or,
2. 85% of the fair market value of the shares on the
Termination Date of the phase.
D. The fair market value of the shares shall be determined by the
Committee for each valuation date in a manner consistent with Section 423 of the
Code.
4
<PAGE>
VIII
Exercise of Option
A. Unless a Participant gives written notice to the Company as provided
in Article IX, his or her option for the purchase of shares will be exercised
automatically for him or her as of the Termination Date of the phase for the
purchase of the number of full shares which the accumulated payroll deductions
in his or her account at that time will purchase at the applicable option price;
but in no event shall the number of full shares be greater than the number of
full shares to which the Participant would have been eligible to receive when he
or she first became a Participant under the phase if he or she had elected a
payroll deduction rate of 10% of his or her then annual or annualized Base Pay
and as if the option price were solely based under Paragraph C.1 of Article VII.
B. By written notice to the Company within the period commencing three
(3) months prior to and extending five (5) business days following the
Termination Date of the phase and after delivery to the Participant of a
prospectus covering the shares to be issued under the Plan, a Participant may
elect, effective as of the Termination Date, to:
1. withdraw all the accumulated payroll deductions in his or
her account at the time, with interest; or, after receipt of a
prospectus as set forth above,
2. exercise his or her option for a specified number of full
shares less than the number of full shares which the accumulated
payroll deductions in his or her account will purchase at the
applicable option price and withdraw the balance in his or her account
without interest; but in no event shall the number of full shares be
greater than the number of full shares to which a Participant would
have been eligible to receive when he or she first became a Participant
under the phase if he or she had elected a payroll deduction rate of
10% of his or her then annual or annualized Base Pay and as if the
option price were solely based under Paragraph C.1 of Article VII.
C. Notwithstanding the provisions of Paragraphs A and B above, if a
Participant files reports pursuant to Section 16 of the Securities Exchange Act
of 1934 (at the commencement of a phase or becomes obligated to file such
reports during a phase) then such a Participant shall not have the right to
withdraw all or a portion of the accumulated payroll deductions except in
accordance with Article IX, Paragraphs A and B.
IX
Death, Withdrawal or Termination
A. In the event of death of a Participant, the person or persons
specified in Article XVIII may give notice to the Company within sixty (60) days
of the death of the Participant electing to purchase the number of full shares
which the accumulated payroll deductions in the account of such deceased
Participant will purchase under the option at the applicable option price
specified in Paragraph C of Article VII and have the balance in the account
distributed in cash
5
<PAGE>
without interest. If no such notice is received by the Company within said sixty
(60) days, the accumulated payroll deductions will be distributed in cash plus
interest.
B. Except as provided in the next sentence, upon termination of the
Participant"s employment for any reason other than the death of the Participant,
the payroll deductions credited to his or her account, plus interest, shall be
returned to him or her. In the event the Participant"s employment is terminated
by the Company due to the elimination of the Participant"s position or in
connection with a corporate transaction, or such other similar circumstances as
approved by the Committee, with respect to such Participants designated by the
Committee, the Termination Date of the Phase shall be a date prior to or
coincident with their last day of employment; provided, however, that if the
termination of employment occurs within 90 days of the Termination Date of a
Phase, the original Termination Date shall apply.
C. Except for a Participant governed by Paragraph C of Article VIII, a
Participant may withdraw payroll deductions credited to his or her account under
the Plan at any time by giving written notice to the Company. All of the
Participant's payroll deductions credited to his or her account, plus interest,
shall be paid to him or her promptly after receipt of his or her notice of
withdrawal and no further payroll deductions shall be made from his or her
compensation.
X
Shares Under Option
A. The shares to be sold to a Participant under the Plan may, at the
election of the Company, be either treasury shares or shares originally issued
for such purpose. The maximum number of shares which shall be made available for
purchase under the Plan shall be 1,000,000 shares, subject to adjustment upon
changes in capitalization of the Company as provided in Articles XVI and XVII.
If the total number of shares for which options are to be granted on any date in
accordance with Article VII exceeds the number of shares then available under
the Plan (after deduction of all shares for which options have been exercised or
are then outstanding), the Committee shall make a pro rata allocation of the
shares remaining available in as nearly a uniform manner as shall be practicable
and as it shall determine to be equitable. In such event, payroll deductions to
be made shall be reduced accordingly and the Committee shall give written notice
of such reduction to each Participant affected thereby.
B. As promptly as practicable after the Termination Date of a phase,
the Company shall deliver to each Participant the full shares purchased under
exercise of his or her option, together with a cash payment equal to the balance
(without interest) of any payroll deductions credited to his or her account
which were not used for the purchase of shares.
C. The Participant will have no interest in shares covered by his or
her option until such option has been exercised.
6
<PAGE>
XI
Administration
The Plan shall be administered by a Committee consisting of not less
than two (2) members who shall be appointed by the Board of Directors of the
Company. Each member of such Committee shall be either a director, an officer or
an employee of the Company. Such Committee shall be vested with full authority
to make, administer, and interpret such rules and regulations as it deems
necessary to administer the Plan, and any such determination, decision or action
of such Committee with respect to any action in connection with the
construction, interpretation, administration or application of the Plan shall be
final, conclusive and binding on all Participants and any and all other persons
claiming under or through any Participant. It is provided, however, that the
provisions of the Plan shall be construed so as to extend and limit
participation in the Plan only in a manner consistent with the requirements of
Section 423 of the Code.
XII
Amendment of the Plan
The Board of Directors of the Company may at any time amend the Plan,
except that no amendment may make any change in any option theretofore granted
which would adversely affect the rights of any Participant, and no amendment
shall be made without prior approval of the shareholders of the Company if such
amendment would require sale of more shares than are authorized under Article X
of the Plan.
XIII
Non-transferability
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
by the Participant and any such attempted assignment, transfer, pledge or other
disposition shall be null and void and without effect, but the Company may treat
such act as an election to withdraw funds in accordance with Article IX.
XIV
Use of Funds
All payroll deductions received or held by the Company under this Plan
may be used by the Company for any corporate purposes and the Company shall not
be obligated to segregate such payroll deductions.
7
<PAGE>
XV
Interest
In any situation where the Plan provides for the payment of interest on
a Participant's payroll deductions, such interest shall be determined by
averaging the balance in the Participant's account for the period of his or her
participation and computing interest thereon at the rate of 4% per annum (simple
interest). The Committee may change the rate of interest for a particular phase,
provided such change is made prior to the commencement of the phase.
XVI
Changes in Capitalization, Merger, etc.
A. Subject to any required action by the shareholders, the number of
shares covered by each outstanding option, the price per share thereof in each
such option, and the maximum number of shares available for purchase pursuant to
options issued under the Plan shall be deemed proportionately adjusted for any
increase or decrease in the number of issued shares of the Company resulting
from a subdivision or consolidation of shares or the payment of a share dividend
(but only on the shares) or any other increase or decrease in the number of such
shares effected without receipt of consideration by the Company.
B. If the Company shall be involved in any merger or consolidation,
whether or not it is the surviving corporation, each outstanding option shall
pertain to and apply to the securities to which a holder of the number of shares
subject to the option would have been entitled. A dissolution or liquidation of
the Company shall cause each outstanding option to terminate, provided in such
event that, immediately prior to such dissolution or liquidation, each
Participant shall be repaid the payroll deductions credited to his or her
account, plus interest.
C. In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
shares within the meaning of this Plan.
XVII
Adjustments to Shares
A. To the extent that the foregoing adjustments relate to shares or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding and conclusive,
provided that each option granted pursuant to this Plan shall not be adjusted in
a manner that causes the option to fail to continue to qualify as an option
issued pursuant to an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
8
<PAGE>
B. Except as hereinbefore expressly provided in Articles XVI and XVII,
the optionee shall have no right by reason of any subdivision or consolidation
of shares of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of any
class, or securities convertible into shares of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to the option.
C. The grant of an option pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
XVIII
Beneficiary Designation
A Participant may file a written designation of a beneficiary who may
elect to purchase shares or receive cash to the Participant's credit under the
Plan in the event of such Participant's death prior to delivery to him or her of
such shares and cash. Such designation of beneficiary may be changed by the
Participant at any time by written notice. Upon the death of a Participant and
upon receipt by the Company of proof deemed adequate by it of the identity and
existence at the Participant's death of a beneficiary validly designated by him
or her under the Plan, the Company shall deliver such shares and cash to such
beneficiary in accordance with Section A of Article IX. If, upon the death of a
Participant, there is no surviving beneficiary duly designated as above
provided, the Company shall deliver accumulated payroll deductions to the
executor or administrator of the estate of the Participant or, if no such
executor or administrator has been appointed (to the knowledge of the Company)
within sixty (60) days following the Participant's death, the Company shall
deliver such accumulated payroll deductions to the surviving spouse, if any, as
though named as the designated beneficiary hereunder or, if there is no such
surviving spouse or child, then to such relatives of the Participant as would be
entitled to such cash under the laws of intestacy in the deceased Participant's
domicile as though named as the designated beneficiary hereunder. The Company
shall not be liable for any distribution made of shares or cash pursuant to any
will or other testamentary disposition made by such Participant, or because of
the provisions of law concerning intestacy, or otherwise. No designated
beneficiary shall, prior to the death of the Participant by whom he or she has
been designated, acquire any interest in the shares or cash credited to the
Participant under the Plan.
XIX
Registration and Qualification of Shares
The offering of the shares hereunder shall be subject to the effecting
by the Company of any registration or qualification of the shares under any
federal or state law or the obtaining of the consent or approval of any
governmental regulatory body which the Company shall determine, in its sole
discretion, is necessary or desirable as a condition to or in connection with
9
<PAGE>
the offering or the issue or purchase of the shares covered thereby. The Company
shall make every reasonable effort to effect such registration or qualification
or to obtain such consent or approval.
XX
Plan Preconditions
The Plan is expressly made subject to approval of shareholders of the
Company. If the Plan is not so approved by the shareholders on or before one
year after adoption by the Board of Directors, this Plan shall not come into
effect. In such case, the accumulated payroll deductions credited to the account
of each Participant shall forthwith be repaid to him or her with interest.
ADOPTED BY BOARD OF DIRECTORS: March 8, 2000
APPROVED BY SHAREHOLDERS: May 10, 2000
10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<FILENAME>stjude021570_ex13.txt
<DESCRIPTION>2001 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 leader in the
development, manufacturing and distribution of cardiovascular medical devices
for the global cardiac rhythm management (CRM), cardiology and vascular access
(C/VA), and cardiac surgery (CS) markets. The Company's principal products in
each of these markets are: bradycardia pacemaker systems, tachycardia
implantable cardioverter defibrillator (ICD) systems, and electrophysiology (EP)
catheters in CRM; vascular closure devices, catheters, guidewires and
introducers in C/VA; and mechanical and tissue heart valves, valve repair
products, and suture-free devices to facilitate coronary artery bypass graft
anastomoses in CS.
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 2001, 2000 and 1999 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 vascular closure devices.
OTHER: During 2001, 2000 and 1999, the Company acquired various businesses
involved in distribution of the Company's products. Aggregate consideration paid
in cash and common stock, net of any cash acquired, during 2001, 2000 and 1999
was $10,444, $3,264 and $21,056, respectively.
The above acquisitions were recorded using the purchase method of accounting.
The operating results of each of these acquisitions are 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:
2001 2000 1999
- --------------------------------------------------------------------------------
United States $ 880,086 $ 745,793 $ 689,051
International 467,270 433,013 425,498
- --------------------------------------------------------------------------------
Total net sales $1,347,356 $1,178,806 $1,114,549
- --------------------------------------------------------------------------------
Overall, foreign exchange rate movements had an unfavorable year-to-year impact
on net sales of approximately $16,000 and $34,000 in 2001 and 2000, 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 that occurred
in 2000 and 1999.
Net sales by class of similar products were as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Cardiac rhythm management $ 965,968 $ 819,117 $ 767,212
Cardiology and vascular access 133,343 102,740 75,905
Cardiac surgery 248,045 256,949 271,432
- --------------------------------------------------------------------------------
Total net sales $1,347,356 $1,178,806 $1,114,549
- --------------------------------------------------------------------------------
Net sales of cardiac rhythm management products increased 17.9% over 2000 due
primarily to increased bradycardia, ICD and EP catheter unit sales, offset in
part by negative foreign currency effects. The increase in bradycardia net sales
in 2001 was driven by the mid-year introduction of the Integrity AFx(R)
pacemaker with atrial fibrillation suppression technology. The increase in ICD
net sales in 2001 was primarily due to the full year sales of the Company's
dual-chamber ICD products, which were introduced into the market in October
2000. Net sales of CRM products in 2000 increased 6.8% over 1999 due primarily
to increased bradycardia and EP catheter unit sales, offset partially by the
negative impact of the strengthening U.S. dollar on foreign sales. The increase
in bradycardia sales in 2000 was mainly due to the Company's on-going rollout of
the Affinity(R) pacemaker family and to an expanded U.S. sales organization.
Net sales of cardiology and vascular access products increased 29.8% and 35.4%
in 2001 and 2000 due primarily to increased Angio-Seal(TM) unit sales.
Net sales of cardiac surgery products decreased 3.5% from 2000 due to the
effects of the stronger U.S. dollar and a clinical preference shift from
mechanical valves to tissue valves in the U.S. market where the Company holds
significant mechanical valve market share and a smaller share of the tissue
valve market. This was offset in part by an increase in aortic connector sales
with the introduction of this technology to the U.S. market during 2001. Net
sales of cardiac surgery products in 2000 decreased 5.3% from 1999 due to the
effects of the stronger U.S. dollar, the impact of
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<PAGE>
the first quarter 2000 recall of valve products incorporating a Silzone(R)
coating, and a clinical preference shift from mechanical valves to tissue valves
in the U.S. market.
GROSS PROFIT
Gross profits were as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Gross profit $888,197 $787,657 $733,647
Percentage of net sales 65.9% 66.8% 65.8%
- --------------------------------------------------------------------------------
The Company's 2001 gross profit margin decreased nearly one percentage point
from 2000 due primarily to the $21,667 of special charges recorded in the third
quarter of 2001 relating to inventory and diagnostic equipment write-offs (see
further details under the discussion of Special charges). Excluding these
special charges, the gross profit percentage was 67.5% in 2001 compared to 66.8%
in 2000, both of which were up from the respective prior year due to higher unit
volumes and improved manufacturing efficiencies in the Company's CRM operations,
offset partially by the unfavorable impact on net sales due to the stronger U.S.
dollar. The Company anticipates making further improvements in its operations
through the use of total quality management techniques, and further investments
in technology in order to continue to improve the Company's gross profit margin
percentage in the future.
OPERATING EXPENSES
Certain operating expenses were as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Selling, general and administrative $467,113 $416,383 $394,418
Percentage of net sales 34.7% 35.3% 35.4%
Research and development $164,101 $137,814 $125,059
Percentage of net sales 12.2% 11.7% 11.2%
- --------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense as a percentage
of net sales decreased in 2001 due primarily to the increased sales which
leveraged the Company's cost structure. SG&A expense as a percentage of net
sales in 2000 was comparable to 1999. During the fourth quarter of 2001, the
Company reversed through SG&A expense a $15,000 accrued liability relating to
royalties on a license agreement with Guidant that management believed it had
acquired as part of its purchase of assets of the Telectronics cardiac
stimulation device business. In addition, the Company expensed approximately the
same amount of legal fees incurred in relation to the Guidant litigation (see
further discussion on both of these matters in Note 4 to the Company's
Consolidated Financial Statements). 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 SG&A 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.
RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expense increased in 2001 and 2000
primarily due to the Company's increased activities relating to ICDs, products
to treat emerging indications in atrial fibrillation and congestive heart
failure, and 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, since technological feasibility had not been established and since
there were no alternative future uses for the technology.
During 1999 and 2000, the in-process technologies acquired in the Angio-Seal(TM)
acquisition were completed, necessary regulatory approvals were received, and
the products were released to the market. During 1999, 2000 and 2001, the
Company continued to develop certain of the in-process technologies acquired in
the VSI acquisition. Development of one of the VSI technologies (the proximal
connector) was completed and regulatory approvals and E.U. and U.S. market
releases occurred in 2000 and 2001. A second VSI in-process technology (the
distal connector) received E.U. regulatory approval in 2001; however, the
Company intends to make additional enhancements to this product in 2002 prior to
filing for U.S. regulatory approval and prior to releasing the product to either
the E.U. or U.S. markets. At the date of the VSI acquisition, the total
estimated costs necessary to complete the proximal and distal connector
technologies into commercially viable products and to make certain subsequent
product enhancements were approximately $1,000, all of which were scheduled to
be incurred in 1999 and 2000. Currently, the total estimated costs to complete
the proximal and distal connectors, including the related enhancements, have
increased to $11,000, of which $2,400 remains to be incurred in 2002. Other
in-process technologies acquired in the VSI acquisition continue to be reviewed
for ultimate viability in the developing coronary artery bypass graft
anastomoses market. The original estimated costs to complete these other
technologies into commercially viable products were approximately $6,000, of
which only an immaterial amount has been incurred to date.
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The total appraised value of the VSI purchased in-process research and
development was $95,500, of which $67,453 was recorded at close. The Company
paid additional amounts totaling $10,000 in 2001 and $5,000 in 2000 as certain
product development milestones were achieved. The remaining balance of the
in-process research and development valuation ($13,047) will be recorded in the
Company's financial statements as purchased in-process research and development
expense when payment of the contingent consideration is assured beyond a
reasonable doubt. Contingent consideration payments in excess of the $13,047
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. In addition,
there are risks associated with being able to complete development of the VSI
in-process technologies, and there can be no assurance that these technologies
will meet with either technological or commercial success. Failure to
successfully complete the development and commercialize these in-process
technologies would result in the loss of the expected economic return inherent
in the original fair value allocation.
SPECIAL CHARGES: In July 2001, the Company initiated efforts to streamline its
heart valve operations, consolidate its U.S. sales activities and restructure
its international sales organization. As a result of these activities, the
Company recorded pre-tax special charges of $20,657 in the third quarter of
2001, consisting of employee severance costs resulting from the elimination of
approximately 90 production and administrative positions ($5,293), inventory
write-offs and scrap ($9,490), capital equipment write-offs ($3,379) and other
costs related primarily to lease terminations and other facility exit costs due
to the closing and consolidation of sales offices ($2,495). The Company has
utilized $13,500 of these special charge accruals through December 31, 2001,
consisting of $2,468 of employee severance costs, $7,301 of inventory write-offs
and scrap, $3,379 of capital equipment write-offs, and $352 of other costs. The
Company estimates that the remaining accruals will be utilized primarily during
2002.
During the third quarter of 2001, the Company also wrote off $12,177 of certain
diagnostic equipment deemed obsolete due to the overwhelming acceptance of newer
technology equipment which received U.S. regulatory approvals in late 2000 and
early 2001, and was launched earlier in 2001.
The charges relating to employee severance costs, capital equipment write-offs
and other costs have been recorded in operating expenses as special charges. The
inventory and diagnostic equipment write-offs are included in cost of sales as
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
Silzone(R) coating on the sewing cuff fabric. The Company concluded that it will
no longer utilize 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. Additionally, the
Company maintains product liability coverage for litigation related costs in
excess of its self-insured retention. The Company has utilized $20,701 of this
special charge accrual through December 31, 2001, consisting of $9,465 of asset
write-downs and $11,236 of other costs. The Company estimates that the remaining
accrual will be utilized primarily during 2002. There can be no assurance that
the final costs associated with this recall that are not covered by insurance,
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. Substantially all accruals
related to this restructuring have been utilized through December 31, 2001.
OTHER INCOME (EXPENSE)
Net interest expense was $9,306 in 2001, $25,929 in 2000 and $25,378 in 1999.
The decrease in net interest expense in 2001 was due to lower debt levels
resulting from debt repayments, as well as lower interest rates in 2001 compared
with 2000 and 1999.
INCOME TAXES
The Company's reported effective income tax rates were 24.3% in 2001, 27.2% in
2000, and 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 each of these periods. The VSI-related purchased in-process research and
development charges are not deductible for income tax purposes and the special
charges were recorded in taxing jurisdictions where income tax rates vary from
the Company's blended 25% effective tax rate.
The Company anticipates that its effective income tax rate before in-process
research and development and special charges will increase beginning in 2003 due
to a larger percentage of the Company's forecasted taxable income being
generated in higher taxing jurisdictions.
The Company has not recorded U.S. deferred income taxes on certain of its
non-U.S. subsidiaries' undistributed earnings as such amounts are intended to be
reinvested outside the U.S. indefinitely. However, should the Company change its
business and tax strategies in the future and decide to repatriate a portion of
these earnings to one of the Company's U.S. subsidiaries, including cash
maintained by these non-U.S. subsidiaries (see Liquidity), additional U.S. tax
liabilities would be incurred.
At December 31, 2001, the Company has approximately $52,000 of deferred tax
assets related principally to U.S. tax loss carryforwards,
3
<PAGE>
arising primarily from acquisitions, which expire from 2003 to 2021, for which
no valuation allowance has been recorded. The Company believes that these loss
carryforwards will be fully utilized based upon its estimates of future taxable
income. If these estimates of future taxable income are not met, a valuation
allowance for some of these deferred tax assets would be required.
The Company from time to time faces challenges from tax authorities regarding
the amount of taxes due. These challenges include questions regarding the timing
and amount of deductions and the allocation of income among various tax
jurisdictions. The Company's U.S. Federal tax filings prior to 1998 have been
examined by the Internal Revenue Service (IRS) and the Company has settled all
differences arising out of those examinations. Consistent with the Company's
status with the U.S. Federal tax authorities as a "coordinated industry case,"
the IRS is currently in the process of examining the Company's U.S. Federal tax
returns for the calendar years 1998, 1999 and 2000. Although the Company
believes it has recorded an appropriate income tax provision, there can be no
assurance that the IRS will not take positions contrary to those taken by the
Company. The Company further believes that any costs not covered by the
Company's income tax provision will not have a material adverse impact on the
Company's consolidated financial position or liquidity, but may be material to
the consolidated results of operations of a future period.
NET EARNINGS
Reported net earnings and diluted net earnings per share were $172,592, or $1.93
per share in 2001, $129,094, or $1.51 per share, in 2000, and $24,227, or $0.29
per share, in 1999. Net earnings, exclusive of purchased in-process research and
development and special charges and related income taxes, were $203,109 in 2001,
$156,307 in 2000, and $143,989 in 1999.
OUTLOOK
The Company expects that market demand, government regulation and reimbursement
policies, 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 global medical technology industry 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.
The cardiac surgery market is highly competitive, and consists of mechanical
heart valves, tissue heart valves, and repair products. Since 1999, the market
has shifted to tissue valves and repair products from mechanical heart valves,
resulting in an overall market share loss for the Company. Competition is
anticipated to continue to place pressure on pricing and terms, including a
trend toward vendor owned (consignment) inventory at the hospitals, and health
care reform is expected to result in further hospital consolidations over time.
The cardiac rhythm management market is also highly competitive and has
undergone consolidation. There are currently three principal suppliers in this
market, including the Company, and the Company's two principal competitors each
have substantially more assets and sales than the Company. Rapid technological
change in the CRM market is expected to continue, requiring the Company to
invest heavily in R&D and to effectively market its products.
The Company operates in an industry that is susceptible to significant product
liability claims. These claims may be brought by individuals seeking relief for
themselves or, increasingly, by groups seeking to represent a class. In
addition, product liability claims may be asserted against the Company in the
future relative to events that are not known to management at the present time.
While it is not possible to predict the outcome of every claim, the Company
believes that it has adequate product liability insurance to cover the costs
associated with them. The Company further believes that any costs not covered by
product liability insurance, including the Company's self-insured deductible,
will not have a material adverse impact on the Company's consolidated financial
position or liquidity, but may be material to the consolidated results of
operations of a future period.
Subsequent to the tragic events of September 2001, the product liability
insurance market has dramatically changed. The Company has secured product
liability coverage for 2002, however the self-insured retention and insurance
premiums are significantly higher than in prior years. There can be no assurance
that this trend will reverse in the near future. As a result of the increased
self-insured retention for 2002, the Company has increased financial exposure in
the event of significant product liability matters. However, management believes
that any payment under the Company's 2002 policy self-insured retention would
not have a material adverse impact on the Company's consolidated financial
position or liquidity, but may be material to the consolidated results of
operations of a future period.
Group purchasing organizations (GPOs) in the U.S. continue to consolidate the
purchasing for some of the Company's customers. Several such 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 these
products to members of these GPOs.
On January 1, 1999, eleven of the fifteen member countries of the European
Economic Community (EEC) adopted the Euro as the legal common currency for their
countries. On January 1, 2002, these countries issued new Euro-denominated bills
and coins for
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<PAGE>
use in cash transactions. The Company believes that the adoption of a single
Euro currency will result in greater transparency of product pricing, making
those countries a more competitive business environment. During 2001, the
Company completed the necessary changes to its computer systems to accommodate
the Euro, and the conversion to the Euro did not have a material impact on the
Company's consolidated results of operations or financial position.
MARKET RISK
The Company is exposed to foreign currency exchange rate fluctuations due to its
transactions denominated primarily in Euros, Canadian Dollars, Brazilian Reais,
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. A hypothetical 10% change in short-term interest
rates compared to interest rates on the Company's interest-bearing debt at
December 31, 2001, would not have a material impact on the Company's
consolidated results of operations.
Although in 2001 management elected not to enter into any hedging contracts,
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 or option contracts outstanding at December 31, 2001 or 2000.
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 impact of this contract on
1999 earnings was not material. The Company did not enter into any other
interest rate contracts during 1999, 2000 or in 2001.
The Company periodically invests in marketable equity securities of emerging
technology companies. The Company's investments in these companies had a fair
value of $21,616 and $16,173 at December 31, 2001 and 2000, which is subject to
the underlying price risk of the public equity markets.
CRITICAL ACCOUNTING POLICIES
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," management identified the most
critical accounting principles upon which our financial status depends. We
determined the critical accounting principles by considering accounting policies
that involve the most complex or subjective decisions or assessments. We
identified our most critical accounting policies to be those related to income
taxes, product liability accruals, accounts receivable allowance for doubtful
accounts, estimated useful lives of property, plant and equipment and special
charges. We discuss these accounting policies in the notes to the consolidated
financial statements and in relevant sections in this discussion and analysis.
NEW ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statements of Financial Accounting Standards
No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other
Intangible Assets (Statement 142), on January 1, 2002. These Statements change
the accounting for business combinations, goodwill, and intangible assets. Under
Statement 141, all business combinations initiated after June 30, 2001, are to
be accounted for using the purchase method. Under Statement 142, goodwill will
no longer be amortized but will be reviewed at least annually for impairment.
The Company's pre-tax goodwill amortization expense was approximately $28,000,
$29,000 and $27,000 in 2001, 2000 and 1999. During 2002, the Company will
perform the first of the required goodwill impairment tests under Statement 142,
however management does not expect the outcome of this test to have a material
impact on the Company's consolidated results of operations or financial
position.
The Company is also required to adopt Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144). Statement 144 addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of by
sale. The impact of adopting Statement 144 on January 1, 2002, was not material
to the Company's consolidated results of operations or financial position.
FINANCIAL CONDITION
LIQUIDITY
The Company's liquidity and cash flows remained strong during 2001. Cash
provided by operating activities was $310,135 in 2001, up approximately $106,000
from 2000 reflecting increased earnings and improved working capital management.
The Company's current ratio was 2.5 to 1 at December 31, 2001.
Cash and equivalents increased $97,896 during 2001 due primarily to earnings
generated by the Company's non-U.S. subsidiaries. At December 31, 2001,
substantially all of the Company's cash and equivalents were maintained by the
Company's non-U.S. subsidiaries and would be subject to additional U.S. tax if
repatriated to one of the Company's U.S. subsidiaries (see Income Taxes).
The Company had interest-bearing debt of $123,128 at December 31, 2001, a
decrease of $171,372 from December 31, 2000, due to
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<PAGE>
debt repayments using primarily cash generated from operations and the proceeds
from employee stock option exercises. As of March 6, 2002, the Company had
$350,000 of committed credit facilities that are available to back the Company's
commercial paper program borrowings and for general purposes. These committed
credit facilities expire in March 2003. 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.
At the present time, management expects 2002 capital expenditures and business
acquisition payments to be approximately $125,000. In 2003 through 2005,
management currently expects these amounts to be approximately $105,000 per
year.
The Company leases various facilities under noncancelable operating lease
arrangements. Future minimum lease payments under these leases are as follows:
$9,460 in 2002; $9,461 in 2003; $8,233 in 2004; $7,470 in 2005; $6,910 in 2006;
$22,674 in years thereafter.
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 capital investment 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.
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 capitalization
decreased from 24% at December 31, 2000, to 9% at December 31, 2001, due
primarily to the paydown of debt.
In September 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 additional shares were repurchased during 2001 or 2000.
DIVIDENDS
The Company did not declare or pay any dividends during 2001, 2000 or 1999.
Management currently intends to utilize the Company's earnings for operating and
investment purposes, including the repurchase of its common stock from time to
time.
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. Legislative or administrative reforms to the U.S. Medicare and
Medicaid systems or similar reforms of international 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 others that have the affect of excluding
the Company from market segments or require the Company to pay
royalties.
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.
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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, 2001 and 2000 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, 2001. 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, 2001 and 2000 and the consolidated results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 28, 2002,
except for Note 4,
as to which the date
is February 13, 2002
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CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,347,356 $ 1,178,806 $ 1,114,549
Cost of sales:
Cost of sales before special charges 437,492 391,149 380,902
Special charges 21,667 -- --
- ------------------------------------------------------------------------------------------------------------
Total cost of sales 459,159 391,149 380,902
- ------------------------------------------------------------------------------------------------------------
Gross profit 888,197 787,657 733,647
Selling, general and administrative expense 467,113 416,383 394,418
Research and development expense 164,101 137,814 125,059
Purchased in-process research and development charges 10,000 5,000 115,228
Special charges 11,167 26,101 9,754
- ------------------------------------------------------------------------------------------------------------
Operating profit 235,816 202,359 89,188
Other income (expense) (7,838) (25,050) (22,184)
- ------------------------------------------------------------------------------------------------------------
Earnings before income taxes 227,978 177,309 67,004
Income tax expense 55,386 48,215 42,777
Net earnings $ 172,592 $ 129,094 $ 24,227
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net earnings per share:
Basic $ 2.00 $ 1.53 $ 0.29
Diluted $ 1.93 $ 1.51 $ 0.29
Weighted average shares outstanding:
Basic 86,214 84,253 84,274
Diluted 89,384 85,817 84,735
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 2001 2000
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 148,335 $ 50,439
Accounts receivable, less allowances for doubtful accounts 320,683 303,307
Inventories 240,390 222,238
Deferred income taxes 36,563 35,566
Other 51,575 74,139
- --------------------------------------------------------------------------------------------
Total current assets 797,546 685,689
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 112,902 114,045
Machinery and equipment 352,294 328,553
Diagnostic equipment 165,938 176,794
- --------------------------------------------------------------------------------------------
Property, plant and equipment at cost 631,134 619,392
Less accumulated depreciation (335,491) (302,213)
- --------------------------------------------------------------------------------------------
Net property, plant and equipment 295,643 317,179
OTHER ASSETS
Goodwill and other intangible assets, net 389,929 417,921
Deferred income taxes 67,238 57,482
Other 78,371 54,445
- --------------------------------------------------------------------------------------------
Total other assets 535,538 529,848
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,628,727 $ 1,532,716
- --------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 88,925 $ 81,340
Income taxes payable 63,475 58,224
Accrued expenses
Employee compensation and related benefits 102,191 81,576
Other 67,263 76,227
- --------------------------------------------------------------------------------------------
Total current liabilities 321,854 297,367
LONG-TERM DEBT 123,128 294,500
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 8,721 8,534
Additional paid-in capital 134,726 55,723
Retained earnings 1,134,909 962,317
Accumulated other comprehensive income (loss):
Cumulative translation adjustment (103,781) (93,380)
Unrealized gain on available-for-sale securities 9,170 7,655
- --------------------------------------------------------------------------------------------
Total shareholders' equity 1,183,745 940,849
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,628,727 $ 1,532,716
- --------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------- 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, 1999 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
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
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
Comprehensive income:
Net earnings 172,592 172,592
Other comprehensive income (loss):
Unrealized gain on investments, net of taxes 1,515 1,515
Foreign currency translation adjustment, net
of taxes (10,401) (10,401)
--------------
Other comprehensive loss (8,886)
--------------
Comprehensive income 163,706
--------------
Issuance of common stock, including
exercise of stock options, net 1,873,070 187 57,754 57,941
Tax benefit from stock options 21,249 21,249
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 87,209,356 $8,721 $134,726 $1,134,909 $ (94,611) $1,183,745
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income reclassification adjustments for net realized gains on the sale of marketable securities,
net of income taxes:
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, 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 172,592 $ 129,094 $ 24,227
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation 58,404 56,699 54,588
Amortization 31,895 35,650 31,114
Purchased in-process research and development charges 10,000 5,000 115,228
Special charges 32,834 26,101 9,754
Net investment gain -- (4,062) (848)
Deferred income taxes (11,681) (5,439) 369
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable (23,941) (40,845) (26,319)
Inventories (32,373) 4,621 14,466
Other current assets 13,605 (6,519) (6,722)
Accounts payable and accrued expenses 12,907 (17,317) (1,998)
Income taxes 45,893 20,988 42,208
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 310,135 203,971 256,067
INVESTING ACTIVITIES
Purchase of property, plant and equipment (63,129) (39,699) (69,419)
Proceeds from sale or maturity of marketable securities 15,000 29,082 17,552
Business acquisition payments (20,444) (8,264) (259,127)
Other (26,220) (10,752) (19,438)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (94,793) (29,633) (330,432)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued 57,941 38,631 8,893
Common stock repurchased -- -- (29,826)
Borrowings under debt facilities 2,115,028 3,703,287 989,500
Payments under debt facilities (2,286,400) (3,856,287) (887,000)
Repurchase of convertible subordinated debentures -- (19,320) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (113,431) (133,689) 81,567
Effect of currency exchange rate changes on cash (4,015) 135 (1,322)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 97,896 40,784 5,880
Cash and equivalents at beginning of year 50,439 9,655 3,775
- ---------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 148,335 $ 50,439 $ 9,655
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 10,663 $ 32,467 $ 28,934
Income taxes 21,424 35,704 21,200
- ---------------------------------------------------------------------------------------------------------------------------
</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. ("St. Jude Medical" or the "Company")
is a leader in the development, manufacturing and distribution of cardiovascular
medical devices for the global cardiac rhythm management (CRM), cardiology and
vascular access (C/VA), and cardiac surgery (CS) markets. The Company's
principal products in each of these markets are: bradycardia pacemaker systems,
tachycardia implantable cardioverter defibrillator (ICD) systems, and
electrophysiology (EP) catheters in CRM; vascular closure devices, catheters,
guidewires and introducers in C/VA; and mechanical and tissue heart valves,
valve repair products, and suture-free devices to facilitate coronary artery
bypass graft anastomoses in CS. 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
2001, 2000 and 1999 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 cash equivalents. Cash
equivalents are stated at cost, which approximates market. The Company's cash
equivalents include bank certificates of deposit, commercial paper investments
and repurchase agreements collateralized by U.S. government agency securities.
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, recorded
at fair market value based upon quoted market prices, and are classified with
other current assets on the balance sheet. Gross unrealized gains totaling
$14,790, $12,347 and $10,142, net of taxes of $5,620, $4,692 and $3,854, were
recorded in shareholders' equity at December 31, 2001, 2000 and 1999. Realized
gains from the sale of marketable securities have been recorded in other income
and are computed using the specific identification method.
ACCOUNTS RECEIVABLE: 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 for which payment is dependent, to a
certain extent, upon the political and economic environment within those
countries. The allowance for doubtful accounts was $17,210 at December 31, 2001
and $13,831 at December 31, 2000.
12
<PAGE>
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:
2001 2000
- -----------------------------------------------------------------------
Finished goods $135,543 $123,696
Work in process 35,984 35,640
Raw materials 68,863 62,902
- -----------------------------------------------------------------------
$240,390 $222,238
- -----------------------------------------------------------------------
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.
Diagnostic equipment is used by physicians and health care professionals to
program and analyze data from the Company's CRM devices. The estimated useful
lives of this equipment are based on management's estimates of its usage by the
physicians and health care professionals, factoring in new technology platforms
and rollouts by the Company. To the extent that the Company experiences changes
in the usage of this equipment or rollouts of new technologies to the market,
their estimated useful lives may change in a future period. Accelerated
depreciation methods are used for income tax purposes.
GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill and other intangible assets
consists primarily of goodwill at December 31, 2001 and 2000. Goodwill
represents the excess of cost over the fair value of identifiable net assets of
businesses acquired. Other intangible assets consist primarily of purchased
technology, patents and customer relationships. Goodwill and other intangible
assets are amortized on a straight-line basis using lives ranging from 5 to 20
years. Accumulated amortization totaled $173,377 and $147,006 at December 31,
2001 and 2000. 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. Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (Statement 142). Under Statement 142,
goodwill is no longer amortized, but is subject to annual impairment tests. See
"New Accounting Pronouncements" for further discussion of Statement 142 and its
anticipated impact on the Company's consolidated financial statements.
TECHNOLOGY LICENSE AGREEMENT: The Company has a technology license agreement
that provides access to a significant number of patents covering a broad range
of technology used in the Company's CRM products. The agreement provides for
payments through September 2004 at which time the Company will have a fully
paid-up license, granting access to the underlying patents which expire at
various dates through the year 2014. The Company recognizes the total estimated
costs under this license agreement as an expense over the term of the underlying
patents' lives.
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 customer has used the inventory.
RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense
as incurred. Purchased in-process research and development is recognized in
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 net earnings per share is
computed by dividing net earnings, adjusted for convertible debenture interest
in 2000, by the weighted average number of outstanding common shares and
dilutive securities.
13
<PAGE>
The table below sets forth the computation of basic and diluted net earnings per
share:
2001 2000 1999
- --------------------------------------------------------------------------------
Numerator:
Net earnings $ 172,592 $ 129,094 $ 24,227
Convertible debenture
interest, net of taxes -- 95 --
- --------------------------------------------------------------------------------
Adjusted net earnings $ 172,592 $ 129,189 $ 24,227
Denominator:
Basic-weighted average
shares outstanding 86,214,000 84,253,000 84,274,000
Effect of dilutive securities:
Employee stock options 3,135,000 1,448,000 414,000
Restricted shares 35,000 38,000 47,000
Convertible debentures -- 78,000 --
- --------------------------------------------------------------------------------
Diluted-weighted average 89,384,000 85,817,000 84,735,000
shares outstanding
- --------------------------------------------------------------------------------
Basic net earnings per share $ 2.00 $ 1.53 $ 0.29
- --------------------------------------------------------------------------------
Diluted net earnings per share $ 1.93 $ 1.51 $ 0.29
- --------------------------------------------------------------------------------
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. Taxes totaling $19,393
have been offset against the cumulative translation adjustment at December 31,
2001. Foreign currency transaction gains and losses are included in other income
(expense).
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.
There were no forward exchange or option contracts, or interest rate swap
contracts outstanding at December 31, 2001 or 2000.
NEW ACCOUNTING PRONOUNCEMENTS: The Company is required to adopt Statements of
Financial Accounting Standards No. 141, Business Combinations (Statement 141),
and No. 142, Goodwill and Other Intangible Assets (Statement 142), on January 1,
2002. These Statements change the accounting for business combinations,
goodwill, and intangible assets. Under Statement 141, all business combinations
initiated after June 30, 2001, are to be accounted for using the purchase
method. Under Statement 142, goodwill will no longer be amortized but will be
reviewed at least annually for impairment. The Company's pre-tax goodwill
amortization expense was approximately $28,000, $29,000 and $27,000 in 2001,
2000 and 1999. During 2002, the Company will perform the first of the required
goodwill impairment tests under Statement 142, however management does not
expect the outcome of this test to have a material impact on the Company's
consolidated results of operations or financial position.
14
<PAGE>
The Company is also required to adopt Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144). Statement 144 addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of by
sale. The impact of adopting Statement 144 on January 1, 2002, was not material
to the Company's consolidated results of operations or financial position.
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
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). The
Company paid additional amounts totaling $10,000 in 2001 and $5,000 in 2000,
which were recorded as purchased in-process research and development expenses,
as certain product development milestones were achieved. The remaining balance
of the in-process research and development valuation ($13,047) will be recorded
in the Company's financial statements as purchased in-process research and
development expense when payment of the contingent consideration is assured
beyond a reasonable doubt. Contingent consideration payments in excess of the
$13,047 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 vascular 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 originally 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. During 2001, the Company reviewed the identifiable
intangible assets and will reclassify $24,599 to goodwill effective January 1,
2002, based upon the guidance provided in Statements of Financial Accounting
Standards Nos. 141 and 142.
OTHER: During 2001, 2000 and 1999, the Company acquired various businesses
involved in distribution of the Company's products. Aggregate consideration paid
in cash and common stock, net of any cash acquired, during 2001, 2000 and 1999
was $10,444, $3,264 and $21,056, respectively.
The above acquisitions were recorded using the purchase method of accounting.
The operating results of each of these acquisitions are included in the
Company's consolidated financial statements 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.
15
<PAGE>
NOTE 3--LONG-TERM DEBT
Long-term debt consisted of the following:
2001 2000
- -------------------------------------------------------------------------------
Commercial paper borrowings $123,128 $223,000
Uncommitted credit facility borrowings -- 71,500
- -------------------------------------------------------------------------------
Total long-term debt $123,128 $294,500
- -------------------------------------------------------------------------------
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, which will expire in March 2002. These
credit facilities have variable interest rates tied primarily to the London
Interbank Offered Rate. The Company's commercial paper borrowings are backed by
these committed credit facilities. There were no outstanding borrowings under
these credit facilities at December 31, 2001 or 2000.
COMMERCIAL PAPER BORROWINGS: The Company issues short-term, unsecured commercial
paper with maturities up to 270 days. These commercial paper borrowings are
backed by the Company's committed credit facilities and bear interest at varying
market rates. The weighted-average interest rate on these borrowings was 2.9%
and 6.9% at December 31, 2001 and 2000.
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 interest at varying market rates. The weighted-average
interest rate on these borrowings was 7.1% at December 31, 2000.
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, all of
which the Company was in compliance with at December 31, 2001.
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: $9,460 in 2002; $9,461 in 2003; $8,233 in 2004; $7,470 in 2005; $6,910
in 2006; $22,674 in years thereafter. Rent expense under all operating leases
was $8,853, $7,028 and $7,397 in 2001, 2000 and 1999.
SILZONE(R) LITIGATION: The Company has been sued by patients alleging defects in
the Company's mechanical heart valves and valve repair products with Silzone(R)
coating. The Company voluntarily recalled products with 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 and repair products who allege no injury
to date. Some of these cases are seeking class action status. See also Note 6
regarding the 2000 special charge for the voluntary recall of products
incorporating Silzone(R) coating.
On April 18, 2001, the U.S. Judicial Panel on Multi-Litigation ruled that
certain lawsuits filed in U.S. federal district court involving products with
Silzone(R) coating should be part of Multi District Litigation proceedings,
which will take place under the supervision of U.S. District court Judge John
Tunheim in Minnesota. As a result, a number of actions involving products with
Silzone(R) coating are being transferred to Judge Tunheim's court in Minnesota
for coordinated or consolidated pretrial proceedings.
16
<PAGE>
While it is not possible to predict the outcome of these cases, the Company
believes that it has adequate product liability insurance to cover the costs
associated with them. The Company further believes that any costs not covered by
product liability insurance will not have a material adverse impact on the
Company's financial position or liquidity, but may be material to the
consolidated results of operations of a future period.
GUIDANT LITIGATION: In November 1996 Guidant Corporation ("Guidant") sued St.
Jude Medical alleging that St. Jude Medical did not have a license to certain
patents controlled by Guidant covering ICD products and alleging that St. Jude
Medical was infringing those patents.
St. Jude Medical's contention that it had obtained its patent license from
Guidant to the patents in issue when it acquired certain assets of Telectronics
in November 1996 was rejected by an arbitrator in July 2000. In May 2001, a
federal district court judge also ruled that the Guidant patent license with
Telectronics had not transferred to St. Jude Medical.
Guidant's suit in the United States District Court for the Southern District of
Indiana originally alleged infringement by St. Jude Medical of four patents.
Guidant later dismissed its claim on one patent (the `678 patent). In addition,
in response to a stipulation by the parties, the court ruled that a second
patent (the `191 patent) was invalid. Guidant has appealed the ruling of
invalidity concerning the `191 patent and the Court of Appeals for the Federal
Circuit held oral arguments on the `191 appeal on February 5, 2002.
A jury trial involving the two remaining patents asserted by Guidant (the `288
and `472 patents) commenced in June 2001. The jury issued its verdict on July 3,
2001, finding that both the `472 and `288 patents were valid and that St. Jude
Medical did not infringe the `288 patent. The jury also found that St. Jude did
infringe the `472 patent, which expired on March 4, 2001, but that the
infringement was not willful. The jury awarded damages of $140,000 to Guidant.
On February 13, 2002, the judge overseeing the jury trial issued his rulings on
the various post-trial motions. In particular, the judge ruled that the `472
patent was invalid on two grounds: lack of proper written description and double
patenting. The judge also ruled that claim 18 was not infringed and that claim 1
was infringed in only a limited manner.
The judge further ruled that the `288 patent was invalid for both obviousness
and failure to disclose the best mode.
The judge also found that St. Jude Medical was entitled to a new trial on the
issue of damages in the event the court's rulings on the other matters were
reversed on appeal. Finally, the judge held that in the event his other rulings
were reversed, St. Jude Medical would be entitled to a new trial because of
misconduct by Guidant and its attorneys during the first trial and that, in such
an event, Guidant would have to pay certain attorney's fees of St. Jude Medical.
The court ruled on several other motions, not summarized here.
The effect of the court's post-trial rulings was to eliminate the $140,000
verdict against St. Jude Medical. The Company expects that Guidant will appeal
the judge's decision.
Since the date of St. Jude Medical's acquisition of Ventritex in May 1997 and
the inception of the Company's sales of ICD products, St. Jude Medical accrued a
3% royalty on its ICD sales under a license with Guidant that it believed it had
acquired as part of its purchase of assets of the Telectronics cardiac
stimulation device business. As a result of the July 2001 jury verdict that St.
Jude Medical's ICD products do not infringe Guidant's `288 patent, the Company
ceased further royalty accruals. The historical accruals under this license at
that time, which totaled approximately $15,000, remained on the Company's
balance sheet pending further developments in the case. The Company evaluated
the facts and circumstances of this case, including the judge's ruling issued on
February 13, 2002, and concluded that the probability that the Company would
have to pay any royalty under the license agreement was remote. As such, the
Company reversed the $15,000 liability through selling, general and
administrative expense in the fourth quarter of 2001.
17
<PAGE>
In addition, the Company incurred legal fees in relation to the Guidant
litigation that were subject to recoverability under an indemnification
agreement between the Company and the seller of the Telectronics cardiac
stimulation device business. The Company now has reason to believe that the
indemnitor will resist payment and, therefore, wrote off approximately $15,000
of its indemnity claim through selling, general and administrative expense in
the fourth quarter of 2001.
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, the Company believes it 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 2001, 2000 or 1999.
SHARE REPURCHASES: In September 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 additional shares were repurchased
during 2001 or 2000.
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 143,181, 114,040 and 94,386
shares in 2001, 2000 and 1999 under this plan. At December 31, 2001, 856,819
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,
2001, the Company had 334,761 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, 2001, are as follows:
WEIGHTED-
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
- --------------------------------------------------------------------------------
Balance at January 1, 1999 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
Cancelled (739,340) 33.19
Exercised (1,134,086) 30.11
- --------------------------------------------------------------------------------
Balance at December 31, 2000 13,269,820 36.47
Granted 3,186,655 71.87
Cancelled (381,367) 42.16
Exercised (1,733,607) 30.53
- --------------------------------------------------------------------------------
Balance at December 31, 2001 14,341,501 $44.90
- --------------------------------------------------------------------------------
Stock options totaling 6,311,837, 5,402,529 and 4,976,093 were exercisable at
December 31, 2001, 2000 and 1999.
18
<PAGE>
The following tables summarize information concerning currently outstanding and
exercisable stock options at December 31, 2001:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$17.55-26.32 857,060 2.5 $22.28
26.32-35.10 5,275,751 6.2 29.51
35.10-43.87 1,761,929 5.4 38.97
43.87-52.64 3,241,756 6.9 52.45
52.64-70.19 351,475 7.3 62.51
70.19-87.74 2,853,530 7.9 73.06
- --------------------------------------------------------------------------------
14,341,501 6.4 $44.90
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
WEIGHTED-
AVERAGE
RABGES OF NUMBER EXERCISE
EXERCISE PRICES EXERCISABLE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
$17.55-26.32 749,540 $21.92
26.32-35.10 3,398,989 29.67
35.10-43.87 1,416,454 38.70
43.87-52.64 703,260 52.30
52.64-70.19 34,969 63.33
70.19-87.74 8,625 85.39
- --------------------------------------------------------------------------------
6,311,837 $33.56
- --------------------------------------------------------------------------------
</TABLE>
The Company also granted 46,481 shares of restricted common stock during the
three years ended December 31, 2001, 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 $26,619, or $0.30 per share, in 2001, $18,875, or $0.22 per share, in
2000, and $18,614, or $0.22 per share, in 1999, 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:
2001 2000 1999
- --------------------------------------------------------------------------------
Fair value of options granted $25.69 $21.09 $11.12
Assumptions used:
Expected life (years) 5 5 5
Risk-free rate of return 4.4% 5.3% 5.8%
Volatility 30.9% 35.6% 33.2%
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
2001 SPECIAL CHARGE: In July 2001, the Company initiated efforts to streamline
its heart valve operations, consolidate its U.S. sales activities and
restructure its international sales organization. As a result of these
activities, the Company recorded pre-tax special charges of $20,657 in the third
quarter of 2001, consisting of employee severance costs resulting from the
elimination of approximately 90 production and administrative positions
($5,293), inventory write-offs and scrap ($9,490), capital equipment write-offs
($3,379) and other costs related primarily to lease terminations and other
facility exit costs due to the closing and consolidation of sales offices
($2,495). The Company has utilized $13,500 of these special charge accruals
through December 31, 2001, consisting of $2,468 of employee severance costs,
$7,301 of inventory write-offs and scrap, $3,379 of capital equipment
write-offs, and $352 of other costs. The Company estimates that the remaining
accruals will be utilized primarily during 2002.
19
<PAGE>
During the third quarter of 2001, the Company also wrote off $12,177 of certain
diagnostic equipment deemed obsolete due to the overwhelming acceptance of newer
technology equipment which received U.S. regulatory approvals in late 2000 and
early 2001, and was launched earlier in 2001.
The charges relating to employee severance costs, capital equipment write-offs
and other costs have been recorded in operating expenses as special charges. The
inventory and diagnostic equipment write-offs are included in cost of sales as
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 Silzone(R) coating on the sewing cuff fabric. The Company
concluded that it would no longer utilize 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.
Additionally, the Company maintains product liability coverage for litigation
related costs in excess of its self-insured retention. The Company has utilized
$20,701 of this special charge accrual through December 31, 2001, consisting of
$9,465 of asset write-downs and $11,236 of other costs. The Company estimates
that the remaining accrual will be utilized primarily during 2002. There can be
no assurance that the final costs associated with this recall that are not
covered by insurance, 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. Substantially
all accruals related to this restructuring have been utilized through December
31, 2001.
NOTE 7--OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
2001 2000 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $(9,306) $(25,929) $(25,378)
Other 1,468 879 3,194
- -----------------------------------------------------------------------------------------------
Other income (expense) $(7,838) $(25,050) $(22,184)
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 8--INCOME TAXES
The Company's earnings before income taxes were generated from domestic and
foreign operations as follows:
<TABLE>
<CAPTION>
2001 2000 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 83,128 $ 75,538 $ 2,408
International 144,850 101,771 64,596
- ------------------------------------------------------------------------------------------------
Earnings before income taxes $227,978 $177,309 $67,004
- ------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
2001 2000 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 48,844 $31,859 $28,641
State and Puerto Rico Section 936 4,994 3,815 2,810
International 13,229 17,980 10,957
- -----------------------------------------------------------------------------------------------
Total current 67,067 53,654 42,408
Deferred (11,681) (5,439) 369
- -----------------------------------------------------------------------------------------------
Income tax expense $ 55,386 $48,215 $42,777
- -----------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
2001 2000
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 52,349 $ 42,611
Tax credit carryforwards 31,678 26,095
Inventories 30,403 30,212
Intangible assets 14,002 17,497
Accrued liabilities and other 1,746 741
- -----------------------------------------------------------------------------------------------
Deferred income tax assets 130,178 117,156
- -----------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Unrealized gain on marketable securities (5,620) (4,692)
Property, plant and equipment (20,757) (19,416)
- -----------------------------------------------------------------------------------------------
Deferred income tax liabilities (26,377) (24,108)
- -----------------------------------------------------------------------------------------------
Net deferred income tax asset $103,801 $ 93,048
- -----------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
A reconciliation of the U.S. federal statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
2001 2000 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at the $ 79,792 $ 62,058 $ 23,451
U.S. federal statutory rate
State income taxes,
net of federal benefit 3,654 2,725 1,811
International taxes at lower rates (20,089) (12,451) (1,567)
Tax benefits from foreign sales
corporation and extraterritorial
income exclusion (3,681) (2,280) (3,309)
Research and development credits (5,984) (4,464) (3,679)
Non-deductible purchased
in-process research and
development charges 3,912 2,141 23,608
Other (2,218) 486 2,462
- ------------------------------------------------------------------------------------------------
Income tax expense $ 55,386 $ 48,215 $ 42,777
- ------------------------------------------------------------------------------------------------
Effective income tax rate 24.3% 27.2% 63.8%
- ------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 2001, the Company has net operating loss and general business
and foreign tax credit carryforwards of approximately $149,569 and $26,757 that
will expire from 2003 through 2021 if not utilized; such amounts are subject to
annual usage limitations. The Company's net operating loss carryforwards arose
primarily from acquisitions. The Company also has alternative minimum tax credit
carryforwards of $4,921 that have an unlimited carryforward period.
The Company has not recorded U.S. deferred income taxes on $329,388 of its
non-U.S. subsidiaries' undistributed earnings as such amounts are 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 $16,249, $13,170 and $11,416 in 2001, 2000 and 1999.
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 $7,600 at December 31, 2001, which approximates
the actuarially calculated unfunded liability. The related pension expense was
not material.
21
<PAGE>
NOTE 10--SEGMENT AND GEOGRAPHIC INFORMATION
SEGMENT INFORMATION: The Company historically reported under two segments.
During 2001, the Company completed a reorganization of its global sales
activities (see Note 6), which resulted in changes to its internal management
and financial reporting structure. As such, the Company now manages its business
on the basis of one reportable segment--the development, manufacture and
distribution of cardiovascular medical devices. See Note 1 for a brief
description of the Company's primary markets and principal products.
GEOGRAPHIC INFORMATION: The following tables present certain geographical
financial information:
<TABLE>
<CAPTION>
NET SALES 2001 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 880,086 $ 745,793 $ 689,051
International 467,270 433,013 425,498
- --------------------------------------------------------------------------------------------------
$1,347,356 $1,178,806 $1,114,549
- --------------------------------------------------------------------------------------------------
LONG-LIVED ASSETS* 2001 2000 1999
- --------------------------------------------------------------------------------------------------
United States $ 547,999 $ 585,118 $ 607,851
International 137,573 149,982 187,448
- --------------------------------------------------------------------------------------------------
$ 685,572 $ 735,100 $ 795,299
- --------------------------------------------------------------------------------------------------
</TABLE>
*Long-lived assets exclude deferred income taxes and other assets.
Net sales by class of similar products were as follows:
<TABLE>
<CAPTION>
NET SALES 2001 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cardiac rhythm management $ 965,968 $ 819,117 $ 767,212
Cardiology and vascular access 133,343 102,740 75,905
Cardiac surgery 248,045 256,949 271,432
- --------------------------------------------------------------------------------------------------
$1,347,356 $1,178,806 $1,114,549
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11--QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 2001 and 2000 is as follows:
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 2001
Net sales $326,065 $336,062 $337,029 $348,200
Gross profit 218,988 225,839 207,040(2) 236,330
Net earnings 47,074 43,819(1) 31,434(2) 50,265(5)
Diluted net earnings per share $ 0.53 $ 0.49 $ 0.35 $ 0.56
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(3) 34,119(1) 37,999(4) 41,148
Diluted net earnings per share $ 0.19 $ 0.40 $ 0.44 $ 0.47
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES PRE-TAX PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF
$5,000 RELATING TO THE VASCULAR SCIENCE, INC. ACQUISITION.
(2) INCLUDES PRE-TAX SPECIAL CHARGE OF $32,834 RELATING TO A RESTRUCTURING OF
ITS U.S. AND INTERNATIONAL SALES ORGANIZATIONS, A STREAMLINING OF ITS HEART
VALVE OPERATIONS, AND A WRITE-OFF OF CERTAIN DIAGNOSTIC EQUIPMENT. $21,667
OF THIS SPECIAL CHARGE WAS RECORDED IN COST OF SALES, AND THE REMAINING
$11,167 WAS RECORDED IN OPERATING EXPENSES.
(3) INCLUDES PRE-TAX SPECIAL CHARGE OF $26,101 RELATING TO THE SILZONE(R)
RECALL.
(4) INCLUDES A CASH RECEIPT 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 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. ALSO, THE
COMPANY RECORDED ADDITIONAL 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.
(5) INCLUDES PRE-TAX PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF
$5,000 RELATING TO THE VASCULAR SCIENCE, INC. ACQUISITION, $15,000 OF
INCOME RELATING TO THE REVERSAL OF AN ACCRUED LIABILITY UNDER A LICENSE
AGREEMENT WITH GUIDANT, AND APPROXIMATELY $15,000 OF LEGAL FEE EXPENSES
INCURRED IN RELATION TO THE GUIDANT LITIGATION.
22
<PAGE>
FIVE-YEAR SUMMARY FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
2001* 2000** 1999*** 1998 1997****
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations for the Fiscal Year:
Net sales $1,347,356 $1,178,806 $1,114,549 $1,015,994 $ 994,396
- ---------------------------------------------------------------------------------------------------------------------
Gross profit $ 888,197 $ 787,657 $ 733,647 $ 643,054 $ 628,679
- ---------------------------------------------------------------------------------------------------------------------
Percent of sales 65.9% 66.8% 65.8% 63.3% 63.2%
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 235,816 $ 202,359 $ 89,188 $ 193,952 $ 86,817
- ---------------------------------------------------------------------------------------------------------------------
Percent of sales 17.5% 17.2% 8.0% 19.1% 8.7%
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 172,592 $ 129,094 $ 24,227 $ 129,082 $ 53,140
- ---------------------------------------------------------------------------------------------------------------------
Percent of sales 12.8% 11.0% 2.2% 12.7% 5.3%
- ---------------------------------------------------------------------------------------------------------------------
Diluted net earnings per share $ 1.93 $ 1.51 $ 0.29 $ 1.50 $ 0.58
- ---------------------------------------------------------------------------------------------------------------------
Financial Position at Year End:
Cash and equivalents $ 148,335 $ 50,439 $ 9,655 $ 3,775 $ 28,530
- ---------------------------------------------------------------------------------------------------------------------
Working capital 475,692 388,322 389,768 471,090 491,688
- ---------------------------------------------------------------------------------------------------------------------
Total assets 1,628,727 1,532,716 1,554,038 1,384,612 1,453,116
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt 123,128 294,500 477,495 374,995 220,000
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity 1,183,745 940,849 794,021 806,220 987,022
- ---------------------------------------------------------------------------------------------------------------------
Other Data:
Diluted weighted average shares outstanding 89,384 85,817 84,735 86,145 92,052
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
EXCEPT FOR 1997, ALL FISCAL YEARS NOTED ABOVE CONSISTED OF FIFTY-TWO WEEKS.
FISCAL YEAR 1997 CONSISTED OF FIFTY-THREE WEEKS. THE COMPANY DID NOT DECLARE OR
PAY ANY DIVIDENDS DURING 1997 THROUGH 2001.
*RESULTS FOR 2001 INCLUDE A $32,834 SPECIAL CHARGE AND PURCHASED IN-PROCESS
RESEARCH AND DEVELOPMENT CHARGES OF $10,000.
**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.
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:
Equiserve Trust Company N.A.
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
16, 2002, 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 web site
at www.sjm.com, or write to:
Investor Relations
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, Minnesota 55117
The Investor Relations section on our web site 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
web site, including the patients featured in this year's annual report.
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 2001 and 2000 is set forth below. As of February 13, 2002, the Company
had 3,451 shareholders of record.
Fiscal Year Ended December 31, 2001 2000
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
First $64.55 $44.45 $31.25 $23.63
Second $66.00 $49.60 $44.25 $24.19
Third $72.06 $57.75 $51.63 $36.88
Fourth $78.08 $66.95 $62.50 $46.38
- --------------------------------------------------------------------------------
TRADEMARKS
Aescula(TM), AF Suppression(TM), AFx(TM), Affinity(R), Alliance(TM),
Angio-Seal(TM), Angio-Seal(TM) STS, Atlas(TM), AutoCapture(TM),
Beat-by-Beat(TM), BiLinx(TM), Contour(R), Distal(TM), Duo(TM), Dynamic Atrial
Overdrive(TM), Fast Cath(TM), Fast Cath Duo(TM), FlatCap(TM), Frontier(TM),
Genesis(TM) System, GuideRight(TM), Housecall(TM), HydraSteer(TM), Identity(TM),
Integrity(R), Livewire(TM), Livewire TC(TM), Livewire TC Compass(TM),
Microny(R), Maximum(TM), Photon(R), Response(TM) CV, Riata(TM), Seal-Away(TM),
Secure Cap(TM), SJM(R), SJM Biocor(TM), SJM Epic(TM), SJM Regent(TM), SJM
Tailor(TM), Spyglass(TM), St. Jude Medical(R), Supreme(TM), Supreme Spiral
SC(TM), Sure-Lock(TM), Symmetry(TM) Bypass System, Tendril(R), Toronto Root(TM),
Toronto SPV(R), TVL(R), Ultimum(TM).
Harmony(TM) INR Monitoring System is a trademark of LifeScan, Inc., a Johnson &
Johnson company.
24
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>stjude021570_ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
EXHIBIT 21
ST. JUDE MEDICAL, INC.
SUBSIDIARIES OF THE REGISTRANT
St. Jude Medical, Inc. Wholly Owned Subsidiaries:
o Pacesetter, Inc. - Sylmar, California, Scottsdale, Arizona, and Maven,
South Carolina (Delaware corporation) (doing business as St. Jude
Medical Cardiac Rhythm Management Division)
o 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.)
o St. Jude Medical Sales Corporation - St. Paul, Minnesota (Barbados
corporation)
o St. Jude Medical Europe, Inc. - St. Paul, Minnesota (Delaware
corporation)
- Brussels, Belgium branch
o St. Jude Medical Canada, Inc. - Mississauga, Ontario and St. Hyacinthe,
Quebec (Ontario, Canada corporation)
o 151703 Canada, Inc. - St. Paul, Minnesota (Ontario, Canada corporation)
o 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
o 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)
o St. Jude Medical Australia Pty., Ltd. - Sydney Australia (Australian
corporation)
o St. Jude Medical Brasil, Ltda. - Sao Paulo and Belo Horizonte, Brazil
(Brazilian corporation)
- Telectronics Medica, Ltda. - Sao Paulo, Brazil (Brazilian
corporation)
o Medical Telectronics, Ltd. - Auckland, New Zealand (New Zealand
corporation)
o St. Jude Medical, Daig Division, Inc.- Minnetonka, Minnesota (Minnesota
corporation) (formerly known as Daig Corporation)
o St. Jude Medical Colombia, Ltda. (Bogota, Colombia) (Colombian
corporation)
o St. Jude Medical ATG, Inc. - Maple Grove, Minnesota (Minnesota
corporation) (formerly known as St. Jude Medical Cardiovascular Group,
Inc.)
o SJM International, Inc. - St. Paul, Minnesota (Delaware corporation)
(formerly known as SJM Europe, Inc.)
- Tokyo, Japan branch
1
<PAGE>
SJM International Inc. Wholly Owned Subsidiaries
o 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 Japan KK (Japanese corporation)
(wholly owned subsidiary of St. Jude Medical Puerto
Rico Holding, B.V.)
- 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 owned subsidiary of St. Jude Medical
Nederland 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 corporation) (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)
o St. Jude Medical AB (Swedish corporation) (formerly known as Pacesetter
AB)
o St. Jude Medical Sweden AB (Swedish corporation)
o St. Jude Medical Danmark A/S (Danish corporation)
- Telectronics Scandinavia Aps (Danish corporation) (wholly
owned subsidiary of St. Jude Medical Danmark A/S)
o St. Jude Medical Pacesetter Sales AB (Swedish corporation)
o St. Jude Medical (Portugal) - Distribuicao de Produtos Medicos, Lda.
(Portuguese corporation)
o St. Jude Medical Export Ges.m.b.H. (Austrian corporation)
o St. Jude Medical Medizintechnik Ges.m.b.H. (Austrian corporation)
o St. Jude Medical Italia S.p.A. (Italian corporation)
o N.V. St. Jude Medical Belgium, S.A. (Belgian corporation)
- Portugal branch
o St. Jude Medical Espana, S.A. (Spanish corporation)
o St. Jude Medical France S.A. (French corporation)
o St. Jude Medical Finland O/y (Finnish corporation)
o St. Jude Medical Sp.zo.o. (Polish corporation)
o St. Jude Medical GmbH (German corporation)
o St. Jude Medical UK Limited (United Kingdom corporation)
o St. Jude Medical AG (Swiss corporation)
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>stjude021570_ex23.txt
<DESCRIPTION>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 January 28, 2002, except for Note
4, as to which the date is February 13, 2002, included in the 2001 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 January 28, 2002, except for Note 4,
as to which the date is February 13, 2002, 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, 2001.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
March 22, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>9
<FILENAME>stjude021570_ex24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Terry L. Shepherd, John C. Heinmiller and Kevin
T. O'Malley, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K of St. Jude Medical, Inc. for the fiscal year
ended December 31, 2001, and any or all amendments to said Annual Report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and to file the same
with such other authorities as necessary, granting unto each such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that each such attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 22nd
day of March, 2002, by the following persons.
/s/ TERRY L. SHEPHERD /s/ WALTER L. SEMBROWICH
- ------------------------------ ------------------------------
Terry L. Shepherd Walter L. Sembrowich
Chief Executive Officer Director
(Principal Executive Officer)
/s/ JOHN C. HEINMILLER /s/ DANIEL J. STARKS
- ------------------------------ ------------------------------
John C. Heinmiller Daniel J. Starks
Vice President, Finance and Director
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ RONALD A. MATRICARIA /s/ DAVID A. THOMPSON
- ------------------------------ ------------------------------
Ronald A. Matricaria David A. Thompson
Chairman Director
/s/ RICHARD R. DEVENUTI /s/ STEFAN K. WIDENSOHLER
- ------------------------------ ------------------------------
Richard R. Devenuti Stefan K. Widensohler
Director Director
/s/ STUART M. ESSIG /s/ WENDY L. YARNO
- ------------------------------ ------------------------------
Stuart M. Essig Wendy L. Yarno
Director Director
/s/ THOMAS H. GARRETT III /s/ FRANK C-P YIN
- ------------------------------ ------------------------------
Thomas H. Garrett III Frank C-P Yin
Director Director
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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