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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO __________.
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 of (I.R.S. Employer
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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(Title of class) (Name of exchange on which registered)
COMMON STOCK ($.10 PAR VALUE) NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _X_ No ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $6.5 billion at June 28, 2002 (the last trading day
of the Registrant's most recently completed second fiscal quarter), when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $36.97 per share.
The Registrant had 179,168,532 shares of its $0.10 par value Common Stock
outstanding as of February 21, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 2002, are incorporated by reference into Parts I and II.
Portions of the Company's definitive proxy statement dated March 27, 2003, are
incorporated by reference into Part III.
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TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
- ---- ----------- ----
PART I
1. Business .......................................................... 1
2. Properties ........................................................ 9
3. Legal Proceedings ................................................. 10
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 ........................................... 14
7. Management's Discussion and Analysis of Results of Operations
and Financial Condition ......................................... 14
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 ............................................ 15
12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters ................................. 15
13. Certain Relationships and Related Transactions .................... 15
14. Controls and Procedures ........................................... 16
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 16
PART I
ITEM 1. BUSINESS
GENERAL
St. Jude Medical, Inc., together with its subsidiaries (collectively
"St. Jude," "St. Jude Medical" or the "Company") develops, manufactures and
distributes cardiovascular medical devices for the global cardiac rhythm
management (CRM), cardiac surgery (CS) and cardiology and vascular access (C/VA)
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;
mechanical and tissue heart valves, valve repair products and suture-free
devices to facilitate coronary artery bypass graft anastomoses in CS; and
vascular closure devices, catheters, guidewires and introducers in C/VA.
The Company markets and sells its products through both a direct
employee-based sales organization and independent distributors. The principal
markets for the Company's products are the United States, Western Europe and
Japan. St. Jude also sells its products in Eastern Europe, Africa, the Middle
East, Canada, Latin America and the Asia-Pacific region.
During 2002, 2001 and 2000, the Company acquired various businesses
involved in the distribution of the Company's products.
In December 2002, the Company acquired the assets of a catheter
business for $5 million in cash.
On September 17, 2002, the Company signed a stock purchase agreement to
acquire Getz Bros. Co., Ltd. (Getz), a distributor of medical technology
products in Japan and the distributor of the largest volume of the Company's
products in Japan. The Company has agreed to pay 26.9 billion Japanese yen in
cash, or approximately $224,000 using an exchange rate of 120 yen to 1 U.S.
dollar, to acquire 100% of the outstanding common stock of Getz. Net sales of
Getz in 2002 were approximately $170 million. This transaction is expected to
close during the second quarter of 2003.
The Company manages its business on the basis of one reportable segment
- - the development, manufacture and distribution of cardiovascular medical
devices. Net sales by class of similar products were as follows:
NET SALES 2002 2001 2000
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Cardiac rhythm management $ 1,147,489 $ 965,968 $ 819,117
Cardiac surgery 250,957 248,045 256,949
Cardiology and vascular access 191,483 133,343 102,740
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$ 1,589,929 $ 1,347,356 $ 1,178,806
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1
The following tables present certain geographical information:
NET SALES * 2002 2001 2000
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United States $ 1,042,766 $ 880,086 $ 745,793
International 547,163 467,270 433,013
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$ 1,589,929 $ 1,347,356 $ 1,178,806
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LONG-LIVED ASSETS ** 2002 2001 2000
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United States $ 674,119 $ 626,140 $ 640,220
International 150,674 137,803 149,325
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$ 824,793 $ 763,943 $ 789,545
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* NET SALES ARE ATTRIBUTED TO COUNTRIES BASED ON LOCATION OF THE CUSTOMER.
** LONG-LIVED ASSETS EXCLUDE DEFERRED INCOME TAXES.
St. Jude was incorporated in Minnesota in 1976.
PRINCIPAL PRODUCTS
CARDIAC RHYTHM MANAGEMENT: The Company's pacemaker systems treat
patients with hearts that beat too slowly, 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(R) family of pacemakers, approved by the U.S. Food and Drug
Administration (FDA) in November 2001. The Identity(R) pacemaker models maintain
all of the therapeutic advancements of previous St. Jude Medical pacemakers,
including the AF Suppression(TM) Algorithm and the BEAT-BY-BEAT(TM)
AutoCapture(TM) Pacing System. The Identity(R) models have arrhythmia
diagnostics, including dual-channel stored electrograms. These features are
designed to help physicians better manage pacemaker patients suffering from
atrial fibrillation (AF) - the world's most common cardiac arrhythmia.
St. Jude Medical also offers the Integrity(R) and Integrity(R)
u (Micro) pacemaker models, which build on the Affinity(R) platform with its
BEAT-BY-BEAT(TM) AutoCapture(TM) Pacing System. Other pacing products include
the Affinity(R) pacemakers; the Entity(R) family of pacemakers, containing the
Omnisense(R) activity-based sensor; and the Tempo(R) pacemaker family, which
uses fifth-generation Minute Ventilation sensor technology. These pacemaker
families 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 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.
2
The Identity(R), Integrity(R), Affinity(R), Entity(R) and Regency(R)
families of pacemakers, as well as the Microny(R) SR+ pacemaker, all offer the
unique 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 (known as "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(R) and
Integrity(R) pacemakers include St. Jude Medical's AF Suppression(TM) Algorithm,
a therapy designed to suppress atrial fibrillation.
Outside the United States, St. Jude also markets the Genesis(TM)
System, a device-based ventricular resynchronization system designed for the
treatment of HF and suppression of atrial fibrillation. The Genesis(TM) System
includes three components: the Frontier(TM) 3x2 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) or Seal-Away(TM)
Catheter Delivery System.
St. Jude's current pacing leads include the active-fixation Tendril(R)
DX and Tendril(R) SDX lead families and the passive-fixation Passive Plus(R) DX
family, all available worldwide. All three lead families feature steroid
elution, which helps suppress the body's inflammatory response to a foreign
object. The passive-fixation IsoFlex(TM) and Membrane(R) EX families of leads
are also currently available outside the United States.
ICD 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 VT, 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 Company's full ICD product offering includes the Epic(TM) DR/VR
ICD, Atlas(R) DR/VR ICD, Photon(R) u (Micro) DR/VR ICD, Photon(R) DR ICD and
Contour(R) MD ICD. St. Jude received FDA approval of its Epic(TM) DR/VR ICDs in
August 2002 and European CE Marking in October 2002. The Epic(TM) ICDs are very
small devices that deliver 30 Joules of energy. The Company's Atlas(R) ICDs
offer high energy and small size without compromising charge times, longevity,
or feature set flexibility. St. Jude's Photon(R) u (Micro) DR/VR ICD family
represents the second generation in a series of downsized dual- and
single-chamber St. Jude ICDs with advanced technology. Like the Photon(R) DR
ICD, the Photon(R) u DR/VR ICD family has advanced features including precise
SVT discrimination and AV Rate Branch designed to enhance the precision of
ventricular-based arrhythmia detection. An additional ICD product, the
Profile(TM) MD ICD, is available outside the United States.
The Company's ICDs are used with the dual-electrode Riata(R)
defibrillation leads, dual-electrode SPL(R) leads and single electrode TVL(R)
and TVL(R)-ADX (active-fix) transvenous leads. The Riata(R) family of
defibrillation leads received FDA approval in April 2002 and European CE Marking
in May 2002. The Riata(R) leads are an advanced family of small-diameter,
steroid-eluting, active or passive fixation, dual-electrode defibrillation
leads.
In June 2002, St. Jude received European CE Marking for its Epic(TM) HF
ICD. This device is designed to treat patients suffering from heart failure (HF)
who are also at risk of dangerously fast heart rhythms. HF impairs the heart's
ability to pump blood efficiently, causing shortness of breath, fatigue,
swelling and other debilitating symptoms. One of the Company's Epic(TM) HF ICD
products, the Epic(TM) HF Model V-338 ICD, is currently in a U.S. clinical
study.
3
The Model 3510 universal pacemaker and ICD programmer is an easy-to-use
programmer that supports the Company's pacemakers and ICDs, including products
for emerging indications. The Model 3510 universal programmer allows the
physician to utilize the diagnostic and therapeutic capabilities of the
Company'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) catheter 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 regulatory approval.
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 1.3 million patients worldwide. 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 1997. Outside the United States, the Company markets
the SJM Epic(TM) stented tissue heart valve, the SJM Biocor(TM) stented tissue
valve, the Toronto SPV(R) stentless tissue valve and the Toronto Root(TM) tissue
valve. The Toronto Root(TM) tissue valve is a stentless aortic root
bioprosthesis used when aortic root disease accompanies valve disease. This
valve is currently in U.S. and Canadian clinical studies. The SJM Epic(TM)
stented tissue heart valve is also currently in a U.S. clinical study.
The Company also offers a line of heart valve repair products including
the semi-rigid SJM(R) Seguin annuloplasty ring and the fully flexible SJM
Tailor(TM) annuloplasty ring. Annuloplasty rings are prosthetic devices used to
repair diseased or damaged mitral heart valves.
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 began marketing this product in Western Europe in 2000 and
in the U.S. during May 2001.
CARDIOLOGY AND VASCULAR ACCESS: The Company produces specialized
disposable cardiovascular devices, including vascular closure devices,
angiography catheters, bipolar temporary pacing catheters, percutaneous catheter
introducers and diagnostic guidewires.
The Company's vascular closure devices are used to close femoral artery
puncture wounds following angioplasty, stenting and diagnostic procedures. Its
newest vascular closure product, the Angio-Seal(TM) STS Platform, received
European CE Marking in July 2001 and FDA approval in August 2001. 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
4
integrates a Secure-Cap(TM), which facilitates proper deployment through
audible, tactile and visual confirmations during the closure process.
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's 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, 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.
SUPPLIERS
St. Jude purchases raw materials and other products from numerous
suppliers. The Company maintains sizable inventories (in some cases, up to three
years of its projected requirements) for certain materials that it believes are
critical and may be difficult to obtain from an alternative supplier. St. Jude
has been advised periodically by some suppliers that they 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 temporarily
continue to provide product until 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 other sources, any supply interruption
could have a material adverse effect on the Company's ability to manufacture its
products.
COMPETITION
The medical technology industry is highly competitive and is
characterized by rapid product development and technological change. 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 and other business
factors. As a result, the Company has a 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.
St. Jude is a technological leader in the global bradycardia pacemaker
market, with strong bradycardia market share in all major developed geographies.
The Company's primary competitors in this market are Medtronic, Inc. and Guidant
Corporation. St. Jude is one of three principal manufacturers and suppliers in
the highly competitive global ICD market. The Company's other two competitors,
Medtronic, Inc. and Guidant Corporation, account for more than 80% of the
worldwide ICD sales. These
5
two competitors are larger than St. Jude and have invested substantial amounts
in ICD research and development.
St. Jude is the world's leading manufacturer and supplier in the
mechanical heart valve market, which includes two other principal and several
smaller mechanical heart valve manufacturers. The Company also competes against
two principal and many other smaller tissue heart valve manufacturers.
St. Jude 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.
The global cardiology and vascular access market is a growing market
with numerous competitors. Approximately 80% of the Company's sales in this
market are from vascular closure devices. St. Jude currently holds the number
one position in the highly competitive vascular closure device segment of the
C/VA market. Other competitors in C/VA include Abbott Laboratories, Datascope
Corp. and Vascular Solutions, Inc.
MARKETING
The Company's products are sold in more than 100 countries throughout
the world. No distributor organization or single customer accounted for more
than 10% of 2002, 2001 or 2000 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 has historically
utilized independent distributors. However, when the Getz acquisition is
completed in 2003, the Company will have a direct sales organization in Japan to
sell certain products, while also continuing the use of other longstanding
independent distributor relationships. Throughout the rest of the world the
Company uses a combination of independent distributor and direct sales
organizations.
Group purchasing organizations (GPOs) and independent delivery networks
(IDNs) in the United States continue to consolidate purchasing decisions for
some of the Company's hospital customers. The Company has contracts in place
with many of these organizations. One large GPO has executed contracts with the
Company's CRM market competitors that exclude the Company. The enforcement of
these contracts may adversely affect the Company's sales of CRM products to
members of this GPO.
Payment terms worldwide are consistent with local country practices. In
some developed markets and in many emerging markets, payment terms are typically
longer than those in the United States. 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 tendencies 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 tendencies 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.
6
RESEARCH AND DEVELOPMENT
The Company is focused on the development of new products and on
improvements to existing products. Research and development expense reflects the
cost of these activities, as well as the costs to obtain regulatory approvals 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
charges, were $200.3 million (12.6% of net sales), $164.1 million (12.2% of net
sales) and $137.8 million (11.7% of net sales) in 2002, 2001 and 2000,
respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and foreign governmental authorities or their
designated representatives. Under the U.S. Federal Food, Drug and Cosmetic Act
(FFDCA) and associated regulations, 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 level requires the completion of an FDA-approved clinical
evaluation program and submission and approval of a pre-market approval (PMA)
application before a device may be commercially marketed. The Company's
mechanical and tissue heart valves, ICDs, certain pacemakers and leads and
certain electrophysiology catheter applications are subject to this level of
approval or as a supplement to a PMA approval. Other pacemakers and leads,
annuloplasty ring products and other electrophysiology and cardiology products
are currently marketed under the less rigorous 510(k) pre-market notification
procedure of the FFDCA.
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 that cover manufacturing and design. At any time after approval of a
PMA or granting of a 510(k), the FDA may conduct periodic inspections to
determine compliance with both quality system 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. Regulatory actions may be taken
by the FDA due to adverse experience reports.
Diagnostic-related groups (DRG) reimbursement schedules regulate the amount the
U.S. government, through the Centers for Medicare and Medicaid Services, 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 that 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 international business 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,
international regulatory requirements are increasing. In the European Union, the
regulatory systems have been consolidated, 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.
7
Some 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.
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, it also recognizes that the Company's patents and license
rights may make it more difficult for 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. The product liability insurance market has changed
dramatically since September 2001. The Company's self-insured retentions and
insurance premiums have increased and are expected to increase further in the
future. The Company's insurance program, as a result, is designed to prevent a
catastrophic loss. 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.
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. Several factors 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 from 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
8
material adverse effect on the Company for a period of time that cannot be
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, 2002, the Company had 6,042 full-time employees. St.
Jude 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 and fluctuations, 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 7 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 2002 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.
AVAILABILITY OF SEC REPORTS
The Company makes available free of charge its annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practical after they are
filed or furnished to the Securities and Exchange Commission. Such reports are
available on the Company's website (http://www.sjm.com) under the Investor
Relations section or can be obtained by contacting the Company's Investor
Relations group at 1.800.552.7664 or at St. Jude Medical, Inc., One Lillehei
Plaza, St. Paul, Minnesota 55117. Information included on the Company's website
is not deemed to be incorporated into this Annual Report on Form 10-K.
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 56%, 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 41
locations in 25 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.
9
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. Some of these cases, both in the United States and Canada,
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. 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.
In 2001, the U.S. Judicial Panel on Multi-District 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
under the supervision of U.S. District Court Judge John Tunheim in Minnesota. As
a result, actions in federal court involving products with Silzone(R) coating
have been and will likely continue to be transferred to Judge Tunheim for
coordinated or consolidated pretrial proceedings. The hearing concerning
requests by certain plaintiffs to have matters proceed as class actions occurred
on October 2, 2002. Judge Tunheim is presently considering plaintiffs' motions
for class certification, and a decision by Judge Tunheim in this regard is
expected in early 2003.
There are other actions involving products with Silzone(R) coating in
various state courts that may or may not be coordinated with the matters
presently before Judge Tunheim. The lawsuits in Canada are proceeding in
accordance with separate schedules issued by the applicable provincial courts. A
hearing concerning the certification of a class action in Ontario, Canada, is
currently scheduled for June 2003.
While it is not possible to predict the outcome of the various cases
involving Silzone(R) products, 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 the Company did not have a license to
certain patents controlled by Guidant covering ICD products and alleging that
the Company was infringing those patents. St. Jude Medical's contention was that
it had obtained a license from Guidant to the patents in issue when it acquired
certain assets of Telectronics in November 1996. In July 2000, an arbitrator
rejected St. Jude Medical's position, and 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 originally alleged infringement of four patents by St.
Jude Medical. Guidant later dismissed its claim on one patent and a court ruled
that a second patent was invalid. This determination of invalidity was appealed
by Guidant and the Court of Appeals upheld the lower court's invalidity
determination. In a jury trial involving the two remaining patents (the `288 and
`472 patents), the jury found that these patents were valid and that St. Jude
Medical did not infringe the `288 patent. The jury found that the Company did
infringe the `472 patent, though such infringement was not willful. The jury
awarded damages of $140 million to Guidant. In post-trial rulings, however, the
judge overseeing the jury trial ruled that the `472 patent was invalid and also
was not infringed by St. Jude Medical, thereby eliminating the $140 million
verdict against the Company. The trial court also made other rulings as part of
the post-trial order, including a ruling that the `288 patent was invalid on
several grounds.
In August 2002, Guidant commenced an appeal of certain of the trial
judge's post-trial decisions pertaining to the `288 patent. Guidant did not
appeal the trial court's finding of invalidity and non-infringement of the `472
patent. The parties are currently in the briefing phase of this appeal. While it
is
10
not possible to predict the outcome of the appeal process, the Company believes
that it has meritorious defenses against the claims asserted by Guidant and
Guidant's continued pursuit of this case.
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 2002.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position*
- --------------------------------------------------------------------------------
Terry L. Shepherd 50 Chairman (2002) and Chief Executive Officer
(1999)
Daniel J. Starks 48 President and Chief Operating Officer (2001)
David W. Adinolfi 47 President, Daig (2001)
Michael J. Coyle 40 President, Cardiac Rhythm Management (2001)
Peter L. Gove 55 Vice President, Corporate Relations (1994)
John C. Heinmiller 48 Vice President, Finance, Chief Financial
Officer and Treasurer (1998)
Jeri L. Lose 45 Vice President, Information Technology and
Chief Information Officer (2000)
Joseph H. McCullough 53 President, International (2001)
Thomas R. Northenscold 45 Vice President, Administration (2003)**
Kevin T. O'Malley 51 Vice President, General Counsel and Secretary
(1994)
Michael T. Rousseau 47 President, U.S. Sales (2001)
Jane J. Song 40 President, Cardiac Surgery (2002)
Frieda J. Valk 49 Vice President, Administration (1999)**
- -----------------------------
*Dates in brackets indicate year during which each named executive officer
began serving in such capacity.
**Mr. Northenscold was appointed March 3, 2003, and Ms. Valk will no longer be
an executive officer effective March 31, 2003.
11
Executive officers serve at the pleasure of the Board of Directors.
Mr. Shepherd joined the Company in 1994 as President of Cardiac
Surgery. In May 1999, he was appointed President and Chief Executive Officer of
St. Jude, and since February 2001 he has been the Company's Chief Executive
Officer. Mr. Shepherd has also served on St. Jude's Board of Directors since May
1999, and in May 2002 was elected Chairman of the Board of Directors.
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 Chief Executive Officer of Cardiac Rhythm
Management, and in April 1998 also became President 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. Starks serves on the Board of Directors of Urologix Inc.
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. In April 1998, he
became Senior Vice President, CRM Global Marketing, 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 worked for Cordis Corporation and
Telectronics, Inc., both medical technology companies, in a variety of
marketing, sales and management positions.
Mr. Coyle joined St. Jude in 1994 as Director, Business Development. He
served as President and Chief Operating Officer of Daig from 1997 to 2001 and
was appointed President, Cardiac Rhythm Management in February 2001. 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.
Gove serves on the Board of Directors of QRS Diagnostic, LLC and Information for
Public Affairs, Inc.
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, a privately held asset
management company, from 1997 to 1998, 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 on the Board of Directors of Lifecore
Biomedical, Inc. and Arctic Cat, Inc.
Ms. Lose joined St. Jude in 1999 as Vice President, Information
Technology, and was also appointed 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 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. Ms. Lose
serves on the Board of Directors of Apria Healthcare, Inc.
12
Mr. McCullough joined St. Jude in 1994 as a CRM Regional Sales
Director. He became Director of CRM Marketing in 1996 and was named Vice
President of CRM Marketing in January 1997. In December 1997, Mr. McCullough was
appointed CRM Business Unit Director. He became Vice President, CRM Europe and
Managing Director of the Company's manufacturing operations in Veddesta, Sweden
in January 1999, and Senior Vice President, CRM Europe in August 1999. 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. Northenscold joined St. Jude in 2001 as Vice President, Finance and
Administration of Daig. On March 3, 2003 he was appointed Vice President,
Administration. Prior to joining the Company, Mr. Northenscold worked at PPT
Vision, Inc., an industrial technology and automation company, where he served
as Chief Financial Officer from February 1995 to January 1999, and Division
General Manager from January 1999 to September 2001. Prior to 1995, Mr.
Northenscold worked for Cardiac Pacemakers, Inc., a medical technology company
that is now part of Guidant Corporation, in various finance and operations
positions.
Mr. O'Malley joined the Company in 1994 as Vice President and General
Counsel. Since December 1996, he has also served as the Company's Corporate
Secretary. Prior to joining St. Jude, Mr. O'Malley was employed by Eli Lilly &
Company, a pharmaceutical products 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. 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. Song joined St. Jude in 1998 as Senior Vice President, CRM
Operations. In May 2002 she was appointed President, Cardiac Surgery. Prior to
joining the Company, Ms. Song was employed by Perkin Elmer (formerly EG&G,
Inc.), a global technology company, from 1992 to 1998 where she held executive
positions in global operations and business development. Prior to her tenure at
Perkin Elmer, she was employed by Coopers & Lybrand LLP, an international public
accounting firm, and Texas Instruments Inc, a global semiconductor company.
Ms. Valk joined the Company in 1996 as Human Resources Director of St.
Jude Medical Europe. She served as Vice President, Administration from 1999
through March 2003. Prior to joining the Company, Ms. Valk was employed by Eli
Lilly & Company, a pharmaceutical products company, for 16 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 8 and 24 of the Financial Report included in the
Company's 2002 Annual Report to Shareholders is incorporated herein by
reference.
13
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
2002 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 8 of the Financial Report included in the Company's 2002 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 page 7 of
the Financial Report included in the Company's 2002 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 9 through 22 of the Financial
Report included in the Company's 2002 Annual Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Earnings - Fiscal Years ended December 31,
2002, 2001 and 2000
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Shareholders' Equity - Fiscal Years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows - Fiscal Years ended December 31,
2002, 2001 and 2000
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 27, 2003, is incorporated
herein by reference. Information on executive officers under Item 4A of this
Form 10-K is incorporated herein by reference.
14
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Company's definitive proxy statement dated March 27, 2003, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
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 27, 2003, is incorporated herein by
reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2002 about
the Company's common stock that may be issued under all of its existing equity
compensation plans, including the St. Jude Medical, Inc. 1991 Stock Plan, the
St. Jude Medical, Inc. 1994 Stock Option Plan, the St. Jude Medical, Inc. 1997
Stock Option Plan, the St. Jude Medical, Inc. 2000 Stock Plan, the St. Jude
Medical, Inc. 2000 Employee Stock Purchase Savings Plan, and the St. Jude
Medical, Inc. 2002 Stock Plan, As Amended. All of these plans have been approved
by the Company's shareholders.
Number of securities
remaining available for
future issuance under
Number of securities to be Weighted average equity compensation plans
issued upon exercise of exercise price of (excluding securities
outstanding options, outstanding options, reflected in column(a))
warrants and rights warrants and rights (c)
Plan category (a) (b)
============================= ============================= ======================== =========================
Equity compensation plans
approved by shareholders 29,694,922 $25.22 9,829,949(1)
Equity compensation plans
not approved by shareholders - - -
- ----------------------------- ----------------------------- ------------------------ ---------------------------
Total 29,694,922 $25.22 9,829,949
- ----------------------------- ----------------------------- ------------------------ ---------------------------
(1) Includes 76,256 shares available for future issuance under the St. Jude
Medical, Inc. 2000 Stock Plan for restricted stock grants.
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 27, 2003, is incorporated herein by reference.
15
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of
1934) refer to the controls and other procedures of a company
that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported
within required time periods. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated the
effectiveness of the design and operation of the Company's
disclosure controls and procedures within 90 days prior to the
filing of this annual report, and they have concluded that
such controls and procedures are effective at ensuring that
required information will be disclosed on a timely basis in
the Company's reports filed under the Exchange Act.
(b) Changes in Internal Controls
There have been no significant changes to the Company's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of the most
recent evaluation.
PART IV
ITEM 15. 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 9
through 22 of the Financial Report included in the Company's
2002 Annual Report to Shareholders are incorporated herein by
reference from Exhibit 13 attached hereto:
Consolidated Statements of Earnings - Fiscal Years ended
December 31, 2002, 2001 and 2000
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Shareholders' Equity - Fiscal Years
ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows - Fiscal Years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
16
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II, Valuation and Qualifying Accounts, is filed as
part of this Annual Report on Form 10-K (see Item 15(d)).
The Report of Independent Auditors with respect to this
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, the Company agrees to furnish copies thereof to the
Securities and Exchange Commission upon request.
EXHIBIT EXHIBIT INDEX
- ------- -----------------------------------------------------------------------
3.1 Articles of Incorporation are incorporated by reference from Exhibit
3(a) of the Company's Form 8 filed on August 20, 1987, amending the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1987.
3.2 Articles of Amendment dated September 5, 1996, to Articles of
Incorporation 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.
3.3 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.
4.2 Amendment, dated as of December 20, 2002, to Rights Agreement, dated as
of June 16, 1997, is incorporated by reference from Exhibit 1 of the
Company's Current Report on Form 8-K filed on March 21, 2003.
17
EXHIBIT EXHIBIT INDEX
- ------- -----------------------------------------------------------------------
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 is
incorporated by reference from Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. *
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). *
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 is incorporated by reference
from Exhibit 10.9 of the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. *
18
EXHIBIT EXHIBIT INDEX
- ------- -----------------------------------------------------------------------
10.10 St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan is
incorporated by reference from Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. *
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. *
10.14 St. Jude Medical, Inc. 2002 Stock Plan, As Amended, is incorporated by
reference from Exhibit 10.14 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002. *
13 Portions of the Company's 2002 Annual Report to Shareholders. #
21 Subsidiaries of the Registrant. #
23 Consent of Independent Auditors. #
24 Power of Attorney. #
99.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. #
99.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. #
- ----------------------------
* Management contract or compensatory plan or arrangement.
# Filed as an exhibit to this Annual Report on Form 10-K.
19
(a) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 2002:
The Company filed a Form 8-K on November 8, 2002, to report that it had
recently issued an alert regarding its Telectronics Meta model 1256D pacemakers,
which had experienced premature battery depletion in 1% of the devices, and that
it had also recently issued an Advisory Update that extends a previous advisory
notification sent to physicians regarding certain Tempo and Meta 1256D
pacemakers.
(b) EXHIBITS: Reference is made to Item 15(a)(3).
(c) SCHEDULES:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- ------------------------- ----------------- -------------------------------- -------------------------------- ---------------
ADDITIONS DEDUCTIONS
BALANCE -------------------------------- --------------------------------
AT BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF YEAR EXPENSE OTHER(1) WRITE-OFFS(2) OTHER(1) END OF YEAR
- ------------------------- ----------------- ---------------- -------------- ---------------- -------------- ---------------
Allowance for doubtful accounts
Fiscal Year Ended:
December 31, 2002 $ 17,210 $ 9,188 $ 1,752 $ (4,072) $ - $ 24,078
December 31, 2001 13,831 6,468 - (2,738) (351) 17,210
December 31, 2000 13,529 6,913 - (6,244) (367) 13,831
(1) Effects of changes in foreign currency translation.
(2) Uncollectible accounts written off, net of recoveries.
20
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 19, 2003 By /s/ TERRY L. SHEPHERD
---------------------
Terry L. Shepherd
CHAIRMAN 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/ TERRY L. SHEPHERD Director March 19, 2003 /s/ DANIEL J. STARKS Director March 19, 2003
- --------------------- --------------------
Terry L. Shepherd Daniel J. Starks
Director March 19, 2003 /s/ DAVID A. THOMPSON Director March 19, 2003
- ----------------------- ---------------------
Richard R. Devenuti David A. Thompson
/s/ STUART M. ESSIG Director March 19, 2003 /s/ STEFAN K. WIDENSOHLER Director March 19, 2003
- ------------------- --------------------------
Stuart M. Essig Stefan K. Widensohler
/s/ THOMAS H. GARRETT III Director March 19, 2003 /s/ WENDY L. YARNO Director March 19, 2003
- ------------------------- ------------------
Thomas H. Garrett III Wendy L. Yarno
/s/ WALTER L. SEMBROWICH Director March 19, 2003 /s/ FRANK C-P YIN Director March 19, 2003
- ------------------------ -----------------
Walter L. Sembrowich Frank C-P Yin
21
CERTIFICATION
I, Terry L. Shepherd, certify that:
1. I have reviewed this annual report on Form 10-K of St. Jude Medical,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 19, 2003
--------------
/s/ TERRY L. SHEPHERD
- ---------------------
Terry L. Shepherd
Chairman and Chief Executive Officer
22
CERTIFICATION
I, John C. Heinmiller, certify that:
1. I have reviewed this annual report on Form 10-K of St. Jude Medical,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 19, 2003
--------------
/s/ JOHN C. HEINMILLER
- ----------------------
John C. Heinmiller
Chief Financial Officer
23