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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 1999
COMMISSION FILE NO. 0-8672
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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 office)
(651) 483-2000
(Registrant's telephone number, including area code)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months; and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $2.1 billion at March 10, 2000, when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $25.50.
The number of shares outstanding of the Registrant's Common Stock, $.10
par value, as of March 10, 2000, was 83,823,073 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1999, are incorporated by reference in Parts I,
II and IV. Portions of the Proxy Statement dated March 27, 2000, are
incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
GENERAL
St. Jude Medical, Inc., together with its subsidiaries ("St. Jude"
or the "Company") is a global leader in the development, manufacturing and
distribution of medical device products for the cardiac rhythm management,
cardiology and vascular access, and heart valve disease management markets.
St. Jude has two reportable segments: Cardiac Rhythm Management
(CRM) and Heart Valve Disease Management (HVDM). The CRM segment, which includes
the results from the Company's Cardiac Rhythm Management Division and Daig
Division, develops, manufactures and distributes bradycardia pulse generator and
tachycardia implantable cardioverter defibrillators (ICD) systems,
electrophysiology and interventional cardiology catheters, and vascular closure
devices. The HVDM segment develops, manufactures and distributes mechanical and
tissue heart valves and valve repair products, and is in the process of
developing suture-free devices to facilitate coronary artery bypass graft
anastomoses.
Effective September 27, 1999, St. Jude acquired Vascular Science,
Inc. ("VSI"), a development-stage company focused on the development of
suture-free devices to facilitate coronary artery bypass graft anastomoses.
Effective March 16, 1999, St. Jude purchased the Angio-Seal business
of Tyco International Ltd. Angio-Seal develops, manufactures and distributes
hemostatic vascular closure devices.
During 1999, the Company acquired the assets of various businesses
used in the distribution of the Company's products.
Effective May 15, 1997, St. Jude acquired Ventritex, Inc.,
("Ventritex") a California-based manufacturer of implantable cardioverter
defibrillators and related products. ICDs are used to treat hearts that beat
inappropriately fast.
Effective November 29, 1996, St. Jude's Pacesetter Inc. subsidiary
acquired substantially all of the assets of Telectronics Pacing Systems, Inc.
("Telectronics"), a pacemaker company, and Medtel, a distribution company in the
Asia-Pacific region. In addition to state-of-the-art pacing technologies,
Telectronics enhanced the Company's Cardiac Rhythm Management Division
operations by adding important intellectual property assets.
Effective September 23, 1996, the Company acquired Newcor Industrial
S.A. which owned most of the assets of Biocor(R)Industria E Pesquisas Ltd., a
Brazilian manufacturer of tissue heart valves.
Effective May 31, 1996, the Company acquired Daig Corporation
("Daig"), a Minnesota based manufacturer of specialized cardiovascular catheters
and related products for the electrophysiology and interventional cardiology
markets.
The Company markets its products primarily in the United States,
Western Europe and Japan through both a direct employee-based sales organization
and independent distributors. In addition, St. Jude maintains geographically
based sales and marketing organizations that are responsible for
1
marketing, sales and distribution of the Company's and third party products in
Eastern Europe, Africa, the Middle East, Canada, Latin America and the
Asia-Pacific region.
Typically, the Company's net sales are somewhat higher in the first
and second quarters and lower in the third and fourth quarters. This results
from patient tendency to defer, if possible, cardiac procedures during the
summer months and from the seasonality of the U.S. and Western European markets
where summer vacation schedules normally result in fewer surgical procedures.
Independent distributors randomly place large orders which can distort the net
sales pattern noted above. In addition, new product introductions, acquisitions,
and regulatory approvals can modify the expected net sales pattern.
In 1999, approximately 76% of net sales were derived from cardiac
rhythm management segment products, and approximately 24% from heart valve
disease management segment products. Approximately 62% of the Company's 1999 net
sales were in the U.S. market, which was slightly higher than the 1998 results.
Additional segment information is set forth in the Company's 1999 Annual Report
to Shareholders on page 41 and is incorporated herein by reference.
CARDIAC RHYTHM MANAGEMENT
The Cardiac Rhythm Management Division ("CRMD") is headquartered in
Sylmar, California and has manufacturing facilities in California, Arizona,
South Carolina and Sweden. The Daig Division ("Daig") is headquartered and has
manufacturing facilities in Minnesota.
CRMD pacemakers and related systems treat patients with hearts that
beat inappropriately slow, a condition known as bradycardia. ICDs and related
systems treat patients with hearts that beat inappropriately fast, a condition
known as tachycardia. Daig specialized disposable cardiovascular catheters and
related devices are used in the electrophysiology and interventional cardiology
markets.
Typically implanted pectorally, just below the collarbone,
pacemakers monitor the heart's rate and, when necessary, deliver low-level
electrical impulses that stimulate an appropriate heartbeat. The pacemaker is
connected to the heart by one or two leads that carry the electrical impulses to
the heart and information from the heart back to the pacemaker. An external
programmer enables the physician to retrieve diagnostic information from the
pacemaker and reprogram the pacemaker in accordance with the patient's changing
needs. Single-chamber pacemakers stimulate only one chamber of the heart (atrium
or ventricle), while dual-chamber devices can sense and pace in both the upper
and lower chambers.
CRMD's current pacing products include the January 1999 FDA approved
Affinity(R), the August 1999 FDA approved Entity(TM) and Trilogy(R) family of
pacemakers, containing the proven Omnisense(TM) activity-based sensor, and the
Tempo(TM) pacemaker family, which uses fifth-generation Minute Ventilation
sensor technology. These pacemaker families are highly automatic and contain
many advanced features and diagnostic capabilities to optimize cardiac therapy.
All are small and physiologic in shape to enhance patient comfort.
Outside the United States, CRMD also offers single-chamber
pacemakers, the Microny(TM) SR+, and the Regency(TM) pacemaker families, which
are in clinical trials in the United States. The Affinity(R), the Entity(TM) and
Regency(TM) families of pacemakers, as well as the Microny(TM) SR+, all offer
the unique feature of AutoCapture(TM) pacing system. The AutoCapture(TM) pacing
system is a proprietary technology that enables the pacemaker to monitor every
paced beat for heart 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.
CRMD's current pacing leads include the active-fixation Tendril(R)
DX and SDX families and the passive-fixation Passive Plus(R) DX family which are
available worldwide, and the passive-fixation Membrane(TM) EX family which is
currently available outside the United States. All three lead families feature
steroid elution, which helps suppress the body's inflammatory response to a
foreign object, and are designed to maximize energy efficiency and promote
pacing system longevity.
CRMD offers two pacemaker programmers, the APS(TM) III patient
management system, and the highly portable APS(TM)(mu) (micro), which allow the
physician to efficiently utilize the extensive diagnostic and therapeutic
capabilities of CRMD's pacemakers.
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CRMD's ICDs monitor the heartbeat and deliver higher energy
electrical impulses, or "shocks," to terminate ventricular tachycardia (VT) and
ventricular fibrillation (VF). In ventricular tachycardia, the lower chambers of
the heart contract at an abnormally rapid rate and typically deliver less blood
to the body's tissues and organs. VT can progress to VF, in which the heart
beats so rapidly and erratically that it can no longer pump blood. Like
pacemakers, ICDs are typically implanted pectorally, connected to the heart by
leads, and programmed non-invasively. The current CRMD ICD offerings include the
Photon(TM), Angstrom(TM) MD, Contour(R) MD and Profile(TM) MD.
St. Jude implanted its first dual chamber ICD, the Photon(TM) DR, in
December 1999 to begin this product's clinical approval process. The Photon(TM)
DR is a dual chamber ICD, offering the features of Morphology Discrimination
(MD) and AV Rate Branch for precise arrythmia detection. In addition, the
Photon(TM) offers SVT discrimination algorithms.
These ICDs are used with the dual electrode and single electrode TVL
and TVL-ADX (active-fix) transvenous leads, which have superior handling
characteristics and performance. The Photon(TM) DR ICD is programmable with the
APS III universal programmer. The Angstrom(TM) MD, Contour(R) MD and Profile(TM)
ICDs are currently programmable with the PR-3500 and PR-1500 programmers and
will be programmable by the APS III programmer in the fourth quarter of 2000.
Specialized disposable cardiovascular devices, sold by Daig, include
percutaneous (through the skin) catheter introducers, diagnostic guidewires,
vascular sealing devices, electrophysiology catheters and bipolar temporary
pacing catheters (used with external pacemakers). Percutaneous catheter
introducers are used to create passageways for cardiovascular catheters from
outside the human body through the skin into a vein, artery or other location
inside the body. Daig's percutaneous catheter introducer products consist
primarily of peel-away sheaths, sheaths with and without hemostasis valves,
dilators, guidewires, repositioning sleeves, obturators and needles. All of
these products are offered in a variety of sizes and packaging configurations.
Diagnostic guidewires are used in conjunction with percutaneous catheter
introducers to aid in the introduction of intravascular catheters. Daig's
diagnostic guidewires are available in multiple lengths and incorporate a
surface finish for lasting lubricity. Vascular sealing devices are used to close
femoral artery puncture wounds following angioplasty, stenting and diagnostic
procedures.
Electrophysiology catheters are placed into the human body
percutaneously to aid in the diagnosis and treatment of cardiac arrhythmias
(abnormal heart rhythms). Between two and five electrophysiology catheters are
generally used in each electrophysiology procedure. Daig's electrophysiology
catheters are available in multiple configurations. Bipolar temporary pacing
catheters are inserted percutaneously for temporary use (less than one hour to a
maximum of one week) with external pacemakers to provide patient stabilization
prior to implantation of a permanent pacemaker, following a heart attack, or
during surgical procedures. Daig produces and markets several designs of bipolar
temporary pacing catheters.
HEART VALVE DISEASE MANAGEMENT
The Heart Valve Division (HVD) is headquartered in St. Paul,
Minnesota and has manufacturing facilities in Minnesota, Puerto Rico, Canada and
Brazil. 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.
HVD offers both mechanical and tissue replacement heart valves and
valve repair products. The St. Jude Medical(R) mechanical heart valve has been
implanted in over one million patients to date. The SJM Regent(TM) mechanical
heart valve was approved for sale in Europe in December 1999 and is currently in
a clinical trial in the United States. The Company markets the Toronto SPV(R)
stentless tissue valve, the world's leading stentless tissue valve and the
SJM(R) Biocor(TM) tissue valve. The Company received FDA approval for the U.S.
market release of the Toronto SPV(R) in November 1997 at which time the product
was launched and physician training commenced. The SJM Epic(TM) tissue heart
valve received European regulatory approval in late 1998 and was launched in
Europe in 1999. On January 21, 2000 the Company discontinued sales of HVD
products, including heart valves, with Silzone(R) cuffs
3
due to a higher incidence of perivalvular leak associated with this product in a
clinical study. The Company also recalled unimplanted inventory of this product.
Annuloplasty rings are prosthetic devices used to repair diseased or
damaged mitral heart valves. The Company has executed a license agreement with
Professor Jacques Seguin to manufacture and market an advanced semi-rigid
annuloplasty ring. The SJM(R) Seguin annuloplasty ring was cleared by the FDA
for U.S. release during first quarter 1997. The SJM Tailor(TM) annuloplasty ring
received worldwide regulatory approvals in late 1998 and was launched worldwide
in early 1999.
HVD has also entered into other relationships to provide additional
products and services for heart valve disease management, including:
1) An agreement with LifeNet Transplant Services which enables HVD to
assist in the marketing of human donated allograft heart valves.
2) An alliance with Boehringer Mannheim Corporation which provides
valve patients the opportunity to use a home test kit for measuring
anticoagulation levels.
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 an alternative supplier,
the Company maintains sizable inventories of up to three years of its projected
requirements for certain materials, some of which are available only from a
single supplier. The Company has been advised from time to time that certain of
these suppliers may terminate sales of products to customers that manufacture
implantable medical devices in an effort to reduce their potential products
liability exposure. Some of these suppliers have modified their positions and
have indicated a willingness to either temporarily continue to provide product
until such time as an alternative vendor or product can be qualified or to
reconsider the supply relationship. While the Company believes that alternative
sources of raw materials are available and that there is sufficient lead time in
which to qualify such other sources, any supply interruption could have a
material adverse effect on the Company's ability to manufacture its products.
COMPETITION
Within the medical device industry, competitors range from small
start-up companies to companies with significant resources. The Company's
customers consider many factors when choosing supplier partners including
product reliability, clinical outcomes, product availability, inventory
consignment, price and product services provided by the manufacturer. Market
share can shift as a result of technological innovation, product recalls and
product safety alerts, as well as other business factors. This emphasizes the
need to provide the highest quality products and services. St. Jude expects the
competition to continue to increase by using tactics such as consigned
inventory, bundled product sales and reduced pricing.
CRMD has traditionally been a technological leader in the
bradycardia pacemaker market. The Company has strong bradycardia market share
positions in all major developed markets. There are three principal
manufacturers and suppliers of ICDs. This is a rapidly growing and highly
competitive market. Two of the competitors account for more than 80% of the
worldwide ICD sales. These two competitors are larger than the Company and have
invested substantial amounts in ICD research and development. The market areas
Daig focuses on are the cardiac catheterization laboratories and the
electrophysiology laboratories throughout the world. These are growing markets
with numerous competitors.
The Company is the world's leading manufacturer and supplier of
mechanical heart valves. There are two other principal and several other smaller
mechanical heart valve manufacturers. The Company competes against two principal
and a large number of other smaller tissue heart valve manufacturers.
The medical device 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
device manufacturers.
4
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 1999, 1998 and 1997 net sales.
In the United States, St. Jude sells directly to hospitals through a
combination of independent distributors and an employee based sales organization
for its pacemaker products and through employee based sales organizations for
its heart valve and catheter products. In Western Europe, the Company has an
employee based sales organization selling in 14 countries. Throughout the rest
of the world the Company uses a combination of independent distributor and
direct sales organizations.
Group purchasing organizations (GPOs) in the U.S. continue to
consolidate the purchasing for some of the Company's customers. 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 CRM products to members of these GPOs.
Payment terms worldwide are consistent with local practice. Orders
are shipped as they are received and, therefore, no material back orders exist.
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 products and
processes and to maintain the highest quality standards of existing products.
The Company's research and development expenses, exclusive of in-process
purchased research and development, were $125,059,000 (11.2% of net sales),
$99,756,000 (9.8%) and $104,693,000 (10.5%) in 1999, 1998 and 1997,
respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in some instances, by state and foreign
governmental authorities. 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, implantable cardioverter
defibrillators, certain pacemakers and leads and certain electrophysiology
catheter applications are subject to this level of approval or as a supplement
to a PMA approval. Other pacemakers and leads, annuloplasty ring products and
other electrophysiology and interventional cardiology products are currently
marketed under the 510(k) pre-market notification procedure of the Act.
In addition, the FDA may require testing and surveillance programs
to monitor the effect of approved products which have been commercialized and it
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. The FDA also conducts inspections
prior to approval of a PMA to determine compliance with the quality system
regulations which covers manufacturing and design and may, at any time after
approval of a PMA or granting of a 510(K), conduct periodic inspections to
determine compliance with both good manufacturing practice regulations and/or
current medical device reporting regulations. If the FDA were to conclude that
St. Jude was not in compliance with applicable laws or regulations, it could
institute proceedings to detain or seize products, issue a recall, impose
operating restrictions, assess civil penalties and recommend criminal
prosecution to the Department of Justice. Furthermore, the FDA could proceed to
ban, or request recall, repair, replacement or refund of the cost of, any device
manufactured or distributed.
The FDA also regulates record keeping for medical devices and
reviews hospital and manufacturers' required reports of adverse experiences to
identify potential problems with FDA authorized devices. Aggressive regulatory
action may be taken due to adverse experience reports.
5
Diagnostic-related groups ("DRG") reimbursement schedules regulate
the amount the United States government, through the Health Care Financing
Administration ("HCFA"), will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. In response to rising Medicare and Medicaid
costs, several legislative proposals have been advanced which would restrict
future funding increases for these programs. While the Company has been unaware
of significant domestic price resistance directly as a result of DRG
reimbursement policies, changes in current DRG reimbursement levels could have
an adverse effect on its domestic pricing flexibility.
St. Jude Medical's business outside the United States is subject to
medical device laws in individual foreign countries. These laws range from
extensive device approval requirements in some countries for all or some of the
Company's products to requests for data or certifications in other countries.
Generally, regulatory requirements are increasing in these countries. In the
European Economic Community ("EEC"), the regulatory systems have been harmonized
and approval to market in EEC countries (the CE Mark) can be obtained through
one agency. In addition, government funding of medical procedures is limited and
in certain instances being reduced.
The Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services ("HHS") is currently conducting an
investigation regarding possible hospital submissions of improper claims to
Medicare/Medicaid programs for reimbursement for procedures using cardiovascular
medical devices that were not approved for marketing by the FDA at the time of
use. Beginning in June 1994, approximately 130 hospitals received subpoenas from
HHS seeking information with respect to reimbursement for procedures using
cardiovascular medical devices (including certain products manufactured by the
Company) that were subject to investigational exemptions or that may not have
been approved for marketing by the FDA at the time of use. The subpoenas also
sought information regarding various types of remuneration, including payments,
gifts, stock and stock options, received by the hospital or its employees from
manufacturers of medical devices. Civil and criminal sanctions may be imposed
against any person participating in an improper claim for reimbursement under
Medicare/Medicaid. The OIG's investigation and any related change in
reimbursement practices may discourage hospitals from participating in clinical
trials or from including Medicare and Medicaid patients in clinical trials,
which could lead to increased costs in the development of new products. St. Jude
is unable to predict the outcome of this matter or when it will be resolved.
There can be no assurance that the OIG's investigation or any changes in
third-party payors' reimbursement practices will not materially adversely affect
the medical device industry in general or the Company in particular. In 1995,
HCFA, part of HHS, issued a regulation clarifying that certain medical devices
subject to investigational requirements under the Act may qualify for
reimbursement. In April 1996, a Federal District Court in California declared
the HCFA's governmental guidelines, denying reimbursement for investigational
devices, to be invalid. After an appeal, the district court has again found the
regulation invalid and the government has appealed again. There can be no
assurance that the OIG's investigation or any resulting or related changes in
third-party payors' reimbursement practices will not materially adversely affect
the medical device industry in general or St. Jude Medical in particular.
In 1994 the predecessor organization to Pacesetter entered a consent
decree which settled a lawsuit brought by the United States in U.S. District
Court for the District of New Jersey. The consent decree which remains in effect
indefinitely requires that Pacesetter comply with the FDA's good manufacturing
practice regulations and identifies several specific provisions of those
regulations. The consent decree provides for FDA inspections and that Pacesetter
is obligated to pay certain costs of the inspections.
In May 1995 Telectronics 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.
In 1994 a state prosecutor in Germany began an investigation of
allegations of corruption in connection with the sale of heart valves. As part
of that investigation, the prosecutor seized documents from St. Jude's offices
in Germany as well as documents from certain competitors' offices. The
investigation is continuing and has been broadened to include other medical
devices. Subsequently, in
6
1996 the United States Securities and Exchange Commission issued a formal order
of private investigation covering sales practices in Europe of St. Jude and
other manufacturers.
PATENTS AND LICENSES
The Company's policy is to protect its intellectual property rights
related to its medical devices. Where appropriate, St. Jude applies for United
States and foreign patents. In those instances where the Company has acquired
technology from third parties, it has sought to obtain rights of ownership to
the technology through the acquisition of underlying patents or licenses.
While the Company believes design, development, regulatory and
marketing aspects of the medical device business represent the principal
barriers to entry into such business, it also recognizes that its patents and
license rights may make it more difficult for its competitors to market products
similar to those produced by the Company. St. Jude can give no assurance that
any of its patent rights, whether issued, subject to license or in process, will
not be circumvented or invalidated. Further, there are numerous existing and
pending patents on medical products and biomaterials. There can be no assurance
that the Company's existing or planned products do not or will not infringe such
rights or that others will not claim such infringement. The Company's principal
patent covering its mechanical heart valve expired in the United States in July
1998. No assurance can be given that the Company will be able to prevent
competitors from challenging the Company's patents or entering markets currently
served by the Company.
INSURANCE
The medical device industry has historically been subject to
significant products liability claims. Such claims could be asserted against the
Company in the future for events not known to management at this time.
Management has adopted risk management practices, including products liability
insurance coverage, which management believes are prudent.
California earthquake insurance is currently difficult to procure,
extremely costly, and restrictive in terms of coverage. The Company's earthquake
and related business interruption insurance for its operations located in Sylmar
and Sunnyvale, California does provide for limited coverage above a significant
self-insured retention. There are several factors that preclude the Company from
determining the effect an earthquake may have on its business. These factors
include, but are not limited to, the severity and location of the earthquake,
the extent of any damage to the Company's manufacturing facilities, the impact
of such an earthquake on the Company's California workforce and the
infrastructure of the surrounding communities, and the extent, if any, of damage
to the Company's inventory and work in process. While the Company's exposure to
significant losses occasioned by a California earthquake would be partially
mitigated by its ability to manufacture certain of the CRMD products at its
Swedish manufacturing facility, any such losses could have a material adverse
effect on the Company, the duration of which cannot be reasonably predicted. The
Company has expanded the manufacturing capabilities at its Swedish facility and
has constructed a pacemaker component manufacturing facility in Arizona. In
addition, the Company has moved significant finished goods inventory to
locations outside California. These facilities and inventory transfers would
further mitigate the adverse impact of a California earthquake.
EMPLOYEES
As of December 31, 1999, the Company had 4,379 full-time employees.
It has never experienced a work stoppage as a result of labor disputes and none
of its employees are represented by a labor organization, with the exception of
the Company's Swedish employees and certain employees in France.
INTERNATIONAL OPERATIONS
The Company's foreign business is subject to such special risks as
exchange controls, currency devaluation, the imposition or increase of import or
export duties and surtaxes, and international credit or financial problems.
Currency exchange rate fluctuations vis-a-vis the U.S. dollar can affect
reported net earnings. The Company attempts to hedge a portion of this exposure
to reduce the effect of foreign currency rate fluctuations on net earnings. See
the "Market Risk" section of Management's Discussion
7
and Analysis of Results of Operations and Financial Condition", incorporated by
reference to St. Jude's 1999 Annual Report to Shareholders. Operations outside
the United States present complex tax and cash management issues that
necessitate sophisticated analysis and diligent monitoring to meet the Company's
financial objectives.
ITEM 2. PROPERTIES
St. Jude Medical'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. Approximately 59%, or 343,000 square feet, of the total manufacturing
space is owned by the Company and the balance is leased.
The Company also maintains sales and administrative offices inside
the United States at 12 locations in 5 states and outside the United States at
36 locations in 23 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. Currently the Company is using substantially
all of its available space to develop, manufacture and market its products.
ITEM 3. LEGAL PROCEEDINGS
GUIDANT LITIGATION
On November 26, 1996, Guidant Corporation (a competitor of
Pacesetter and Ventritex) ("Guidant") and related parties filed a lawsuit
against St. Jude Medical, Inc. ("St. Jude Medical"), Pacesetter, Inc.
("Pacesetter"), Ventritex, Inc. ("Ventritex") and certain members of the
Telectronics Group in State Superior Court in Marion County, Indiana (the
"Telectronics Action"). The lawsuit alleges, among other things, that, pursuant
to an agreement entered into in 1993, certain Guidant parties granted Ventritex
intellectual property licenses relating to cardiac stimulation devices, and that
such licenses would terminate upon the consummation of the merger of Ventritex
into Pacesetter (the "Merger"). The lawsuit further alleges that, pursuant to an
agreement entered into in 1994 (the "Telectronics Agreement"), certain Guidant
parties granted the Telectronics Group intellectual property licenses relating
to cardiac stimulation devices. The lawsuit seeks declaratory and injunctive
relief, among other things, to prevent and invalidate the transfer of the
Telectronics Agreement to Pacesetter in connection with Pacesetter's acquisition
of Telectronics' assets (the "Telectronics Acquisition") and the application of
license rights granted under the Telectronics Agreement to the manufacture and
sale by Pacesetter of Ventritex's products following the consummation of the
Merger. The court overseeing this case issued a stay of this matter in July 1998
so that the issues could be addressed in an arbitration requested by the
Telectronics Group and Pacesetter.
Guidant and related parties also filed suit against St. Jude
Medical, Pacesetter and Ventritex on November 26, 1996 in the United States
District Court for the Southern District of Indiana. This second lawsuit seeks
(i) a declaratory judgment that Pacesetter's manufacture, use or sale of cardiac
stimulation devices of the type or similar to the type which Ventritex
manufactured and sold at the time the Guidant parties filed their complaint
would, upon consummation of the Merger, be unlicensed and constitute an
infringement of patent rights owned by certain Guidant parties, (ii) to enjoin
the manufacture, use or sale by St. Jude Medical, Pacesetter or Ventritex of
cardiac stimulation devices of the type which Ventritex manufactured at the time
the Guidant parties filed their complaint, and (iii) certain damages and costs.
This second lawsuit was stayed by the court in July 1998 given the order to
arbitrate which is mentioned below.
St. Jude Medical and Pacesetter believe that the foregoing state and
federal court complaints contain a number of significant factual inaccuracies
concerning the Telectronics Acquisition and the terms and effects of the various
intellectual property license agreements referred to in such complaints. For
these reasons and others, St. Jude Medical and Pacesetter believe that the
allegations set forth in the complaints are without merit. St. Jude Medical and
Pacesetter have vigorously defended their interests in these cases, and will
continue to do so.
8
As a result of the state and federal lawsuits brought by Guidant and
related parties, the Telectronics Group and Pacesetter filed a lawsuit in the
United States District Court for the District of Minnesota seeking (i) a
declaratory judgment that the Guidant parties' claims, as reflected in the
Telectronics Action, are subject to arbitration pursuant to the arbitration
provisions of the Telectronics Agreement, (ii) an order that the defendants
arbitrate their claims against the Telectronics Group and Pacesetter in
accordance with the arbitration provisions of the Telectronics Agreement, (iii)
to enjoin the defendants preliminarily and permanently from litigating their
dispute with the Telectronics Group and Pacesetter in any other forum, and (iv)
certain costs. After the Eighth Circuit Court of Appeals ruled on an appeal in
favor of the Telectronics Group and Pacesetter in May 1998, the United States
District Court for the District of Minnesota issued an order on July 8, 1998
directing the arbitration requested by the Telectronics Group and Pacesetter to
proceed.
An arbitrator for the arbitration has been selected by the parties.
The arbitrator has issued some interim rulings, including that Pacesetter and
St. Jude Medical should not participate in the initial arbitration proceeding
concerning whether the Telectronics Agreement transferred to Pacesetter. The
Telectronics Group and the Guidant parties will be involved in this initial
arbitration proceeding. Although the arbitration proceeding was scheduled to
begin in March 2000, the arbitrator postponed the proceeding. No order has been
issued to date concerning when the arbitration will be held.
In the federal court lawsuit in Indiana which has been stayed
pending the result of the above-described arbitration, Guidant asserted patent
infringement claims against St. Jude Medical and its Pacesetter, Inc. subsidiary
involving four separate patents. One of these patents expired May 3, 1998. The
other patents involved expire March 7, 2001, February 25, 2003 and December 22,
2003. Although Guidant has requested injunctive relief and damages as part of
the federal court lawsuit, the request for an injunction would be barred for any
expired patent, but Guidant's claims for damages for the period prior to
expiration could still be asserted if Guidant's claims for infringement remain
after the arbitration is completed.
In connection with the three patents that have yet to expire, a
third party initiated a Reexamination Request in the U.S. Patent Office. The
Patent Office Reexamination Action resulted in the preliminary rejection of all
of the claims in two of the unexpired patents. With respect to the third
unexpired patent, the Patent Office preliminarily rejected some of the claims in
the patent and upheld others. It is the Company's understanding that Guidant is
in the process of responding to the Patent Examiner's preliminary position as
part of its Reexamination procedure. If the Patent Examiner maintains his
position, we believe that Guidant will appeal the adverse rulings by the Patent
Office concerning these three patents, a process that typically takes between
six and twelve months.
IRS LITIGATION
The Company and the Internal Revenue Service ("IRS") are in Tax
Court over tax deficiency notices totaling $16.4 million for the tax periods
1990-1991. The Company is refuting the IRS deficiency and has asserted that in
fact the Company is owed a refund. The trial for this matter is currently
scheduled to begin in June 2000. In addition, the IRS has proposed adjustments
totaling $41.8 million in additional taxes related to the Company's 1992-1994
income tax returns. The Company is disputing these adjustments, however,
resolution of these matters is stayed pending resolution of the 1990-1991
litigation. Management believes that the IRS will propose a similar adjustment
of approximately $15.5 million for 1995. The issues raised by the IRS relate
primarily to the Company's Puerto Rican operations. Management is vigorously
contesting these adjustments and expects that the ultimate resolution will not
have material adverse effect on the Company's financial position or liquidity,
but could potentially be material to the net earnings of a particular future
period if resolved unfavorably.
OTHER LITIGATION AND PROCEEDINGS
The Company is unaware of any other pending legal proceedings which
it regards as likely to have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
9
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position*
- ------------------------- --- --------------------------------------------
Ronald A. Matricaria 57 Chairman of the Board of Directors (1999)
Terry L. Shepherd 47 President and Chief Executive Officer (1999)
Daniel J. Starks 45 Chief Executive Officer, Cardiac Rhythm
Management Division (1997)
Steven J. Healy 42 President, Heart Valve Division (1999)
Michael J. Coyle 37 President, Daig Division (1997)
Kevin T. O'Malley, Esq. 48 Vice President and General Counsel (1994)
John C. Heinmiller 45 Vice President, Finance and Chief Financial
Officer (1998)
George J. Fazio 40 President, Health Care Services (1999)
Robert Cohen 42 Vice President Business & Technology
Development (1998)
Peter L. Gove 52 Vice President, Corporate Relations (1994)
Frieda J. Valk 46 Vice President, Administration (1999)
- -----------------------
*Dates in brackets indicate period during which the named executive officers
began serving in such capacity.
Executive officers serve at the pleasure of the Board of Directors.
Mr. Matricaria's business experience is set forth in the Company's
definitive Proxy Statement dated March 27, 2000 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Shepherd's business experience is set forth in the Company's
definitive Proxy Statement dated March 27, 2000 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Stark's business experience is set forth in the Company's
definitive Proxy Statement dated March 27, 2000 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Healy first joined the Company in 1983 as a Heart Valve Division
sales representative. In 1999 he was appointed as the President, Heart Valve
Division. From 1996 to 1999, Mr. Healy was the Vice President of Sales and
Marketing for the Heart Valve Division. He served as the Heart Valve Division's
Vice President of Marketing from 1993 to 1996.
Mr. Coyle joined St. Jude Medical in 1994 as Director, Business
Development and was appointed as the President and Chief Operating Officer of
Daig in 1997. Prior to joining St. Jude, he spent nine years with Eli Lilly &
Company in a variety of technical and business management roles in both its
Pharmaceutical and Medical Device Divisions.
Mr. O'Malley joined the Company in 1994 as Vice President and
General Counsel. Prior to joining St. Jude, Mr. O'Malley was employed by Eli
Lilly & Company for 15 years in various positions including his last position of
General Counsel of the Medical Device and Diagnostics Division.
Mr. Heinmiller joined the Company in 1998 as Vice President of
Corporate Business Development. In September 1998 he was appointed Vice
President, Finance and Chief Financial Officer. Prior to joining the Company,
Mr. Heinmiller was president of F3 Corporation, a privately held asset
management company, and was vice president of finance and administration for
Daig Corporation. Mr. Heinmiller is also a former audit partner in the
Minneapolis office of Grant Thornton LLP, a national public accounting firm,
where he managed the firm's relationship with a number of clients. Mr.
Heinmiller is a director of Lifecore Biomedical, Inc., Arctic Cat, Inc. and
former director of Daig Corporation.
Mr. Fazio joined St. Jude in 1992 as a Heart Valve Division
territory sales representative. In 1999, he was appointed as the President,
Healthcare Services. From 1997 to 1999 Mr. Fazio served as the General Manager
of Canada.
Mr. Cohen joined the Company in 1998 as Vice President, Business &
Technology Development. Prior to joining the Company, he was employed by Sulzer
Medica. During his 16-year career in the
10
medical device industry, Mr. Cohen has been associated with Pfizer Inc. and GCI
Medical, an investment firm focused on the medical technology industry.
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.
Mrs. Valk joined the Company in 1996 as Human Resources Director of
St. Jude Medical Europe. She was appointed as Vice President, Administration in
1999. Prior to joining the Company, Mrs. Valk was employed by Eli Lilly &
Company for sixteen years in various positions including pharmaceutical sales,
sales management, sales training and human resources.
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 28 and 44 of the Company's 1999 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 43 of the Company's 1999 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 23
through 28 of the Company's 1999 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under the caption "Market Risk" on pages
26 and 27 of the Company's 1999 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 29 through 42 of the Company's
1999 Annual Report to Shareholders are incorporated herein by reference:
Consolidated Statements of Earnings - Fiscal Years ended December
31, 1999, 1998 and 1997
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity - Fiscal Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - Fiscal Years ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors"
in the Company's definitive Proxy Statement dated March 27, 2000, is
incorporated herein by reference. Information on executive officers is set forth
in Part I, Item 4A hereto.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation
and Other Information" and "Election of Directors" in the Company's definitive
Proxy Statement dated March 27, 2000, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Named Executive Officers" and "Election of
Directors" in the Company's definitive Proxy Statement dated March 27, 2000, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors"
in the Company's definitive Proxy Statement dated March 27, 2000, 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 29
through 42 of the Company's 1999 Annual Report to Shareholders
are incorporated herein by reference:
Consolidated Statements of Earnings - Fiscal Years ended
December 31, 1999, 1998 and 1997
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity - Fiscal Years
ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - Fiscal Years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as part of
this Form 10-K Annual Report:
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
-------- -------------------------------------------- ------
II Valuation and Qualifying Accounts 16
The report of the Company's Independent Auditors with respect to
the financial statement schedule is incorporated herein by
reference to Exhibit 23 attached hereto.
All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable.
12
(3) EXHIBITS
PAGE
EXHIBIT EXHIBIT INDEX NUMBER
--------- ---------------------------------------------- ------
3.1 Articles of Incorporation as amended on ---
September 5, 1996, are incorporated by
reference to Exhibit 3.2 of the Company's Form
10-K filed on March 27, 1997.
3.2 Bylaws are incorporated by reference to ---
Exhibit 3(ii) of the Company's Form 10-Q filed
on November 10, 1997.
4.1 Rights Agreement dated as of June 16, 1997, ---
between the Company and American Stock
Transfer and Trust Company, as Rights Agent
including the Certificate of Designation,
Preferences and Rights of Series B Junior
Preferred Stock is incorporated by reference
to Exhibit 4 of the Company's Form 10-Q dated
August 12, 1997.
4.2 Indenture dated as of August 21, 1996, between ---
the Company and State Street Bank and Trust
Company, as Trustee is incorporated by
reference to Ventritex's Form S-3/A (no.
333-07651) filed on August 2, 1996.
10.1 Employment letter dated as of March 9, 1993, ---
between the Company and Ronald A. Matricaria
is incorporated by reference to Exhibit 10.1
of the Company's Form 10-K Annual Report for
the year ended December 31, 1993.*
10.2 Employment letter dated as of November 8, ---
1996, between the Company to Ronald A.
Matricaria is incorporated by reference to
Exhibit 10.2 of the Company's Form 10-K Annual
Report for the year ended December 31, 1998.*
10.3 Employment letter dated as of February 23, ---
1999, between the Company and Ronald A.
Matricaria is incorporated by reference to
Exhibit 10.13 of the Company's Form 10-K
Annual Report for the year ended December 31,
1998.*
10.4 Employment Agreement effective as of May 5, ---
1999 between the Company and Terry L. Shepherd
is incorporated by reference to Exhibit 10.15
of the Company's Form 10-K Annual Report for
the year ended December 31, 1998.*
10.5 Form of Indemnification Agreement that the ---
Company has entered into with officers and
directors. Such agreement recites the
provisions of Minnesota Statutes Section
302A.521 and the Company's Bylaw provisions
(which are substantially identical to the
Statute) and is incorporated by reference to
Exhibit 10(d) of the Company's Form 10-K
Annual Report for the year ended December 31,
1986.*
10.6 Form of Employment Agreement that the Company ---
has entered into with officers relating to
severance matters in connection with a change
in control is incorporated by reference to
Exhibit 10.2 of the Company's Form 10-K Annual
Report for the year ended December 31, 1998.*
10.7 The Management Incentive Compensation Plan is ---
incorporated by reference to Appendix A of the
Company's definitive Proxy Statement dated
March 26, 1999.*
10.8 Management Savings Plan dated February 1, ---
1995, is incorporated by reference to Exhibit
10.7 of the Company's Form 10-K Annual Report
for the year ended December 31, 1994.*
13
PAGE
EXHIBIT EXHIBIT INDEX NUMBER
--------- ---------------------------------------------- ------
10.9 Retirement Plan for members of the Board of ---
Directors as amended on March 15, 1995, is
incorporated by reference to Exhibit 10.6 of
the Company's Form 10-K Annual Report for the
year ended December 31, 1994.*
10.10 The St. Jude Medical, Inc. 1992 Employee Stock ---
Purchase Savings Plan is incorporated by
reference to the Company's Form S-8
Registration Statement dated June 10, 1992,
(Commission File No. 33-48502).
10.11 The St. Jude Medical, Inc. 1991 Stock Plan is ---
incorporated by reference to the Company's
Form S-8 Registration Statement dated June 28,
1991 (Commission File No. 33-41459).*
10.12 The St. Jude Medical, Inc. 1994 Stock Option ---
Plan is incorporated by reference to the
Company's Form S-8 Registration Statement
dated July 1, 1994 (Commission File No.
33-54435).*
10.13 The St. Jude Medical Inc. 1997 Stock Option ---
Plan is incorporated by reference to the
Company's Form S-8 Registration Statement
dated December 22, 1997 (Commission File No.
333-42945).*
10.14 A Split Dollar Insurance Agreement as amended ---
April 29, 1999 between St. Jude Medical, Inc.
and Ronald A. and Lucille E. Matricaria.
13 Portions of the 1999 Annual Report to ---
Shareholders are incorporated by reference in
this Form 10-K Annual Report.
21 Subsidiaries of the Company ---
23 Consent of Independent Auditors ---
27 Financial Data Schedule ---
- ----------------------------
* Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1999
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1999.
(c) EXHIBITS: Reference is made to Item 14(a)(3).
(d) SCHEDULES: Reference is made to Item 14(a)(2).
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the undersigned Company
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Company's Registration Statements of Form S-8 Nos. 33-9262
(filed October 3, 1986), 33-41459 (filed June 28, 1991), 33-48502 (filed June
10, 1992), 33-54435 (filed July 1, 1994) and 333-42945 (filed December 22,
1997):
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
14
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 27, 2000 By /s/ TERRY L. SHEPHERD
----------------------
Terry L. Shepherd
PRESIDENT AND 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.
/s/ RONALD A. MATRICARIA Director March 27, 2000
- ------------------------------
Ronald A. Matricaria
/s/ LOWELL C. ANDERSON Director March 27, 2000
- ------------------------------
Lowell C. Anderson
/s/ TERRY L. SHEPHERD Director March 27, 2000
- ------------------------------
Terry L. Shepherd
/s/ STUART M. ESSIG Director March 27, 2000
- ------------------------------
Stuart M. Essig
/s/ THOMAS H. GARRETT III Director March 27, 2000
- ------------------------------
Thomas H. Garrett III
/s/ WALTER F. MONDALE Director March 27, 2000
- ------------------------------
Walter F. Mondale
/s/ WALTER L. SEMBROWICH Director March 27, 2000
- ------------------------------
Walter L. Sembrowich
/s/ DANIEL J. STARKS Director March 27, 2000
- ------------------------------
Daniel J. Starks
/s/ ROGER G. STOLL Director March 27, 2000
- ------------------------------
Roger G. Stoll
/s/ DAVID A. THOMPSON Director March 27, 2000
- ------------------------------
David A. Thompson
/s/ GAIL R. WILENSKY Director March 27, 2000
- ------------------------------
Gail R. Wilensky
15
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------- ------------ -------------------- ---------- ----------
DESCRIPTION BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING OF -------------------- END OF
PERIOD EXPENSE OTHER DEDUCTIONS PERIOD
- ------------------------------------- ------------ ------- --------- ---------- ----------
Year ended December 31, 1999
Allowance for doubtful
accounts ................... $12,352 $ 5,421 $ -- $ 4,244(1) $13,529
Products liability claims
reserve .................... 4,391 -- -- 370(2) 4,021
Year ended December 31, 1998
Allowance for doubtful
accounts ................... 12,712 14 -- 374(1) 12,352
Products liability claims
reserve .................... 6,205 -- -- 1,814(2) 4,391
Year ended December 31, 1997
Allowance for doubtful
accounts ................... 8,160 678 4,037(3) 163(1) 12,712
Products liability claims
reserve .................... 8,304 -- -- 2,099(2) 6,205
- -------------------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Claims settled.
(3) Balance assumed through acquisitions.
16