10-K

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 29, 2007

Commission File Number 0-8672

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 Identification No.)
incorporation or organization)
One Lillehei Plaza	(651) 483-2000
St. Paul, Minnesota 55117	(Registrant’s telephone number,
(Address of principal executive	including area code)
offices, including zip code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock ($.10 par value)	New York Stock Exchange
(Title of class)	(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x   No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o   No  x

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  o

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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x   Accelerated filer  o   Non-accelerated filer  o   Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  o   No  x  

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was $14.0 billion at June 29, 2007 (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 $41.49 per share.

The registrant had 344,018,717 shares of its $0.10 par value Common Stock outstanding as of February 15, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Annual Report to Shareholders for the fiscal year ended December 29, 2007, are incorporated by reference into Parts I and II. Portions of the Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders are incorporated by reference into Part III.

TABLE OF CONTENTS

ITEM		DESCRIPTION	PAGE
PART I
1.	Business		1
1A.	Risk Factors		13
1B.	Unresolved Staff Comments		20
2.	Properties		20
3.	Legal Proceedings		20
4.	Submission of Matters to a Vote of Security Holders		20
PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21
6.	Selected Financial Data		21
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
7A.	Quantitative and Qualitative Disclosures About Market Risk		21
8.	Financial Statements and Supplementary Data		21
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		21
9A.	Controls and Procedures		21
9B.	Other Information		22
PART III
10.	Directors, Executive Officers and Corporate Governance		22
11.	Executive Compensation		22
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		22
13.	Certain Relationships and Related Transactions, and Director Independence		22
14.	Principal Accountant Fees and Services		22
PART IV
15.	Exhibits and Financial Statement Schedules		23
	Signatures		29

PART I

Item 1. BUSINESS

General

St. Jude Medical, Inc. develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology and cardiac surgery and atrial fibrillation therapy areas and implantable neurostimulation devices for the management of chronic pain. Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Advanced Neuromodulation Systems (ANS). At the beginning of our 2007 fiscal year, we combined our former Cardiac Surgery and Cardiology operating segments to form the CV operating segment which focuses on the cardiac surgery and cardiology therapy areas. Our principal products in each operating segment are as follows: CRM –tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology (EP) introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and ANS – neurostimulation devices. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us,” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

We market and sell our products through both a direct sales force and independent distributors. The principal geographic markets for our products are the United States, Europe, Japan and Asia Pacific. St. Jude Medical was incorporated in Minnesota in 1976.

We aggregate our four operating segments into two reportable segments based primarily upon their similar operational and economic characteristics: CRM/ANS and CV/AF. Our performance by reportable segment is included in Note 12 of the Consolidated Financial Statements in the Financial Report included in our 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.

The table below shows net sales and percentage of total net sales contributed by each of our four operating segments for the  fiscal years 2007, 2006, and 2005:

Net Sales (in thousands)	2007			2006			2005
Cardiac Rhythm Management	$	2,368,081		$	2,055,765		$	1,924,846
Cardiovascular		790,630			741,612			711,642
Atrial Fibrillation		410,672			325,707			253,810
Advanced Neuromodulation Systems*		209,894			179,363			24,982
	$	3,779,277		$	3,302,447		$	2,915,280
Percentage of Total Net Sales	2007			2006			2005
Cardiac Rhythm Management		62.7	%		62.2	%		66.0	%
Cardiovascular		20.9	%		22.5	%		24.4	%
Atrial Fibrillation		10.9	%		9.9	%		8.7	%
Advanced Neuromodulation Systems*		5.5	%		5.4	%		0.9	%

* In connection with the acquisition of ANS, fiscal year 2005 net sales include less than two months of sales activity.

Principal Products

Cardiac Rhythm Management:  Cardiac Rhythm Management focuses on the research, development and manufacture of products for cardiac arrhythmias, or irregular heart beats. We introduced more than 20 new products in 2007, including: ICDs to provide life-saving therapy to patients suffering from lethal heart conditions such as sudden cardiac arrest; cardiac resynchronization therapy (CRT) devices to save and improve the lives of heart failure (HF) patients; pacemakers to help people whose hearts beat too slowly or who suffer from other cardiac arrhythmias; and leads, which connect our devices to the heart and carry the electrical impulses to the heart and information from the heart back to the device. Additionally, our programmers are used by physicians and healthcare professionals to program and analyze data from ICDs and pacemakers.

Our ICDs 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. ICDs are typically implanted pectorally, below the collarbone, connected to the heart by leads.

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Our latest ICD offerings include the Current™ RF (radio frequency) VR/DR, which the U.S. Food and Drug Administration (FDA) approved in November 2007. These devices are available in both standard and high energy versions and feature wireless telemetry. Other ICD offerings include the Epic® II+ DR (FDA approved in March 2006) and high energy Atlas® II+ DR and Atlas® II VR/DR ICDs (FDA approved in July 2006) that offer our unique vibratory patient alert feature designed for greater patient safety and enhanced telemetry speeds to facilitate faster patient follow-ups. We received FDA approval and European CE Mark of the Epic®+ VR/DR ICDs in April 2003, and FDA approval and European CE Mark of the Atlas®+ VR/DR ICDs in October 2003. The Epic® ICD family devices are the Company’s smallest line of ICDs and deliver 30 joules of energy. The Atlas®+ ICD family devices offer high energy and small size without compromising charge times, longevity or feature set flexibility. The Current™ RF DR, Epic® II+ DR ICD, Epic®+ DR ICD, Atlas® II +DR ICD and the Atlas®+ DR ICD contain St. Jude Medical’s AF Suppression™ algorithm, which is clinically proven to reduce atrial fibrillation burden.

The Promote™ RF family of devices was FDA approved in November 2007. These cardiac resynchronization therapy-defibrillator (CRT-D) devices are available in both standard and high energy versions, and feature wireless telemetry and include many of the same advanced features of the Current™ RF. Other CRT offerings include the Atlas® II+ HF (FDA approved in December 2006). In 2004, we received FDA approval for our first line of products designed to treat heart failure. These products included the Atlas®+ HF, a high output CRT-D with 36 joules delivered and 42 joules stored; the Epic® HF, with 30 joules delivered; the Aescula™ Model 1055K left-ventricular lead; and the QuickSite® Models 1056T and 1056K, left-ventricular leads with less than a 1% dislodgment rate. Our other CRT-D product offerings include the Epic® II HF (FDA approved in March 2006) and high energy Atlas® II HF CRT-Ds (FDA approved in July 2006), which both contain the same unique patient vibratory alert and enhanced telemetry technology found in our Atlas® II VR/DR family of ICDs.

St. Jude Medical’s QuickOpt™ Timing Cycle Optimization technology was FDA approved in July 2006 and provides for automatic optimized ventricle to ventricle (V-V) and atria to ventricle (A-V) timing in all St. Jude Medical CRT-Ds and dual-chamber ICDs.

Our ICDs are used with the single and dual-shock electrode transvenous defibrillation leads. Our latest ICD lead offering is the Durata™ high voltage lead (FDA approved in January 2008), which features a soft silicone tip and curved RV coil designed to further improve implant performance. The Durata™ leads, along with the Riata® ST Optim™ leads (FDA approved in July 2006), are small-diameter ICD leads and feature our exclusive Optim™ insulation material that combines the durability of polyurethane and the softness of silicone. Optim™ insulation material was designed specifically for high and low voltage cardiac pacing leads. The Riata® leads are an advanced family of small-diameter, steroid-eluting, active or passive fixation defibrillation leads. The Riata® integrated bipolar single and dual-shock leads were FDA approved and launched in April 2004 and received European CE Mark in May 2004.

Our QuickSite® Bipolar Model 1056T left-ventricular lead was launched in Europe in December 2004 and in the United States in mid-2005. In December 2007 we released the QuickFlex™ family of LV leads in the United States and Europe.

Our pacemakers treat patients with hearts that beat too slowly, a condition known as bradycardia. Similar to ICDs, pacemakers are typically implanted pectorally, monitor the heart’s rate and, when necessary, deliver low-voltage electrical impulses that stimulate an appropriate heartbeat. Single-chamber pacemakers sense and stimulate only one chamber of the heart (atrium or ventricle), while dual-chamber devices can sense and pace in both the upper atrium and lower ventricle chambers. Bi-ventricular pacemakers can sense and pace in three chambers (atrium and both ventricle chambers).

Our current pacing products include the new Zephyr™ family of pacemakers, Victory® product line as well as Team ADx® pacemakers, a group comprised of the Identity® ADx, Integrity® ADx and Verity™ ADx families of devices.

The Zephyr™ family of pacemakers (FDA approved in May 2007) includes automaticity features to simplify device follow-up. All standard follow-up tests may be done automatically by the device. The Zephyr™ family of pacemakers includes functionality to reduce unnecessary ventricular pacing.

The Victory® line was approved by the FDA in December 2005. The Victory® and Victory® XL family models provide the enhancements of previous St. Jude Medical families, while adding new capabilities such as automatic P-wave and R-wave measurements with trends, lead monitoring and automatic polarity switch, follow-up electrograms, Ventricular Intrinsic Preference (VIP^TM) to reduce right ventricle pacing and a ventricular rate during automatic mode switch histogram.

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The Identity® DR and Identity® XL DR devices were approved by the FDA in November 2001, with the rest of the Team ADx™ devices receiving FDA approval in May 2003. The Team ADx devices received European CE Mark in August 2003. The Identity® ADx family models maintain the therapeutic features of previous St. Jude Medical pacemakers, including the AF Suppression™ algorithm and the Beat-by-Beat™ AutoCapture™ Pacing System. This family offers atrial tachycardia and atrial fibrillation arrhythmia diagnostics. The Integrity® ADx devices offer programmable electrograms. These features are designed to help physicians better manage pacemaker patients suffering from atrial fibrillation – the world’s most common cardiac arrhythmia. We also offer the Microny® II SR+ and Microny® K. These small-sized pacemakers are available worldwide. Another pacemaker, the Regency®, is offered outside of the United States.

All of our available pacemaker families offer the unique Beat-by-Beat™ AutoCapture™ Pacing System. The AutoCapture™ Pacing System enables the pacemaker to monitor every paced beat to verify that the heart has been stimulated (known as capture), delivers a back-up pulse in the event of noncapture, continuously measures threshold (the amount of voltage necessary to stimulate the heart muscle), and makes adjustments in energy output to match changing patient needs. In addition, the Identity® ADx, Integrity® ADx and Identity® pacemakers include St. Jude Medical’s AF Suppression™ Algorithm.

We also market low-voltage device-based ventricular resynchronization systems (bi-ventricular) designed for the treatment of heart failure and suppression of atrial fibrillation. Within the United States, our Frontier II™ CRT-P (cardiac resynchronization therapy-pacing) (FDA approved in August 2004 and CE Mark approved in September 2004) is a bi-ventricular pacing device indicated for use in patients with chronic atrial fibrillation who have been treated with atrioventricular nodal ablation. For placement of these leads, we provide the following delivery systems and accessories: the CPS Direct™, CPA Aim™, CPS Luminary™, Alliance™, Seal-Away™ CS and Apeel™ Catheter Delivery Systems, and the CPS Venture™ wire.

Our current pacing leads include the Tendril® ST Optim, Tendril ST, and Tendril® SDX (models 1688, 1488, 1788 and 1782) lead families and the IsoFlex® S, IsoFlex P and Passive Plus® DX passive-fixation lead families, all available worldwide. All these lead families feature steroid elution, which helps suppress the body’s inflammatory response to a foreign object.

Our pacemakers and ICDs interact with an external device referred to as a programmer. A programmer has two general functions. First, a programmer is used at the time of pacemaker and ICD implants to establish the initial therapeutic settings of these devices as determined by the physician. A programmer is also used for follow-up patient visits, which usually occur every three to 12 months based on patient need, to download stored diagnostic information from the implanted devices and to verify appropriate therapeutic settings. Since the introduction of programmable pacemakers in about 1977, all pacemaker manufacturers, including St. Jude Medical, have retained title to their programmers which are used by their field sales force or by physicians and nurses or technicians.

In April 2006, we received FDA approval for the first software module of our Merlin™ Patient Care System, a universal programmer for St. Jude Medical ICDs and pacemakers. This completely redesigned programmer has a larger display, built-in full-size printer, touch screen and advanced new user interface. The programmer is a result of detailed customer research activities to optimize ease of use and to set new standards for efficient and effective in-clinic follow-up.

St. Jude’s Model 3510 universal series pacemaker and ICD programmer is an easy-to-use programmer that supports our pacemakers and ICDs. The Model 3510 universal series programmer allows the physician to utilize the diagnostic and therapeutic capabilities of our pacemakers and ICDs.

In addition to the programmer, physicians can monitor and follow-up devices implanted in patients and monitor patient status using the Merlin.net^TM Patient Care Network. The latest version of this system (v2.5) was launched in the United States in December 2007. This system allows patients to use their HouseCall Transmitters to send data stored in Epic/Atlas ICD and CRT-D devices to an internet site for retrieval by their physician through standard analog or DSL telephone lines. Physicians can better manage their increased number of ICD patients by conducting remote follow-up sessions, thereby increasing efficiency. Additionally, patient flexibility is enhanced by the reduction in the number of office visits required.

Cardiovascular:   At the beginning of our 2007 fiscal year, we formed the Cardiovascular Division by combining our former Cardiac Surgery and Cardiology Divisions. We offer both mechanical and tissue replacement heart valves as well as heart valve repair products. Additionally, we offer specialized disposable interventional devices, including vascular closure devices, patent foramen ovale (PFO) closure devices, embolic protection systems, wire control catheters, percutaneous catheter introducers, diagnostic guidewires and temporary bipolar pacing catheters.

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Heart valve replacement or repair may be necessary because the native heart valve has deteriorated due to congenital defects or disease. Heart valves facilitate blood flow from the chambers of the heart throughout the entire body. St. Jude Medical® mechanical heart valves have been implanted in over 1.7 million patients worldwide. The SJM Regent® 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 2007, we received FDA approval for United States market release of the Epic™ stented tissue heart valve and initiated the Trifecta™ stented tissue heart valve United States Investigational Device Exemption (IDE) clinical trial. Additionally, we market the Biocor® stented tissue heart valve in the United States. Outside the United States, we market the Epic™ stented tissue heart valve and the Biocor® stented tissue valve. The Epic™ tissue valve offers our customers a tissue valve with an anti-calcification treatment.

Annuloplasty rings are prosthetic devices used to repair diseased or damaged mitral heart valves. We offer a line of heart valve repair products, including the semi-rigid SJM® Séguin annuloplasty ring, the fully flexible SJM Tailor® annuloplasty ring and a St. Jude Medical® rigid saddle-shaped annuloplasty ring.

Our vascular closure devices are used to close femoral artery puncture sites following percutaneous coronary interventions, diagnostic procedures and certain peripheral procedures. In 2006, we launched the Angio-Seal^TM VIP vascular closure system worldwide. In addition to the performance and ease of use benefits offered from Angio-Seal^TM STS Plus, Angio-Seal^TM VIP features a larger collagen footprint and smoother deployment.

During 2005, we launched the Premere™ PFO Closure System (Premere™ system) in Europe. A PFO is a congenital flap, or tunnel, that exists between the left and right atrium of the heart. Currently, certain physicians believe there may be a link between a PFO and the occurrence of migraine headaches. The Premere™ system is being investigated in the United States under an IDE clinical trial to determine if there is a reduction in the occurrence of migraine headaches between patients that have their PFO closed with the Premere™ system versus those that do not have their PFO closed. This trial was initiated in 2006. The Premere™ system differs from other currently available systems today. The key differences are the presence of independent anchors that allow the system to conform to the anatomy, an adjustable tether that adapts to PFO tunnels of varying lengths and a smaller surface area in the left side of the heart which may reduce the likelihood of embolization.

During 2006, we received approval to market our Proxis™ Embolic Protection System (Proxis™ system) in the United States and Europe. The system was launched in Europe in 2006 and the United States in 2007. The Proxis™ system provides embolic protection for saphenous vein grafts by placing the device proximal to the lesion. As opposed to distal systems, the Proxis™ system provides protection during guidewire crossing, side branches protection as well as unlimited debris capture. The system can also be used for those patients ineligible for distal filter systems due to anatomical considerations.

In 2006, we also launched worldwide the Venture™ Rx (Rapid Exchange) Wire Control catheter. This product provides the physician with the ability to navigate tortuous coronary anatomy by having a 90 degree deflectable tip as well as providing additional guidewire support that may be helpful for crossing chronic total occlusions.

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. Our percutaneous catheter introducer portfolio consists 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. Diagnostic guidewires, such as the GuideRight™ and HydroSteer™ guidewires, are used in conjunction with percutaneous catheter introducers to aid in the introduction of intravascular catheters. Our diagnostic guidewires are available in multiple lengths and incorporate a surface finish for lasting lubricity.

Our 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. We produce and market several designs of bipolar temporary pacing catheters, including our Pacel™ 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.

Atrial Fibrillation:   Atrial fibrillation is a rapid and inconsistent heart rhythm that occurs in the upper chambers of the heart. People suffering from atrial fibrillation may experience fatigue and shortness of breath, and atrial fibrillation has been shown to increase the risk of stroke. Atrial fibrillation and other irregular heart rhythms such as atrial flutter and Wolff-Parkinson-White Syndrome are often managed with medications that palliate the symptoms of the irregular heartbeat. We are committed to developing device-based ablation therapies for these conditions that offer the potential for a cure.

We provide a complete system of products – for access, diagnosis, visualization and ablation - that assist physicians in diagnosing and treating various irregular heart rhythms. Our products are designed to be used in the EP lab and cardiac surgery.

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Our access products enable clinicians to facilitate the percutaneous delivery of diagnostic and ablation catheters to areas of the heart where arrhythmias occur. These products include, among others, our Swartz™ and Swartz™ Braided Transseptal fixed-curve introducers which are designed to guide catheters to precise locations in the left atrium. In addition, our Agilis™ NxT Steerable Introducer (FDA approved in July 2006) enables flexible mobility and stability of catheters in the heart while reducing the outside diameter of the introducer.

For diagnosing arrhythmias percutaneously, we offer a portfolio of fixed-curve and steerable catheters. Our Response™ and Supreme™ fixed curve catheters gather electrical information from the heart that indicates what may be causing an arrhythmia. Our steerable product lines include Livewire™, Reflexion™ Spiral (FDA approved in October 2006), and Inquiry™ Optima™ PLUS (FDA approved in March 2006). These catheters allow clinicians to move the catheter tip in precise movements in order to diagnose the more anatomically challenging areas within the heart. In addition, our EnSite Array™ Non-contact Mapping Catheter works with the EnSite® System, enabling physicians to record electrical activity for a number of arrhythmias and is especially well suited to quickly mapping complex and unstable arrhythmias in a single heartbeat without touching the walls of the patient’s heart.

Our EnSite® System is a mapping and navigation system that, when used in conjunction with the EnSite® Array Non-contact Mapping Catheter or EnSite NavX™ Navigation and Visualization System, creates three-dimensional (3D) cardiac models, shows catheters moving within those models, and allows physicians to map and visualize electrical activity in the heart. During the second quarter of 2007, we launched the EnSite® System Version 7.0 software platform. EnSite Version 7.0 enables the creation of cardiac models with a high level of detail while also providing for improved reproducibility. During 2007, we also launched the EnSite Fusion™ Registration Module, a software expansion module for our EnSite® System that registers the EnSite NavX™ 3D model to a segmented computed tomography (CT) image of cardiac anatomy, allowing for additional detailed levels of cardiac anatomy to be visualized and navigated within one image during an ablation procedure.

We offer two general ablation product lines which focus on disabling abnormal tissue that causes or perpetuates arrhythmias: ablation catheters, which are used as part of a percutaneous procedure and are designed to apply RF energy to the inside of the heart; and surgical cardiac ablation devices, which are used to ablate cardiac tissue from the epicardium (outside the heart). Our Livewire™ TC Ablation Catheters include uni- and bi-directional models that offer stability and excellent tissue contact with cardiac tissue. Our Safire™ Bi-directional Ablation Catheter product line offers a comprehensive range of catheter tip sizes (4mm and 5mm, FDA approved in August 2006; and 8mm, FDA approved in October 2007) and curve configurations and is built on our ComfortGrip™ handle platform that is designed for physician comfort and control during EP procedures. Our Therapy™ line of ablation catheters also provides a range of curve options and temperature control. When used with our IBI-1500 series Cardiac Ablation Generators, power can be effectively managed for the creation of longer ablation lines.

Our surgical cardiac ablation product line, the Epicor™ Cardiac Ablation System (Epicor™ System), creates cardiac ablation lesions by applying high intensity focused ultrasound (HIFU) to the outside of a beating heart without the need to put the patient on a heart-lung bypass machine. The primary components of the Epicor™ System include the Epicor™ Ablation Control System that generates and controls the ultrasound energy, the UltraCinch™ Ablation Device (FDA approved in May 2004) that creates circumferential lesions in cardiac tissue and the UltraWand™ Handheld Ablation Device (FDA approved in February 2004) that allows for additional linear lesions to be created.

Advanced Neuromodulation Systems:  In November 2005, we acquired ANS to expand our implantable microelectronics technology programs and provide us with a presence in the neuromodulation segment of the medical device industry. Within the neuromodulation market, there are two main categories of treatment: neurostimulation, in which an implantable device delivers electrical current directly to targeted nerve sites, and implantable drug infusion systems, in which an implanted pump delivers drugs through a catheter directly to targeted nerve sites.

Neurostimulation for the treatment of chronic pain involves delivering low-level electrical impulses via an implanted device (sometimes referred to as a “pacemaker for pain”) directly to the spinal cord or peripheral nerves. This stimulation interferes with the transmission of pain signals to the brain and inhibits or blocks the sensation of pain felt by the patient. This stimulation of nerves at or near the site where pain is perceived replaces the painful sensations with a sensation called paresthesia, which is often described as a tingling or massaging sensation. Neurostimulation for chronic pain is generally used to manage sharp, intense and constant pain arising from nerve damage or nervous system disorders. A neurostimulation system typically consists of three components: a pulse generator/receiver produces the electric current directed to the lead(s) and is generally implanted under the patient’s skin; a programmer/transmitter is used to program the power supply and to adjust the intensity, frequency and duration of the stimulation; and leads carry the electrical impulses to the targeted nerve sites. Clinical results demonstrate that many patients who are implanted with a neurostimulation system experience a substantial reduction in pain, an increase in activity level, a reduction in use of narcotics and a reduction in hospitalization.

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We offer a wide array of neurostimulation systems including rechargeable implantable pulse generators (IPGs), conventional implantable pulse generators and radio frequency (RF) powered systems. We currently market three neurostimulation product platforms worldwide: Eon™ rechargeable IPG systems, Genesis® IPG systems, which include conventional and rechargeable battery models, and Renew® RF systems.

The Eon™ rechargeable IPG system with the NeuroDynamix™ microchip technology has a greater power output, enabling it to meet the varying power requirements of individual patients. Additionally, the new Eon™ stimulator provides enhanced longevity between recharges giving patients added flexibility in their recharging schedule. The device also has an extremely high frequency capability, allowing it to serve patients who need higher frequencies to control their pain. The enhanced Eon™ and the new Rapid Programmer® platform work together as an integrated system to enhance clinician performance, helping patients address complex pain.

The Genesis® IPG system offers a high battery capacity-to-size ratio and flexibility in addressing different pain patterns. The GenesisXP™ IPG system offers a greater battery capacity, resulting in enhanced longevity and/or additional power to treat more complex pain. Conventional IPGs, such as Genesis® and GenesisXP™, are well-suited for patients with relatively simple pain or modest power requirements and for patients who would have difficulty managing a rechargeable system or a RF system.

The Renew® RF system features a small implanted RF receiver/pulse generator, leads and a transmitter containing a power source that is worn externally. The system is powered with the help of an antenna that is attached to the patient’s skin with a removable belt or an adhesive pad. As Renew® has a rechargeable, external power source, we believe it is best suited for patients with complex, changing or multi-extremity pain patterns that require higher power levels for treatment when battery management, even when rechargeable systems are available, is problematic.

We currently market Rapid Programmer® 3.12, a programming platform designed to allow clinicians to quickly and efficiently test patients intraoperatively and to program postoperatively. Rapid Programmer® features two technologies for delivering stimulation to pain patients: Dynamic MultiStim™ and Active Balancing™. Dynamic MultiStim™ technology allows for real-time programming adjustments to multiple areas of pain, which better targets pain coverage and decreases programming time. This is especially useful when patients have complex pain patterns, such as a combination of back and leg pain. Active Balancing™ lets patients and clinicians fine-tune stimulation levels in multiple coverage areas, quickly establishing relief and giving patients sophisticated, yet easy-to-use, control over their therapy. This palm-sized programmer features a touch screen interface, which clinicians can navigate to create multiple programs, adjust variables and generate pain and stimulation maps while decreasing the average postoperative programming time.

We market a broad variety of leads, which are intended to give clinicians the flexibility to meet a range of patient needs. Our leads can be divided into two types: percutaneous and paddle leads. Our percutaneous leads consist of the 8-contact Octrode® and 4-contact Quattrode® lead designs. Our paddle leads consist of the Lamitrode® family of leads, which, in addition to the Lamitrode® lead, includes the Lamitrode Tripole 8 and 16, Lamitrode S-Series™ and C-Series™ leads. The Lamitrode Tripole 8 and 16 configurations feature a three-column electrode array designed to focus stimulation more precisely for enhanced targeting of low back pain. Lamitrode S-Series™ leads have a small paddle lead profile, which is intended to ease insertion, and an integrated stylet, which is engineered to improve steering and control during implantation. Lamitrode C-Series™ leads are shaped to mimic the curve of the epidural space of the spine, and designed to facilitate lead placement and reduce lead migration.

The neurostimulation market continues to develop. Deep brain stimulation (DBS) for Parkinson’s disease and essential tremor continue to grow and potential new indications such as DBS for depression, occipital stimulation for migraine, angina, tinnitus and obesity continue to be investigated. We continue to implant in our pivotal studies for Parkinson’s disease and essential tremor to investigate the safety and efficacy of the Libra™ Deep Brain Stimulation system. We are also continuing enrollment for another pivotal study for chronic migraine. We have conducted a multi-center trial for depression in Canada and have received approval from the FDA to begin studies in the United States. Other potential indications are in various stages of evaluation, regulatory review and trial.

Competition

The medical device market is intensely competitive and is characterized by extensive research and development and rapid technological change. In addition, competitors have historically employed litigation to gain a competitive advantage. Our competitors range from small start-up companies to larger companies which have significantly greater resources and broader product offerings, and we anticipate that in the coming years, other large companies will enter certain markets in which we currently hold a strong position. We expect competition will continue to intensify with the increased use of strategies such as consigned inventory and reduced pricing.

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Our customers consider many factors when choosing suppliers, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer. As a result, market share can shift due to technological innovation, product field actions and safety alerts as well as from other business factors.

We are one of the three principal manufacturers and suppliers in the global ICD and pacemaker markets. Our primary competitors in these two markets are Medtronic, Inc. and Boston Scientific Corporation. These two competitors are larger than us and have invested substantial amounts in ICD research and development. These markets are highly competitive and rapid technological change is expected to continue, requiring us to invest heavily in R&D and to effectively market our products.

The cardiovascular market is also highly competitive with numerous competitors. The majority of our sales in this market is generated from our vascular closure devices and heart valve replacement and repair products. We continue to hold the number one market position in the vascular closure device market. However, the market for vascular closure devices is highly competitive, and there are several companies, in addition to St. Jude Medical, that manufacture and market these products worldwide. Our primary vascular closure device competitor is Abbott Laboratories. Additionally, we anticipate other large companies will enter this market in the coming years, which will increase competition. The cardiovascular market also includes cardiac surgery products such as mechanical heart valves, tissue heart valves and valve repair products, which are also highly competitive. We are the world’s leading manufacturer and supplier in the mechanical heart valve market, which includes two other principal manufacturers and suppliers (CarboMedics and ATS Medical, Inc.) and several smaller manufacturers. We also compete against two principal tissue heart valve manufacturers (Edwards Lifesciences Corporation and Medtronic, Inc.) and many other smaller manufacturers. Cardiac surgery therapies have shifted to tissue valves and repair products from mechanical heart valves, resulting in an overall market share loss for us.

We are one of three principal manufacturers of neurostimulation devices. Our primary competitors are Medtronic, Inc. and Boston Scientific Corporation. The neuromodulation market is one of medical technology’s fastest growing segments. Competitive pressures will increase in the future as Medtronic, Inc. and Boston Scientific Corporation attempt to secure and grow their positions in the neuromodulation market. Barriers to entry for new competitors are high, due to a long and expensive product development and regulatory approval process as well as the intellectual property and patent positions existing in the market. However, other larger medical device companies may be able to enter the neuromodulation market by leveraging their existing medical device capabilities, thereby decreasing the time and resources required to enter the market.

The atrial fibrillation therapy area is broadening to include multiple therapy methods and treatments which include drugs, percutaneous delivery of diagnostic and ablation catheters, external electrical cardioversion and defibrillation, implantable defibrillators and open-heart surgery. As a result, we have numerous competitors in the emerging atrial fibrillation market. Larger competitors may extend their presence in the atrial fibrillation market by leveraging their cardiac rhythm management capabilities.

Patents, Licensesand Trademarks

Our policy is to protect our intellectual property rights related to our medical devices. Where appropriate, we apply for U.S. and foreign patents. We own or hold licenses to numerous U.S. and foreign patents. U.S. patents are typically granted for a term of twenty years from the date a patent application is filed. The actual protection afforded by a foreign patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. In those instances where we have acquired technology from third parties, we have sought to obtain rights of ownership to the technology through the acquisition of underlying patents or licenses. We have a technology license agreement that provides access to a significant number of patents covering a broad range of technology used in our ICD and pacemaker systems. The related patents expire at various dates through the year 2014. The costs deferred under this technology license agreement are recorded on the balance sheet in other assets and are being recognized as an expense over the term of the underlying patents’ lives.

We also have obtained certain trademarks and trade names for our products to distinguish our products from our competitors’ products. U.S. trademark registrations are for a term of ten years and are renewable every ten years as long as the trademarks are used in the regular course of trade. We register our trademarks in the U.S. and in a number of countries where we do business.

While we believe design, development, regulatory and marketing aspects of the medical device business represent the principal barriers to entry, we also recognize that our patents and license rights may make it more difficult for competitors to market products similar to those we produce. We can give no assurance that any of our 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 our 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 we will be able to prevent competitors from challenging our patents or entering markets we currently serve.

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Research and Development

We are 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 our existing products. Our research and development expenses were $476.3 million (12.6% of net sales) in 2007, $431.1 million (13.1% of net sales) in 2006, and $369.2 million (12.7% of net sales) in 2005. We also expensed $179.2 million of purchased in-process research and development in connection with acquisitions we completed in 2005.

Acquisitions and Minority Investments

In addition to generating growth internally through our own research and development activities, we also make strategic acquisitions and investments to access new technologies and therapy areas. We expect to continue to make acquisitions and investments in future periods to strengthen our business.

On November 29, 2005, we completed the acquisition of ANS for $1,353.9 million, net of cash acquired. ANS had been publicly traded on the NASDAQ market under the ticker symbol ANSI. ANS designs, develops, manufactures and markets implantable neurostimulation devices used primarily to manage chronic severe pain. ANS now operates as a division of St. Jude Medical.

On January 13, 2005, we completed the acquisition of Endocardial Solutions, Inc. (ESI) for $279.4 million, net of cash acquired. ESI had been publicly traded on the NASDAQ market under the ticker symbol ECSI. ESI developed, manufactured and marketed the EnSite® System used for the navigation and localization of diagnostic and therapeutic catheters used by physician specialists to diagnose and treat cardiac rhythm disorders. ESI has become part of the Atrial Fibrillation division of St. Jude Medical.

On April 6, 2005, we completed the acquisition of Velocimed for $70.9 million, net of cash acquired, plus additional contingent payments tied to revenues in excess of minimum future targets, and a milestone payment upon FDA approval of the Premere™ system prior to December 31, 2010. Velocimed developed and manufactured specialty interventional cardiology devices. Velocimed has become part of the Cardiovascular division of St. Jude Medical.

On December 30, 2005, we completed the acquisition of Savacor, Inc. (Savacor) for $49.7 million, net of cash acquired, plus additional contingent payments related to product development milestones for regulatory approvals and revenues in excess of minimum future targets. Savacor was a development-stage company with a small implantable sensor device in clinical trials both in the United States and internationally that measures left atrial pressure and body temperature to help physicians detect and manage symptoms associated with progressive heart failure. Increased pressure in the left atrium is a predictor of pulmonary congestion, which is the leading cause of hospitalization for congestive heart failure patients. Savacor has become part of the Cardiac Rhythm Management division of St. Jude Medical.

Marketing and Distribution

Our products are sold in more than 100 countries throughout the world. No distributor organization or single customer accounted for more than 10% of 2007, 2006, or 2005 consolidated net sales.

In the United States, we sell directly to hospitals primarily through a direct sales force. In Europe, we have direct sales organizations selling in 23 countries. In Japan, we sell directly to hospitals through a direct sales force and we also continue to use longstanding independent distributor relationships. In Asia Pacific, we have direct sales organizations selling in 7 countries, and we also utilize independent distributors. Throughout the rest of the world, we use a combination of independent distributors and direct sales forces.

Group purchasing organizations (GPO), independent delivery networks (IDN) and large single accounts such as the Veterans Administration in the United States continue to consolidate purchasing decisions for some of our hospital customers. We have contracts in place with many of these organizations. In some circumstances, our inability to obtain a contract with a GPO or IDN could adversely affect our efforts to sell products to that organization’s hospitals.

International Operations

Our net sales and long-lived assets by significant geographic areas are presented in Note 12 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.

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Our international business is subject to special risks such as: foreign currency exchange controls and fluctuations; the imposition of or increase in import or export duties, surtaxes, tariffs or customs duties; the imposition of import or export quotas or other trade restrictions; foreign tax laws and increased costs associated with overlapping tax structures; longer accounts receivable cycles; and other international regulatory, economic and political problems. Such risks are further described in Item 1A, Risk Factors of this Form 10-K. Currency exchange rate fluctuations relative to the U.S. Dollar can affect reported consolidated revenues and net earnings. We 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 of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.

Seasonality

Our quarterly net sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals, patient and physician holiday schedules and other factors. Net sales in the third quarter are typically lower than other quarters of the year as a result of 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 procedures.

Suppliers

We purchase raw materials and other products from numerous suppliers. Our manufacturing requirements comply with the rules and regulations of the FDA, which mandate validation of materials prior to use in our products. We purchase certain supplies used in our manufacturing processes from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Agreements with certain suppliers are terminable by either party upon short notice and we have been advised periodically by some suppliers that in an effort to reduce their potential product liability exposure, they may terminate sales of products to customers that manufacture implantable medical devices. While some of these suppliers have modified their positions and have indicated a willingness to continue to provide a product temporarily until an alternative vendor or product can be qualified (or even to reconsider the supply relationship), where a particular single-source supply relationship is terminated, we may not be able to establish additional or replacement suppliers for certain components or materials quickly. A reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of our products or an increase in the price of those materials or components could adversely affect our business, financial condition and results of operations.

Government Regulation

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA), by comparable agencies in foreign countries and by other regulatory agencies and governing bodies. Under the FDCA and associated regulations, manufacturers of medical devices must comply with certain regulations that cover the composition, labeling, testing, clinical study, manufacturing, packaging and distribution of medical devices. Medical devices must receive FDA clearance or approval before they can be commercially marketed in the United States. The most comprehensive level of approval 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. Our mechanical and tissue heart valves, ICDs, pacemakers and certain leads, neurostimulation devices and EP catheter applications require a PMA application or supplement to a PMA. Other leads and lead delivery tools, annuloplasty ring products, other neurostimulation devices and other EP and cardiology products are currently marketed under the less rigorous 510(k) pre-market notification procedure of the FDCA.

Furthermore, our international business is subject to medical device laws in individual countries outside the United States. Most major markets for medical devices outside the United States require clearance, approval or compliance with certain standards before a product can be commercially marketed. The applicable laws range from extensive device approval requirements in some countries for all or some of our 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. The process of obtaining marketing clearance from the FDA and foreign regulatory agencies for new products or with respect to enhancements or modifications to existing products can take a significant period of time, require the expenditure of substantial resources, involve rigorous pre-clinical and clinical testing, require changes to the products and result in limitations on the indicated uses of the products.

The FDA conducts inspections prior to approval of a PMA application to determine compliance with the quality system regulations that cover manufacturing and design. In addition, the FDA may require testing and surveillance programs to monitor the effects of approved products that have been commercialized, and may prevent or limit further marketing of products based on the results of these post-marketing programs. At any time after approval of a product, the FDA may conduct periodic inspections to determine compliance with both the FDA’s Quality System Regulation (QSR) requirements and/or current medical device reporting regulations. Product approvals by the FDA can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval. The failure to comply with regulatory standards or the discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims.

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We are required to register with the FDA as a device manufacturer and as a result, we are subject to periodic inspection by the FDA for compliance with the FDA’s QSR requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are required to maintain certain International Organization for Standardization (ISO) certifications in order to sell products, and we undergo periodic inspections by notified bodies to obtain and maintain these certifications.

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 group (DRG) and Ambulatory Patient Classification (APC) reimbursement schedules dictate the amount that the U.S. government, through the Centers for Medicare and Medicaid Services, will reimburse hospitals for 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 and APC reimbursement levels could have an adverse effect on market demand and our domestic pricing flexibility. In the U.S., Medicare payment to providers is based on prospectively set rates. The Centers for Medicare and Medicaid Services (CMS), which administers the Medicare and Medicaid programs, uses separate Prospective Payment Systems (PPSs) for reimbursement to acute inpatient hospitals, hospital outpatient departments and ambulatory surgery centers. In response to rising Medicare costs, several legislative proposals are under consideration that would reduce the annual update in federal payments to hospitals. Reduced funding could have an adverse effect on market demand and our domestic pricing flexibility.

More generally, major third-party payors for hospital services in the United States and abroad continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed and in the shifting of services between inpatient and outpatient settings. Initiatives to limit the growth of healthcare costs, including price regulation, are also underway in several countries in which we do business. Implementation of healthcare reforms in the United States and in significant overseas markets such as Germany, Japan and other countries may limit the price of or the level at which reimbursement is provided for, our products.

The United States Medicare-Medicaid Anti-kickback law generally prohibits payments to physicians or other purchasers of medical products under these government programs as an inducement to purchase a product. Many foreign countries have similar laws. We subscribe to the AdvaMed Code (AdvaMed is a U.S. medical device industry trade association) which limits certain marketing and other practices in our relationships with product purchasers. We also adhere to many similar codes in countries outside the United States. In addition, we have in place and are continuously improving an internal business integrity and compliance program.

Federal and state laws protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of such information. In particular, the U.S. Department of Health and Human Services has issued patient privacy rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule). The HIPAA privacy rule governs the use and disclosure of protected health information by “covered entities,” which are healthcare providers that submit electronic claims, health plans and healthcare clearinghouses. Other than our employee health benefit plans, which are covered entities, the HIPAA privacy rule only affects us indirectly. Our policy is to work with customers and business partners in their HIPAA compliance efforts.

Some medical device regulatory agencies have considered and are 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,” a disease which has sometimes been transmitted to humans through the consumption of beef. We are not aware of any reported cases of transmission of BSE through medical products. Some of our products (Angio-Seal™ and vascular grafts) use bovine collagen. In addition, some of the tissue heart valves we market incorporate bovine pericardial material. We are cooperating with the regulatory agencies considering these issues.

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Product Liability

The design, manufacture and marketing of medical devices of the types we produce entail an inherent risk of product liability claims. Our products are often used in intensive care settings with seriously ill patients, and many of the medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. There are a number of factors that could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products which we manufacture or sell, including component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information. Product liability claims may be brought by individuals or by groups seeking to represent a class.

We are currently the subject of various product liability claims, including several lawsuits which may be allowed to proceed as class actions in the United States and Canada. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. In addition, product liability claims may be asserted against us in the future, relative to events that are not known to management at the present time.

Insurance

Problems with our products can result in product liability claims or a field action, safety alert or advisory notice relating to the product. Our product liability insurance coverage is designed to help protect us against a catastrophic claim. Our current product liability policies (for the period June 15, 2007 through June 15, 2008) provide $350 million of insurance coverage, with a $50 million per occurrence deductible or a $100 million deductible if the claims are deemed an integrated occurrence under the policies.

Our facilities could be materially damaged by earthquakes, hurricanes and other natural disasters or catastrophic circumstances. California earthquake insurance is currently difficult to obtain, extremely costly, and restrictive with respect to scope of coverage. Our earthquake insurance for our significant CRM facilities located in Sylmar and Sunnyvale, California, provides $10 million of insurance coverage in the aggregate, with a deductible equal to 5% of the total value of the facility and contents involved in the claim. Consequently, despite this insurance coverage, we could incur uninsured losses and liabilities arising from an earthquake near one or both of our California facilities as a result of various factors, including the severity and location of the earthquake, the extent of any damage to our facilities, the impact of an earthquake on our California workforce and on the infrastructure of the surrounding communities and the extent of damage to our inventory and work in process. While we believe that our exposure to significant losses from a California earthquake could be partially mitigated by our ability to manufacture some of our CRM products at our manufacturing facilities in Sweden and Puerto Rico, the losses could have a material adverse effect on our business for an indeterminate period of time before this manufacturing transition is complete and operates without significant problems. Furthermore, our manufacturing facilities in Puerto Rico may suffer damage as a result of hurricanes which are frequent in the Caribbean and which could result in lost production and additional expenses to us to the extent any such damage is not fully covered by our hurricane and business interruption insurance.

Employees

As of December 29, 2007, we had approximately 12,000 employees worldwide. Our employees are not represented by any labor organizations, with the exception of our employees in Sweden and certain employees in France. We have never experienced a work stoppage as a result of labor disputes. We believe that our relationship with our employees is generally good.

Executive Officers of the Registrant

The following is a list of our executive officers as of February 15, 2008. For each position, the dates in parentheses indicate the year during which each executive officer began serving in such capacity.

Name	Age	Position
Daniel J. Starks	53	Chairman (2004), President (2001) and Chief Executive Officer (2004)
John C. Heinmiller	53	Executive Vice President (2004) and Chief Financial Officer (1998)
Joseph H. McCullough	58	Group President (2008)
Michael T. Rousseau	52	Group President (2008)
Frank J. Callaghan	54	President, Cardiovascular (2008)
Christopher G. Chavez	52	President, Advanced Neuromodulation Systems (2005)
Eric S. Fain, M.D.	47	President, Cardiac Rhythm Management (2007)
George J. Fazio	48	President, U.S. (2008)
Denis M. Gestin	44	President, International (2008)
Jane J. Song	45	President, Atrial Fibrillation (2004)
I. Paul Bae	43	Vice President, Human Resources (2006)
Angela D. Craig	36	Vice President, Corporate Relations (2006)
Pamela S. Krop	49	Vice President (2006), General Counsel (2006) and Secretary (2006)
Thomas R. Northenscold	50	Vice President, Information Technology (2008) and Chief Information Officer (2008)
Donald J. Zurbay	40	Vice President (2006) and Corporate Controller (2004)

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Mr. Starks has served on St. Jude Medical’s Board of Directors since 1996 and has been Chairman, President and Chief Executive Officer of St. Jude Medical since May 12, 2004. Previously, Mr. Starks was President and Chief Operating Officer of St. Jude Medical since February 1, 2001. From April 1998 to February 2001, he was President and Chief Executive Officer of our Cardiac Rhythm Management Division, and prior to that, Mr. Starks was Chief Executive Officer and President of Daig Corporation, a wholly-owned subsidiary of St. Jude Medical. Mr. Starks serves on the Board of Directors of Urologix, Inc., a urology medical device company.

Mr. Heinmiller joined St. Jude Medical in May 1996 as a part of our acquisition of Daig Corporation, where Mr. Heinmiller had served as Vice President of Finance and Administration since 1995. In May 1998, he was named Vice President of Corporate Business Development. In September 1998, he was appointed Vice President, Finance and Chief Financial Officer and in May 2004 was promoted to Executive Vice President.

Mr. McCullough joined St. Jude Medical in 1994 as a Cardiac Rhythm Management Regional Sales Director. He became Director of Cardiac Rhythm Management Marketing in 1996 and was named Vice President of Cardiac Rhythm Management Marketing in January 1997. In December 1997, Mr. McCullough was appointed European Cardiac Rhythm Management Business Unit Director. He became Vice President, Cardiac Rhythm Management Europe and Managing Director of manufacturing operations in Veddesta, Sweden, in January 1999, and Senior Vice President, Cardiac Rhythm Management Europe in August 1999. Mr. McCullough served as President, International Division from July 2001 to January 2008, when he was promoted to Group President, with the Company’s U.S. and International Divisions and Corporate Brand and Global Marketing functions reporting directly to him.

Mr. Rousseau joined St. Jude Medical in 1999 as Senior Vice President, Cardiac Rhythm Management Global Marketing. In August 1999, Cardiac Rhythm Management Marketing and Sales were combined under his leadership. In January 2001, he was named President, U.S. Cardiac Rhythm Management Sales, and in July 2001, he was named President, U.S. Division, a position Mr. Rousseau held until January 2008, when he was promoted to Group President, with the Company’s four product divisions reporting directly to him.

Mr. Callaghan joined St. Jude Medical as Vice President of Research and Development for the Atrial Fibrillation Division in January 2005 as part of the ESI acquisition. From 1995 - 2005, Mr. Callaghan served as Vice President of Research and Development for ESI. In January 2008, he was promoted to President, Cardiovascular Division.

Mr. Chavez joined St. Jude Medical as President, Advanced Neuromodulation Systems Division, as a result of our acquisition of ANS in November 2005. From April 1998 to 2005, he served as President, Chief Executive Officer and Director of ANS, when it was a separate company. Mr. Chavez serves on the Board of Directors of Advanced Medical Optics, Inc., an optical medical device company.

Dr. Fain joined St. Jude Medical in 1997 as a part of our acquisition of Ventritex, Inc., where he had served since 1987. In 1998, he was named Senior Vice President, Clinical Engineering and Regulatory Affairs, Cardiac Rhythm Management. In 2002 he was appointed Senior Vice President for Development and Clinical/Regulatory Affairs for Cardiac Rhythm Management and was promoted to Executive Vice President over those functions in 2005. In July 2007, Dr. Fain became President of our Cardiac Rhythm Management Division.

Mr. Fazio joined St. Jude Medical in 1992 and served as the General Manager of St. Jude Medical Canada, Inc., based in Mississauga, Ontario, Canada, until being named President, Health Care Services in May 1999. In July 2001, he was appointed President of St. Jude Medical Europe and in August 2004 was named President, Cardiac Surgery Division. In January 2007, he became President, Cardiovascular Division, which was formed by the combination of our former Cardiology and Cardiac Surgery Divisions. In January 2008, Mr. Fazio was promoted to President, U.S. Division.

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Mr. Gestin joined St. Jude Medical in 1997 as manager of cardiac rhythm management and catheter product sales in France. He was named Managing Director of St. Jude Medical France in 1999 and was promoted to Vice President, Northern Europe & Africa in 2002. He was named President of SJM Europe, Middle East, Africa and Canada in August 2004, and in January 2008, Mr. Gestin was promoted to President, International Division.

Ms. Song joined St. Jude Medical in 1998 as Senior Vice President, Cardiac Rhythm Management Operations. In May 2002, she was appointed President, Cardiac Surgery Division, and in August 2004, was appointed President, Atrial Fibrillation Division.

Mr. Bae joined St. Jude Medical in 2003 and most recently served as General Counsel and Vice President, Human Resources for the U.S. Division. In September 2006, he was appointed Vice President, Human Resources. Prior to joining St. Jude Medical, Mr. Bae was Director of Litigation for Alpha Therapeutic Corporation, a biopharmaceutical company.

Ms. Craig joined St. Jude Medical in May 2005 as Vice President of Communications and served in that position until being named Vice President, Corporate Relations, in January 2006. Prior to joining St. Jude Medical, Ms. Craig spent 12 years with Smith & Nephew plc, a medical device company headquartered in London, England, where she served as Director of Corporate Affairs from 2002 to 2003 prior to serving as Vice President of U.S. Public Relations and Investor Relations from 2003 to 2005.

Ms. Krop joined St. Jude Medical in July 2006 as Vice President, General Counsel and Corporate Secretary. She previously spent 15 years at General Electric (GE) Company, a diversified industrial corporation, and served as General Counsel of GE Healthcare Bio-Sciences, a $3 billion business acquired by GE, formerly known as Amersham plc.

Mr. Northenscold joined St. Jude Medical in 2001 as Vice President, Finance and Administration of Daig Corporation, a wholly-owned subsidiary of St. Jude Medical. In March 2003, he was named Vice President, Administration and in November 2007 was promoted to Vice President, Information Technology and Chief Information Officer.

Mr. Zurbay joined St. Jude Medical in 2003 as Director of Corporate Finance. In 2004, Mr. Zurbay was named Corporate Controller, and in January 2006 he was named Vice President and Corporate Controller. From 1999 to 2003, he served as Senior Audit Manager at PricewaterhouseCoopers LLP, a global public accounting firm.

Availability of SEC Reports

We make available, free of charge, our 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 (the Exchange Act) as soon as reasonably practical after they are filed or furnished to the U.S. Securities and Exchange Commission (SEC). Such reports are available on our website (http://www.sjm.com) under Company Information section Investor Relations – SEC Filings or can be obtained by contacting our Investor Relations group at 1.800.552.7664 or at St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117. Information included on our website is not deemed to be incorporated into this Form 10-K.

Item 1A. RISK FACTORS

Our business faces many risks. Any of the risks discussed below, or elsewhere in this Form 10-K or our other SEC filings, could have a material impact on our business, financial condition or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

We face intense competition and may not be able to keep pace with the rapid technological changes in the medical devices industry.

The medical device market is intensely competitive and is characterized by extensive research and development and rapid technological change. Our customers consider many factors when choosing suppliers, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer, and market share can shift as a result of technological innovation and other business factors. Major shifts in industry market share have occurred in connection with product problems, physician advisories and safety alerts, reflecting the importance of product quality in the medical device industry. Our competitors range from small start-up companies to larger companies which have significantly greater resources and broader product offerings than us, and we anticipate that in the coming years, other large companies will enter certain markets in which we currently hold a strong position. For example, Boston Scientific Corporation acquired one of our principal competitors, Guidant Corporation, in 2006. In addition, we expect that competition will continue to intensify with the increased use of strategies such as consigned inventory and we have seen increasing price competition as a result of managed care, consolidation among healthcare providers, increased competition and declining reimbursement rates. Product introductions or enhancements by competitors which have advanced technology, better features or lower pricing may make our products or proposed products obsolete or less competitive. As a result, we will be required to devote continued efforts and financial resources to bring our products under development to market, enhance our existing products and develop new products for the medical marketplace. If we fail to develop new products, enhance existing products or compete effectively, our business, financial condition and results of operations will be adversely affected.

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We are subject to stringent domestic and foreign medical device regulation which may impede the approval process for our products, hinder our development activities and manufacturing processes and, in some cases, result in the recall or seizure of previously approved products.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by the FDA pursuant to the FDCA, by comparable agencies in foreign countries and by other regulatory agencies and governing bodies. Under the FDCA and associated regulations, manufacturers of medical devices must comply with certain regulations that cover the composition, labeling, testing, clinical study, manufacturing, packaging and distribution of medical devices. In addition, medical devices must receive FDA clearance or approval before they can be commercially marketed in the United States, and the FDA may require testing and surveillance programs to monitor the effects of approved products that have been commercialized and can prevent or limit further marketing of a product based on the results of these post-marketing programs. Furthermore, most major markets for medical devices outside the United States require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining marketing approval or clearance from the FDA and foreign regulatory agencies for new products or with respect to enhancements or modifications to existing products can take a significant period of time, require the expenditure of substantial resources, involve rigorous pre-clinical and clinical testing, require changes to the products and result in limitations on the indicated uses of the products. We cannot be certain that we will receive the required approval or clearance from the FDA and foreign regulatory agencies for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for significant new products on a timely basis could have a material adverse effect on our financial condition and results of operations.

At any time after approval of a product, the FDA may conduct periodic inspections to determine compliance with both the FDA’s QSR requirements and/or current medical device reporting regulations. Product approvals by the FDA can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval. The failure to comply with regulatory standards or the discovery of previously unknown problems with a product, component or manufacturer could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims, and could have a material adverse effect on our financial condition and results of operations.

We may not be able to meet regulatory quality standards applicable to our manufacturing process.

We are required to register with the FDA as a device manufacturer and as a result, we are subject to periodic inspection by the FDA for compliance with the FDA’s QSR requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, may contain an anomaly which, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are required to maintain certain ISO certifications in order to sell products and we undergo periodic inspections by notified bodies to obtain and maintain these certifications. If we or our manufacturers fail to adhere to QSR or ISO requirements, this could delay production of our products and lead to fines, difficulties in obtaining regulatory clearances, recalls or other consequences, which could in turn have a material adverse effect on our financial condition and results of operations.

If we are unable to protect our intellectual property effectively, our financial condition and results of operations could be adversely affected.

Patents and other proprietary rights are essential to our business and our ability to compete effectively with other companies is dependent upon the proprietary nature of our technologies. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek to protect these, in part, through confidentiality agreements with certain employees, consultants and other parties. We pursue a policy of generally obtaining patent protection in both the United States and in key foreign countries for patentable subject matter in our proprietary devices and also attempt to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third-party patents, identify licensing opportunities and monitor the patent claims of others. We currently own numerous United States and foreign patents and have numerous patent applications pending. We are also a party to various license agreements pursuant to which patent rights have been obtained or granted in consideration for cash, cross-licensing rights or royalty payments. We cannot be certain that any pending or future patent applications will result in issued patents, that any current or future patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide a competitive advantage to us or prevent competitors from entering markets which we currently serve. Any required license may not be available to us on acceptable terms, if at all. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technologies as us. In addition, we may have to take legal action in the future to protect our trade secrets or know-how or to defend them against claimed infringement of the rights of others. Any legal action of that type could be costly and time consuming to us and we cannot be certain that any lawsuit will be successful. The invalidation of key patents or proprietary rights which we own or an unsuccessful outcome in lawsuits to protect our intellectual property could have a material adverse effect on our financial condition and results of operations.

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Pending and future patent litigation could be costly and disruptive to us and may have an adverse effect on our financial condition and results of operations.

We operate in an industry that is susceptible to significant patent litigation and, in recent years, it has been common for companies in the medical device field to aggressively challenge the rights of other companies to prevent the marketing of new devices. Companies that obtain patents for products or processes that are necessary for or useful to the development of our products may bring legal actions against us claiming infringement and at any given time, we generally are involved as both a plaintiff and a defendant in a number of patent infringement and other intellectual property-related actions. Among other matters, we are currently defending a significant ongoing patent infringement action brought against us by one of our principal competitors, Guidant Corporation, which is now part of Boston Scientific Corporation. Defending intellectual property litigation is expensive and complex and outcomes are difficult to predict. Any pending or future patent litigation may result in significant royalty or other payments or injunctions that can prevent the sale of products and may cause a significant diversion of the efforts of our technical and management personnel. While we intend to defend any such lawsuits vigorously, we cannot be certain that we will be successful. In the event that our right to market any of our products is successfully challenged or if we fail to obtain a required license or are unable to design around a patent, our financial condition and results of operations could be materially adversely affected.

Pending and future product liability claims and litigation may adversely affect our financial condition and results of operations.

The design, manufacture and marketing of medical devices of the types we produce entail an inherent risk of product liability claims. Our products are often used in intensive care settings with seriously ill patients, and many of the medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. There are a number of factors that could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products which we manufacture or sell, including component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information. Product liability claims may be brought by individuals or by groups seeking to represent a class.

We are currently the subject of various product liability claims, including several lawsuits which may be allowed to proceed as class actions in the United States and are being allowed to proceed as class actions in Canada. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. For example, in January 2000, we initiated a voluntary field action to replace products incorporating Silzone® coating, which was used in certain of our mechanical heart valves and heart valve repair products. After our voluntary field action, we were sued in various jurisdictions and now have cases pending in the United States, Canada and France which have been brought by some patients alleging complications and past or future costs arising either from the surgical removal or, alternatively, from the continued implantation and maintenance of products incorporating Silzone® coating over and above the medical monitoring all replacement heart valve patients receive. Some of the cases involving Silzone®-coated products have been settled, others have been dismissed and still others are ongoing. The complaints in the ongoing individual cases in the United States request damages ranging from $10,000 to $120.5 million and in some cases, seek an unspecified amount, and the complaints in the Canadian class actions request damages ranging from the equivalent of $1.5 million to $2.0 billion at December 29, 2007. We believe that the final resolution of the Silzone®-coated product cases will take years and cannot reasonably estimate the time frame in which any potential settlements or judgments would be paid out or the amounts of any such settlements or judgments. In addition, the cost to defend any future litigation, whether Silzone®-related or not, may be significant. We believe that many settlements and judgments relating to the Silzone® litigation and our other litigation may be covered in whole or in part under our product liability insurance policies and existing reserves. Any costs not covered under our product liability insurance policies and existing reserves could have a material adverse effect on our financial condition and results of operations.

15

We may be unable to obtain appropriate levels of product liability insurance.

Problems with our products can result in product liability claims or a field action, safety alert or advisory notice relating to the product. Our product liability insurance coverage is designed to help protect us against a catastrophic claim. Our current product liability policies provide $350 million of insurance coverage, with a $100 million deductible per occurrence. We cannot be certain that such insurance will be available or adequate to satisfy future claims or that our insurers will be able to pay claims on insurance policies which they have issued to us. If we are unable to secure appropriate levels of product liability insurance coverage, our financial condition and results of operations could be materially adversely affected.

Our product liability insurers may refuse to cover certain losses on the grounds that such losses are outside the scope of our product liability insurance policies or may agree that such losses are covered losses, but may not be able to meet their current or future payment obligations to us.

Certain of our insurers have filed suits seeking court orders declaring that they are not required to provide coverage for some of the costs we have incurred in the Silzone® litigation described above. These same insurers, as well as other insurers from whom we have purchased product liability insurance, may deny coverage of these and other past and/or future losses relating to our products on the grounds that such losses are outside the scope of coverage of our insurance policies. To the extent that we suffer losses that are outside of the scope of coverage of our product liability insurance policies, those losses may have an adverse effect on our financial condition and results of operations.

Our remaining product liability insurance for Silzone® claims consists of a number of layers, each of which is covered by one or more insurance companies. Part of our final layer of insurance is covered by a unit of the Kemper Insurance Companies (Kemper), which is currently in “run off” and not issuing new policies or generating any new revenue that could be used to cover claims made under previously-issued policies such as ours. In the event that Kemper is unable to pay part or all of the claims directed to it, we believe that the other insurance carriers in Kemper’s layer will take the position that we will be directly liable for any claims and costs that Kemper is unable to pay and that the other insurance carriers in that layer will not provide coverage for Kemper’s portion. If Kemper or any other insurance companies are unable to meet their respective obligations to us, we could incur substantial losses which could have an adverse effect on our financial condition and results of operations.

The loss of any of our sole-source suppliers or an increase in the price of inventory supplied to us could have an adverse effect on our business, financial condition and results of operations.

We purchase certain supplies used in our manufacturing processes from single sources due to quality considerations, costs or constraints resulting from regulatory requirements. Agreements with certain suppliers are terminable by either party upon short notice and we have been advised periodically by some suppliers that in an effort to reduce their potential product liability exposure, they may terminate sales of products to customers that manufacture implantable medical devices. While some of these suppliers have modified their positions and have indicated a willingness to continue to provide a product temporarily until an alternative vendor or product can be qualified (or even to reconsider the supply relationship), where a particular single-source supply relationship is terminated, we may not be able to establish additional or replacement suppliers for certain components or materials quickly. This is largely due to the FDA approval system, which mandates validation of materials prior to use in our products, and the complex nature of manufacturing processes employed by many suppliers. In addition, we may lose a sole-source supplier due to, among other things, the acquisition of such a supplier by a competitor (which may cause the supplier to stop selling its products to us) or the bankruptcy of such a supplier, which may cause the supplier to cease operations. A reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of our products or an increase in the price of those materials or components could adversely affect our business, financial condition and results of operations.

Cost containment pressures and domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors or preferences for alternate therapies could decrease the demand for products purchased by our customers, the prices which they are willing to pay for those products and the number of procedures using our devices.

Our products are purchased principally by hospitals or physicians that typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for their services and the products they provide from government and third-party payors is critical to the success of medical technology companies. The availability of reimbursement affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country and can significantly impact the acceptance of new technology. After we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors.

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Major third-party payors for hospital services in the United States and abroad continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed and in the shifting of services between inpatient and outpatient settings. Initiatives to limit the growth of healthcare costs, including price regulation, are also underway in several countries in which we do business. Implementation of healthcare reforms in the United States and in significant overseas markets such as Germany, Japan and other countries may limit the price of, or the level at which, reimbursement is provided for our products and adversely affect both our pricing flexibility and the demand for our products. Hospitals or physicians may respond to such cost-containment pressures by substituting lower cost products or other therapies for our products.

Further legislative or administrative reforms to the U.S. or international reimbursement systems that significantly reduce reimbursement for procedures using our medical devices or deny coverage for such procedures, or adverse decisions relating to our products by administrators of such systems in coverage or reimbursement issues, would have an adverse impact on the products, including clinical products, purchased by our customers and the prices our customers are willing to pay for them. This in turn would have an adverse effect on our financial condition and results of operations.

Our failure to comply with restrictions relating to reimbursement and regulation of healthcare goods and services may subject us to penalties and adversely affect our financial condition and results of operations.

Our devices are subject to regulation regarding quality and cost by the United States Department of Health and Human Services, including the Centers for Medicare and Medicaid Services (CMS), as well as comparable state and foreign agencies responsible for reimbursement and regulation of healthcare goods and services. Foreign governments also impose regulations in connection with their healthcare reimbursement programs and the delivery of healthcare goods and services. U.S. federal government healthcare laws apply when we submit a claim on behalf of a U.S. federal healthcare program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal government funded healthcare program, such as Medicare or Medicaid. The principal U.S. federal laws implicated include those that prohibit the filing of false or improper claims for federal payment, those that prohibit unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs, known as the anti-kickback laws, and those that prohibit healthcare service providers seeking reimbursement for providing certain services to a patient who was referred by a physician that has certain types of direct or indirect financial relationships with the service provider, known as the Stark law.

The laws applicable to us are subject to evolving interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by CMS. If we are excluded from participation based on such an interpretation, it could adversely affect our financial condition and results of operations.

Consolidation in the healthcare industry could lead to demands for price concessions or limit or eliminate our ability to sell to certain of our significant market segments.

The cost of healthcare has risen significantly over the past decade and numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the medical device industry as well as among our customers, including hospitals. This in turn has resulted in greater pricing pressures and limitations on our ability to sell to important market segments, as group purchasing organizations, independent delivery networks and large single accounts, such as the Veterans Administration in the United States, continue to consolidate purchasing decisions for some of our hospital customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances which may exert further downward pressure on the prices of our products and adversely impact our business, financial condition and results of operations.

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Failure to integrate acquired businesses into our operations successfully could adversely affect our business.

As part of our strategy to develop and identify new products and technologies, we have made several acquisitions in recent years and may make additional acquisitions in the future. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. These efforts result in additional expenses and involve significant amounts of management’s time that cannot then be dedicated to other projects. Our failure to manage successfully and coordinate the growth of the combined company could also have an adverse impact on our business. In addition, we cannot be certain that the businesses we acquire will become profitable or remain so. If our acquisitions are not successful, we may record unexpected impairment charges. Factors that will affect the success of our acquisitions include:

• the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies;

• adverse developments arising out of investigations by governmental entities of the business practices of acquired companies;

• any decrease in customer loyalty and product orders caused by dissatisfaction with the combined companies’ product lines and sales and marketing practices, including price increases;

• our ability to retain key employees; and

• the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company’s products, achieving cost savings and effectively combining technologies to develop new products.

The success of many of our products depends upon strong relationships with physicians.

If we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products. The research, development, marketing and sales of many of our new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding our products and the marketing of our products. Physicians assist us as researchers, marketing consultants, product consultants, inventors and as public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our financial condition and results of operations.

Instability in international markets or foreign currency fluctuations could adversely affect our results of operations.

Our products are currently marketed in more than 100 countries around the world, with our largest geographic markets outside of the United States being Europe, Japan and Asia Pacific. As a result, we face currency and other risks associated with our international sales. We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars, Brazilian Reals, British Pounds and Swedish Kronor, which may potentially reduce the U.S. Dollars we receive for sales denominated in any of these foreign currencies and/or increase the U.S. Dollars we report as expenses in these currencies, thereby affecting our reported consolidated revenues and net earnings. We do not currently hedge our foreign currency exposure. Consequently, fluctuations between the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict the effects of currency exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the volatility of currency exchange rates.

In addition to foreign currency exchange rate fluctuations, there are a number of additional risks associated with our international operations, including those related to:

• the imposition of or increase in import or export duties, surtaxes, tariffs or customs duties;

• the imposition of import or export quotas or other trade restrictions;

• foreign tax laws and potential increased costs associated with overlapping tax structures;

• longer accounts receivable cycles in certain foreign countries, whether due to cultural, exchange rate or other factors;

• changes in regulatory requirements in international markets in which we operate;

• inquiries into possible improprieties in our international operations, such as our inclusion in the report of the Independent Inquiry Committee into the United Nations (U.N.) Oil-For-Food Programme as allegedly having made payments to the Iraqi government in connection with certain product sales which we made to Iraq under this program from 2000 to 2003; and

• economic and political instability in foreign countries.

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The medical device industry is the subject of a governmental investigation into marketing and other business practices. This and other governmental investigations could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties and/or administrative remedies, divert the attention of our management and have an adverse effect on our financial condition and results of operations.

In October 2005, the U.S. Department of Justice, acting through the U.S. Attorney’s office in Boston, commenced an industry-wide investigation into whether the provision of payments and/or services by makers of implantable cardiac rhythm devices to doctors or other persons constitutes improper inducements under the federal health care program anti-kickback law. As part of this investigation, we received a civil subpoena from the U.S. Attorney’s office in Boston requesting documents created since January 2000 regarding our practices related to pacemakers, ICDs, lead systems and related products marketed by our CRM segment. We understand that our principal competitors in the CRM therapy areas received similar civil subpoenas. We received an additional subpoena from the U.S. Attorney’s office in Boston in September 2006, requesting documents created since January 2002 related to certain employee expense reports and certain pacemaker and ICD purchasing arrangements.

In February 2006, we received a subpoena from the SEC requesting that we produce documents concerning transactions under the U.N. Oil-for-Food Programme.

In July 2007, we received a civil subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General requesting documents created during the period from 2003 through 2006 regarding our relationships with ten Ohio hospitals.

We are fully cooperating with these investigations and are responding to these requests. However, we cannot predict when these investigations will be resolved, the outcome of these investigations or their impact on the Company. An adverse outcome in one or more of these investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties and/or administrative remedies, including exclusion from government reimbursement programs. In addition, resolution of any of these matters could involve the imposition of additional and costly compliance obligations. Finally, if these investigations continue over a long period of time, they could divert the attention of management from the day-to-day operations of our business and impose significant administrative burdens on us. These potential consequences, as well as any adverse outcome from these investigations, could have an adverse effect on our financial condition and results of operations.

Regulatory actions arising from the concern over Bovine Spongiform Encephalopathy may limit our ability to market products containing bovine material.

Our Angio-Seal™ vascular closure device, as well as our vascular graft products, contain bovine collagen. In addition, some of the tissue heart valves we market, such as our Biocor® and Epic™ tissue heart valves, incorporate bovine pericardial material. Certain medical device regulatory agencies may prohibit the sale of medical devices that incorporate any bovine material because of concerns over BSE, sometimes referred to as “mad cow disease,” a disease which may be transmitted to humans through the consumption of beef. While we are not aware of any reported cases of transmission of BSE through medical products and are cooperating with regulatory agencies considering these issues, the suspension or revocation of authority to manufacture, market or distribute products containing bovine material, or the imposition of a regulatory requirement that we procure material for these products from alternate sources, could result in lost market opportunities, harm the continued commercialization and distribution of such products and impose additional costs on us. Any of these consequences could in turn have a material adverse effect on our financial condition and results of operations.

We are not insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and results of operations.

Our facilities could be materially damaged by earthquakes, hurricanes and other natural disasters or catastrophic circumstances. For example, we have significant CRM facilities located in Sylmar and Sunnyvale, California. Earthquake insurance in California is currently difficult to obtain, extremely costly and restrictive with respect to scope of coverage. Our earthquake insurance for these California facilities provides $10 million of insurance coverage in the aggregate, with a deductible equal to 5% of the total value of the facility and contents involved in the claim. Consequently, despite this insurance coverage, we could incur uninsured losses and liabilities arising from an earthquake near one or both of our California facilities as a result of various factors, including the severity and location of the earthquake, the extent of any damage to our facilities, the impact of an earthquake on our California workforce and on the infrastructure of the surrounding communities and the extent of damage to our inventory and work in process. While we believe that our exposure to significant losses from a California earthquake could be partially mitigated by our ability to manufacture some of our CRM products at our manufacturing facilities in Sweden and Puerto Rico, the losses could have a material adverse effect on our business for an indeterminate period of time before this manufacturing transition is complete and operates without significant problems. Furthermore, our manufacturing facilities in Puerto Rico may suffer damage as a result of hurricanes which are frequent in the Caribbean and which could result in lost production and additional expenses to us to the extent any such damage is not fully covered by our hurricane and business interruption insurance.

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Even with insurance coverage, natural disasters or other catastrophic events could cause us to suffer substantial losses in our operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we would not be compensated by existing insurance. This in turn could have a material adverse effect on our financial condition and results of operations.

Our operations are subject to environmental, health and safety laws and regulations that could require us to incur material costs.

Our operations are subject to environmental, health and safety laws and regulations concerning, among other things, the generation, handling, transportation and disposal of hazardous substances or wastes, particularly ethylene oxide, the cleanup of hazardous substance releases, and emissions or discharges into the air or water. We have incurred and expect to incur expenditures in the future in connection with compliance with environmental, health and safety laws and regulations. New laws and regulations, violations of these laws or regulations, stricter enforcement of existing requirements, or the discovery of previously unknown contamination could require us to incur costs or become the basis for new or increased liabilities that could be material.

Failure to successfully implement a new enterprise resource planning (ERP) system could adversely affect our business.

We are in the process of converting to a new ERP system. Failure to smoothly execute the implementation of the ERP system could adversely affect the Company’s business, financial condition and results of operations.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

We own our principal executive offices, which are located in St. Paul, Minnesota. Our manufacturing facilities are located in California, Minnesota, Arizona, South Carolina, Texas, New Jersey, Oregon, Canada, Brazil, Puerto Rico and Sweden. We own approximately 57%, or 400,000 square feet, of our total manufacturing space. All of our owned manufacturing space is in the CRM, CV and ANS operating segments. We also maintain sales and administrative offices in the United States at 33 locations in 16 states and outside the United States at 76 locations in 33 countries. With the exception of nine locations, all of these locations are leased.

We believe that all buildings, machinery and equipment are in good condition, suitable for their purposes and are maintained on a basis consistent with sound operations. In late 2007, we began construction on an expansion of our corporate headquarters facility in St. Paul, Minnesota. The expanded facility will be used for manufacturing, research and development as well as general office space. In South Carolina, we are in the process of expanding our CRM manufacturing facilities, and in Puerto Rico, we purchased a manufacturing facility which will be used for manufacturing CRM products. We believe that we have sufficient space for our current operations and for foreseeable expansion in the next few years.

Item 3. LEGAL PROCEEDINGS

We are the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed in Note 5 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference. While it is not possible to predict the outcome for most the legal proceedings discussed in Note 5, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position or cash flows of a future period.

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 the 2007 fiscal year.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There were no sales of unregistered securities during the 2007 fiscal year, and we did not repurchase any of our shares during the fourth quarter of the 2007 fiscal year. The information set forth under the Stock Exchange Listings caption in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.We have not declared or paid any cash dividends during the past two years. We currently intend to retain our earnings for use in the operation and expansion of our business and therefore do not anticipate paying any cash dividends in the foreseeable future.

Item 6. SELECTED FINANCIAL DATA

The information set forth under the caption Five-Year Summary Financial Data in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the Market Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and Notes thereto and the Reports of Independent Registered Public Accounting Firm set forth in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act of 1934). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 29, 2007.

Management’s annual report on our internal control over financial reporting is provided in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference. The effectiveness of our internal control over financial reporting as of December 29, 2007 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is provided in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference.

During the fiscal quarter ended December 29, 2007, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information set forth under the captions Proposal to Elect Directors, Director Independence and Audit Committee Financial Experts and Section 16(a) Beneficial Ownership Reporting Compliance in St. Jude Medical’s Proxy Statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference. The information set forth under the caption Executive Officers of the Registrant in Part I, Item 1 of this Form 10-K is incorporated herein by reference.

We have adopted a Code of Business Conduct for our principal executive officer, principal financial officer, principal accounting officer and all other employees. We have made our Code of Business Conduct available on our website (http://www.sjm.com) under the Company Information section About St. Jude Medical – Corporate Governance and it is available in print to any shareholder who submits a request to St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117, Attention: Corporate Secretary. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct by posting such information on our website at the web address and location specified above. Information included on our website is not deemed to be incorporated into this Form 10-K.

Item 11. EXECUTIVE COMPENSATION

The information set forth under the captions Compensation of Directors, Executive Compensation and Compensation Committee Interlocks and Insider Participation (except for information under the Compensation Committee Report) in St. Jude Medical’s Proxy Statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information set forth under the captions Share Ownership of Management and Directors and Certain Beneficial Owners and Equity Compensation Plan Information in St. Jude Medical’s Proxy Statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth under the captions Related Person Transactions and Director Independence and Audit Committee Financial Experts in St. Jude Medical’s Proxy Statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the caption Proposal toRatify the Appointment of Independent Registered Public Accounting Firm in St. Jude Medical’s Proxy Statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) List of documents filed as part of this Report

(1) Financial Statements

The following Consolidated Financial Statements of St. Jude Medical and Reports of Independent Registered Public Accounting Firm as set forth in the Financial Report included in St. Jude Medical’s 2007 Annual Report to Shareholders are incorporated herein by reference from Exhibit 13 attached hereto:

Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings – Fiscal Years ended December 29, 2007, December 30, 2006, and December 31, 2005

Consolidated Balance Sheets – December 29, 2007 and December 30, 2006

Consolidated Statements of Shareholders’ Equity – Fiscal Years ended December 29, 2007,

December 30, 2006, and December 31, 2005

Consolidated Statements of Cash Flows – Fiscal Years ended December 29, 2007, December 30, 2006, and December 31, 2005

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

Schedule II – Valuation and Qualifying Accounts, is filed as part of this Form 10-K (see Item 15(c)).

All other financial statement schedules not listed above have been omitted because the required information is included in the Consolidated Financial Statements or Notes thereto, or is not applicable.

(3) Exhibits

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of St. Jude Medical are not filed, and in lieu thereof, we agree to furnish copies thereof to the SEC upon request.

Exhibit	Exhibit Index
2.1	Amended and Restated Agreement and Plan of Merger, dated as of September 29, 2004, among St. Jude Medical, Inc., Dragonfly Merger Corp., and Endocardial Solutions, Inc. is incorporated by reference from Exhibit 99.1 of St. Jude Medical’s Current Report on Form 8-K filed on September 29, 2004.
2.2	Stock Purchase Agreement between St. Jude Medical, Inc. and Velocimed, LLC, dated as of February 14, 2005, is incorporated by reference from Exhibit 2.4 of St. Jude Medical’s Annual Report on Form 10-K from the year ended December 31, 2004.

23

Exhibit	Exhibit Index
2.3	Agreement and Plan of Merger between St. Jude Medical, Inc. and Advanced Neuromodulation Systems, Inc., dated as of October 15, 2005, is incorporated by reference from Exhibit 2.1 of St. Jude Medical’s Current Report on Form 8-K filed on October 17, 2005.
3.1	Articles of Incorporation, as restated as of February 25, 2005, are incorporated by reference from Exhibit 3.1 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2004.
3.2	Bylaws, as amended and restated as of February 25, 2005, are incorporated by reference from Exhibit 3.1 of St. Jude Medical’s Current Report on Form 8-K filed on March 2, 2005.
4.1	Indenture, dated as of December 12, 2005, between St. Jude Medical, Inc. and U.S. Bank National Association, as trustee, is incorporated by reference from Exhibit 4.1 of St. Jude Medical’s Current Report on Form 8-K filed on December 12, 2005.
4.2	Indenture between St. Jude Medical, Inc. and U.S. Bank National Association, as trustee, dated as of April 25, 2007 (including form of Convertible Debenture due 2008), is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
4.3	Registration Rights Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC, dated as of April 25, 2007, is incorporated by reference to Exhibit 4.2 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
10.1	Form of Indemnification Agreement that St. Jude Medical, Inc. has entered into with officers and directors is incorporated by reference from Exhibit 10(d) of St. Jude Medical’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 Appendix B of St. Jude Medical’s Proxy Statement on Schedule 14A filed on April 7, 2004. *
10.3	Management Savings Plan, dated February 1, 1995, is incorporated by reference from Exhibit 10.7 of St. Jude Medical’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 St. Jude Medical’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 St. Jude Medical’s Registration Statement on Form S-8 filed June 28, 1991 (Commission File No. 33-41459). *

24

Exhibit	Exhibit Index
10.6	St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by reference from Exhibit 4(a) of St. Jude Medical’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 St. Jude Medical’s Registration Statement on Form S-8 filed December 22, 1997 (Commission File No. 333-42945). *
10.8	St. Jude Medical, Inc. 2000 Stock Plan, as amended, is incorporated by reference from Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.9	Amendment No. 1, dated as of August 3, 2006, to the St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan is incorporated by reference from Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. *
10.10	St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference from Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.11	Form of Non-Qualified Stock Option Agreement under the St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference from Exhibit 10.14 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2004. *
10.12	St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006. *
10.13	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006. *
10.14	Form of Non-Qualified Stock Option Agreement for Employees under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference from Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. *
10.15	St. Jude Medical, Inc. 2007 Stock Incentive Plan, dated as of May 16, 2007, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 18, 2007. *
10.16	Form of Non-Qualified Stock Option Agreement and related Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on May 18, 2007. *
10.17	Form of Restricted Stock Award Agreement and related Restricted Stock Award Certificate under the St. Jude Medical, Inc. 2007 Stock Incentive Plan, is incorporated by reference to Exhibit 10.3 to St. Jude Medical’s Current Report on Form 8-K filed on May 18, 2007. *

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Exhibit	Exhibit Index
10.18	St. Jude Medical, Inc. Amended and Restated 1995 Stock Option Plan (formerly the Quest Medical, Inc. 1995 Stock Option Plan) is incorporated by reference from Exhibit 10.12 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.19	St. Jude Medical, Inc. Amended and Restated 1998 Stock Option Plan (formerly the Quest Medical, Inc. 1998 Stock Option Plan) is incorporated by reference from Exhibit 10.13 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.20	St. Jude Medical, Inc. Amended and Restated 2000 Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2000 Stock Option Plan) is incorporated by reference from Exhibit 10.14 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.21	St. Jude Medical, Inc. Amended and Restated 2001 Employee Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2001 Employee Stock Option Plan) is incorporated by reference from Exhibit 10.15 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.22	St. Jude Medical, Inc. Amended and Restated 2002 Stock Option Plan (formerly the Advanced Neuromodulation Systems, Inc. 2002 Stock Option Plan) is incorporated by reference from Exhibit 10.16 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.23	St. Jude Medical, Inc. Amended and Restated 2004 Stock Incentive Plan (formerly the Advanced Neuromodulation Systems, Inc. 2004 Stock Incentive Plan) is incorporated by reference from Exhibit 10.17 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.24	Form of Severance Agreement between St. Jude Medical, Inc. and executive officers is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006. *
10.25	Employment Agreement, dated as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference from Exhibit 10.16 of Advanced Neuromodulation Systems’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. *
10.26	Amendment, dated as of July 27, 2006, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez, to Employment Agreement, effective as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on August 2, 2006. *
10.27	Consulting Agreement, dated as of November 30, 2007, between St. Jude Medical, Inc. and Michael J. Coyle. * #
10.28	Stock Purchase Plan Engagement Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC, dated as of April 21, 2006, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on April 21, 2006.

26

Exhibit	Exhibit Index
10.29	Stock Purchase Plan Engagement Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC, dated as of January 29, 2007, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on January 29, 2007.
10.30	Purchase Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC, dated as of April 19, 2007, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
10.31	Confirmation of OTC Convertible Note Hedge, effective April 25, 2007, is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
10.32	Confirmation of OTC Warrant Transaction, effective April 25, 2007, is incorporated by reference to Exhibit 10.3 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
10.33	Stock Purchase Plan Engagement Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC, dated as of April 25, 2007, is incorporated by reference to Exhibit 10.4 to St. Jude Medical’s Current Report on Form 8-K filed on April 25, 2007.
10.34	Settlement Agreement, dated as of July 29, 2006, by and between St. Jude Medical, Inc. and its affiliates named therein and Boston Scientific Corporation and its affiliates named therein is incorporated by reference from Exhibit 10.3 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
10.35†	CRM License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation is incorporated by reference from Exhibit 10.6 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
10.36	SCS License Agreement, effective as of July 29, 2006, between St. Jude Medical, Inc. and Boston Scientific Corporation is incorporated by reference from Exhibit 10.7 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
10.37†	Settlement Agreement, dated as of June 26, 2007, by and between St. Jude Medical, Inc. and its affiliates named therein and Mirowski Family Ventures LLC is incorporated by reference from Exhibit 10.9 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

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Exhibit	Exhibit Index
10.38	Multi-Year $1,000,000,000 Credit Agreement dated as of December 13, 2006 among St. Jude Medical, Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, L/C Issuer and Lender, and the other Lenders Party thereto is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on December 13, 2006.
10.39	$700,000,000 Interim Liquidity Facility with Bank of America, N.A., dated as of January 25, 2007, is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on January 31, 2007.
12	Computation of Ratio of Earnings to Fixed Charges. #
13	Portions of St. Jude Medical’s 2007 Annual Report to Shareholders. #
21	Subsidiaries of the Registrant. #
23	Consent of Independent Registered Public Accounting Firm. #
24	Power of Attorney. #
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #
32.2	Certification of Chief Financial Officer 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.
†	Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

(b) Exhibits:   Reference is made to Item 15(a)(3).

(c) Schedules:

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

	Balance at Beginning of Year		Additions				Deductions						Balance at End of Year
Description			Charged to Expense		Other (1)		Write-offs (2)			Other (3)
Allowance for doubtful accounts:
Fiscal year ended
December 29, 2007	$	24,928	$	6,939	$	—	$	(4,648	)	$	(567	)	$	26,652
December 30, 2006	$	33,319	$	2,037	$	563	$	(10,991	)	$	—		$	24,928
December 31, 2005	$	31,283	$	4,759	$	586	$	(1,896	)	$	(1,413	)	$	33,319

(1)	In 2006, the $563 of other additions represents the effects of changes in foreign currency translation. In 2005, the $586 of other additions represents the balance recorded as part of our 2005 acquisition of ANS.
(2)	Uncollectible accounts written off, net of recoveries.
(3)	In 2007 and 2005, the $567 and $1,413, respectively, of other deductions represents the effects of changes in foreign currency translation.

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SIGNATURES

Pursuant to the requirements of Section 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:   February 25, 2008	By	/s/   DANIEL J. STARKS
		Daniel J. Starks Chairman, President and Chief Executive Officer (Principal Executive Officer)
	By	/s/   JOHN C. HEINMILLER
		John C. Heinmiller Executive Vice President 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 indicated, on the 25^th day of February, 2008.

/s/   DANIEL J. STARKS		Chairman of the Board
Daniel J. Starks
*		Director
John W. Brown
*		Director
Richard R. Devenuti
*		Director
Stuart M. Essig
*		Director
Thomas H. Garrett III
*		Director
Barbara B. Hill
*		Director
Michael A. Rocca
*		Director
Stefan K. Widensohler
*		Director
Wendy L. Yarno
* By:	/s/ PAMELA S. KROP
	Pamela S. Krop Attorney-in-Fact

29

EX-10.29

Exhibit 10.29

CONSULTING AGREEMENT

THIS AGREEMENT is made as of the 30th day of November, 2007, by and between St. Jude Medical, Inc., a Minnesota corporation with offices at One Lillehei Plaza, St. Paul, Minnesota 55117 (“SJM”) and Michael J. Coyle, whose address is 100 Stagecoach Road, Bell Canyon, CA  91307 (“Consultant”).

The parties, intending to be legally bound, agree as follows:

1. Definitions. For the purpose of this Agreement, the follow­ing terms, whether singular or plural, shall have the following meanings:

1.1 Confidential Information. The term “Confidential Information” shall mean information disclosed by SJM to Consultant not generally known to the public, including, but not limited to, information of a technical nature; matters of a business nature such as information about costs, margins, pricing policies, markets, sales, supplies and customers; product, marketing or strategic plans; financial information; personnel records and other information of a similar nature; provided, however, that Confidential Information shall not include any information which (i) is or becomes public knowledge without breach of Consultant’s obligations to SJM; (ii) is rightfully acquired by Consultant from a third party without restriction on disclosure or use; or (iii) is publicly disclosed or used following Consultant’s receipt of written consent for such disclosure or use by an officer of SJM. Consultant shall have the burden of proof respecting any of the events on which Consultant relies as relieving it of any restrictions.

1.2 Effective Date. The term “Effective Date” shall mean January 1, 2008 or, if Consultant’s employment with the Company is terminated prior to December 28, 2007, the first business day following termination of Consultant’s employment with Company.

1.3 Services. The term “Services” shall mean general advice, input and assistance as reasonably requested by the Company and/or its representatives on matters relating to SJM’s business, including ongoing litigation. In this regard, Consultant shall make himself available, to provide advice, review and analyze documentation and other material, and answer questions that may arise, as reasonably requested by the Company and/or its legal counsel.

1.4 St. Jude Medical. The term “St. Jude Medical” shall mean St. Jude Medical, Inc. and all of its existing and future parent, subsidiary or affiliated corporation, and any divisions of any of them.

2. Services and Contact. Consultant shall perform the Services under the direction of the President of the Cardiac Rhythm Management Division of the Company or his designee(s).

3. Compensation.

3.1 SJM agrees to pay Consultant, in consideration of the Services performed by Consultant as described in this Agreement, a retainer of Four Thousand Dollars ($4,000) per month.

3.2 SJM shall reimburse Consultant for reasonable travel expenses incurred in connection with the Services, if pre-authorized by SJM in writing.

3.3 In any month in which Consultant has a claim for reimbursable expenses or additional compensation which was agreed upon in advance in writing is due, Consultant shall submit to SJM a monthly invoice within a reasonable time following the end of the relevant month. All expenses in excess of Twenty Five Dollars ($25.00) must be documented by a receipt.

4. Disclosure of Information.

4.1 Consultant warrants that no trade secrets or other confidential information of any person, firm, corporation or government agency will be wrongfully disclosed by Consultant to SJM in connection with the Services. Consultant also warrants that none of the provisions of this Agreement, or the Services to be performed by Consultant, contravenes or is in conflict with any agreement of Consultant with, or obligation to, any other person, firm, corporation or government agency.

4.2 In the course of performing the Services for SJM hereunder, Consultant may become the recipient of Confidential Information. Consultant shall receive and hold all Confidential Information acquired from SJM in strict confidence and will use and/or disclose such Confidential Information only as necessary to perform the Services hereunder. The confidentiality obligations provided in this Section 4 are in addition to those described in Consultant’s Non-Disclosure and Non-Competition Agreement with the Company dated as of March 18, 1994.

4.3 Consultant shall not, without the prior written consent of SJM, use SJM’s name in any publicity, advertisement or news release.

4.4 Consultant acknowledges that money damages would not be a sufficient remedy for any breach of this Section 4 and that SJM shall be entitled to equitable relief (including, but not limited to, an injunction or specific performance) in the event of any breach of the provisions of this Section 4.

4.5 The furnishing of Confidential Information shall not constitute or be construed as a grant of any express or implied license or other right, or a covenant not to sue by SJM to Consultant under any of SJM’s patents or other intellectual property rights.

4.6 Upon SJM’s request or upon expiration or termination of this Agreement, Consultant shall immediately return all written, graphic and other tangible forms of the Confidential Information (and all copies) in Consultant’s possession.

4.7 The obligations of Consultant regarding disclosure and use of Confidential Information shall survive termination of this Agreement and shall continue until the effective date of any of the events set forth in Section 1.1 subparagraphs (i) through (iii).

5. Inventions. All ideas, inventions, improve­ments, developments, tech­niques, methods, formulations, products, trade secrets and applications, whether patentable or not (“Inventions”), made or conceived solely by Consultant or jointly with SJM in connection with, or as a result of, the Services performed hereunder, shall be and remain SJM’s sole and exclusive property. Consultant shall promptly submit to SJM a written disclosure of such Inventions. Consultant assigns the entire right, title and interest in all such Inventions to SJM and will at any time, at the request and expense of SJM, render all reasonable assistance, execute all papers and take such other actions as SJM may consider necessary to vest, perfect, defend, maintain and/or secure SJM’s rights in such Inventions. No additional compensation is or will be due for such Inventions or the assignment to SJM.

6. Publications. Consultant shall not publish any data, findings or results related to the Services without SJM’s prior written consent.

7. Non-Compete. During the term of this Agreement, Consultant will not compete, directly or indirectly, with SJM in the field of Cardiac Rhythm Management. In addition, until July 1, 2008, Consultant will not compete, directly or indirectly with SJM in the fields of Neuromodulation or Atrial Fibrillation. For these purposes: (i) “compete” shall mean engaging in the design, development, manufacture or sale, or managing people or businesses engaged in those activities, with respect to products in design or development, or manufactured or sold by the Company in its Cardiac Rhythm Management, Atrial Fibrillation and Neuromodulation divisions as of July 1, 2007 and shall include Consultant’s activities as a member of a partnership, as an officer, director, employee, agent, associate or consultant of any person, partnership, corporation or other entity; (ii) “Neuromodulation” division products shall mean products used in neuromodulation for pain management; and (iii) Atrial Fibrillation” division products shall mean Electrophysiology devices and equipment for mapping, navigation and cardiac ablation.

This Non-Competition Agreement will supersede all previously existing agreements between SJM and Consultant relative to non-competition, including but not limited to, Section IV of the Non-Disclosure and Non-Competition Agreement between the parties dated March18, 1994.

2

8. Term and Termination.

8.1 The term of this Agreement shall commence on the Effective Date and shall continue for a period of one (1) year.

8.2 This Agreement may be terminated by SJM in the event of the death or disability of Consultant.

8.3 This Agreement may be terminated by SJM at any time, for any reason, by giving written notice to Consultant of SJM’s intention to terminate at least thirty (30) days prior to the effective date of the termination.

8.4 The termination of this Agreement shall discharge any further obligations of either party with respect to this Agreement; provided, however, that Consultant’s obligations under Sections 4, 5 and 6 hereof and SJM’s obligation under Section 3 (with respect to pay­ment for Services rendered prior to the effective date of the termination) shall remain in effect.

9. Miscellaneous.

9.1 Notices. Any notice, request or demand required or desired to be given hereunder shall be in writing and shall be considered effective when delivered in person, upon mailing by certified mail, return receipt requested, postage prepaid, or by delivery via Federal Express or similarly recognized over­night courier with all charges prepaid, addressed as follows:

If to SJM: St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, Minnesota 55117
Attn: General Counsel

If to Consultant: Michael J. Coyle

100 Stagecoach Road
Bell Canyon, CA  91307

Either party may change its address by giving the other party written notice of its new address.

9.2 Compliance. In the performance of the Services, Consultant shall comply with all applicable laws, orders and regulations.

9.3 Performance. Consultant represents that Consultant is free to enter into this Agreement and that Consultant has no knowledge of any fact(s) which would prevent Consultant from performing the Services in accordance with the terms of this Agreement.

9.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Minnesota without regard to such state’s principles of conflicts of law.

9.5 Assignment. Consultant acknowledges that the Services to be provided by Consultant are unique and personal. As a result, Consultant may not assign any of Consultant’s rights, or delegate any of Consultant’s duties or obligations, or engage any other person to assist Consultant in the performance of the Services, without the prior written approval of SJM.

9.6 [Reserved]

9.7 Independent Contractor Status. Consultant is an independent contractor and not an employee of SJM. Consultant’s compensation is limited to the amounts set forth in this Agreement. SJM shall not be responsible for withholding taxes from any payments to Consultant. Consultant shall have no authority to bind SJM.

3

9.8 Severability. If any provision of this Agreement shall be determined by a court of competent jurisdiction to be void or of no effect, the provisions of this Agreement shall be deemed amended to modify or delete, as necessary, the offending provision and this Agreement, as so amended or modified, shall not be rendered unenforceable but shall remain in force to the fullest extent possible in keeping with the intention of the parties.

9.9 No Waiver. Failure of any party at any time to require performance of any provision of this Agreement shall not constitute a waiver of such party’s right to require full performance thereafter and a waiver by any party of a breach of any provision of this Agreement shall not be taken as or held to be a waiver of any further or similar breach or as nullifying the effectiveness of such provision.

9.10 Stock Options. All SJM options continue to be governed by the terms of the plans and the option grants.

9.11 Modification. Any modification, statement, promise or representation made to or about this Agreement by any party or any employee, officer or agent of any party must be in writing and signed by an authorized representative of both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ST. JUDE MEDICAL, INC.

By: /s/ Pamela S. Krop

Name:  Pamela S. Krop

Its: Vice President and General Counsel

CONSULTANT:

/s/ Michael J. Coyle

Michael J. Coyle

4

EX-12

Exhibit 12

ST. JUDE MEDICAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands of dollars)

FISCAL YEAR	2007		2006		2005		2004		2003
EARNINGS
Earnings before income taxes	$	744,305	$	720,641	$	621,404	$	537,192	$	458,637
Plus fixed charges:
Interest expense (1)		38,229		33,883		10,028		4,810		3,746
Rent interest factor (2)		9,144		8,190		7,659		5,778		5,513
TOTAL FIXED CHARGES		47,373		42,073		17,687		10,588		9,259
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES	$	791,678	$	762,714	$	639,091	$	547,780	$	467,896
RATIO OF EARNINGS TO FIXED CHARGES		16.7		18.1		36.1		51.7		50.5

(1) Interest expense consists of interest on indebtedness and amortization of debt issuance costs.

(2) Approximately one-third of rental expense is deemed representative of the interest factor.

EX-13

Exhibit 13

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our business is focused on the development, manufacture and distribution of cardiovascular medical devices for the global cardiac rhythm management, cardiology, cardiac surgery and atrial fibrillation therapy areas and implantable neurostimulation devices for the management of chronic pain. We sell our products in more than 100 countries around the world. Our largest geographic markets are the United States, Europe, Japan and Asia Pacific. Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Advanced Neuromodulation Systems (ANS). At the beginning of our 2007 fiscal year, we combined our former Cardiac Surgery and Cardiology operating segments to form the CV operating segment which focuses on the cardiac surgery and cardiology therapy areas. Our principal products in each operating segment are as follows: CRM – tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and ANS – neurostimulation devices. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

Our industry has undergone significant consolidation in the last decade and is highly competitive. Our strategy requires significant investment in research and development in order to introduce new products. We are focused on improving our operating margins through a variety of techniques, including the production of high quality products, the development of leading edge technology, the enhancement of our existing products and continuous improvement of our manufacturing processes. We expect cost containment pressure on healthcare systems as well as competitive pressures in the industry will continue to place downward pressure on prices for our products.

We participate in several different medical device markets, each of which has its own expected growth rate. A significant portion of our net sales relate to CRM devices – ICDs and pacemakers. Management is particularly focused on the ICD market where, due to the adverse publicity relating to product recalls of a competitor during both 2005 and 2006, the ICD market rate of growth in the United States declined significantly from historical trends. Recently, in October 2007, another competitor issued a product advisory relating to certain leads that connect ICDs to the heart. While the ultimate impact of this competitor’s recent product advisory on the global ICD market is uncertain, management remains focused on increasing our worldwide ICD market share, as we are one of three principal manufacturers and suppliers in the global ICD market. In order to help accomplish this objective, we have continued to expand our selling organizations and introduce new ICD products. Ultimately, we believe that the growth rate of the ICD market in the United States will improve from recent trends. We base our belief on data that indicates the potential patient populations remain significantly under-penetrated.

We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31^st. Fiscal years 2007, 2006 and 2005 consisted of 52 weeks and ended on December 29, 2007, December 30, 2006 and December 31, 2005, respectively.

Net sales in 2007 increased over 14% compared to 2006 led by sales growth in ICDs and pacemakers as well as products to treat atrial fibrillation. Foreign currency translation had a favorable impact on net sales of $99.6 million when compared to fiscal year 2006. Compared to 2006, our 2007 ICD net sales grew nearly 19% to $1,304.9 million and our pacemaker net sales grew 11% to $1,063.2 million primarily as a result of strong volume growth. Additionally, 2007 AF net sales increased 26%, compared to 2006, to approximately $410.7 million, due to continued market acceptance of device-based ablation procedures to treat the symptoms of atrial fibrillation. Refer to the Segment Performance section for a more detailed discussion of our net sales results by operating segment.

Our 2007 net earnings and diluted net earnings per share increased 2% and 8%, respectively, compared to 2006, increasing to $559.0 million and $1.59 per diluted share, which included after-tax special charges totaling $77.2 million and an after-tax impairment charge of $15.7 million related to our ProRhythm, Inc. (ProRhythm) investment, for a combined impact of $0.26 per diluted share. Compared to 2006, the increase in net earnings and diluted net earnings per share benefited from net sales growth in our CRM and AF operating segments. The relatively larger increase in our diluted net earnings per share compared to our net earnings growth was primarily a result of our common stock repurchases, resulting in lower shares outstanding. From April 2006 through May 2007, we returned $1.7 billion to shareholders in the form of share repurchases.

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The $77.2 million after-tax special charges consisted of $21.9 million, or $0.06 per diluted share, related to the settlement of a patent litigation matter; $21.4 million, or $0.06 per diluted share, associated with streamlining our operations; $19.0 million, or $0.05 per diluted share, related to discontinued inventory and older model programmer write-offs; and $14.9 million, or $0.04 per diluted share, associated with the impairment of intangible assets related to a terminated distribution agreement. Comparatively, during 2006, we incurred an after-tax $22.0 million special charge, or $0.06 per diluted share, related to restructuring activities in our former Cardiac Surgery and Cardiology divisions, and international selling organization. Refer to Notes 8 and 9 of the Consolidated Financial Statements for further details of these special charges and investment impairment charge, respectively.

We generated $865.6 million of operating cash flows during 2007, a 33% improvement over 2006, primarily due to improved working capital and increased net earnings driven by net sales growth in our CRM and AF operating segments. We ended the year with $389.1 million of cash and cash equivalents and $1,388.0 million of total debt. We have strong short-term credit ratings, with an A2 rating from Standard & Poor’s and a P2 rating from Moody’s.

In January 2007, our Board of Directors authorized a share repurchase program of up to $1.0 billion of our outstanding common stock. We began making repurchases under this program on January 29, 2007 and completed the repurchases under the program on May 8, 2007. In total, we repurchased 23.6 million shares for approximately $1.0 billion. In April 2007, we issued $1.2 billion of 1.22% Convertible Senior Debentures (1.22% Convertible Debentures). We used a portion of the proceeds from the sale of the 1.22% Convertible Debentures to purchase approximately $300 million of our common stock. We also used a portion of the proceeds to repay borrowings under our commercial paper program and to repay borrowings under an interim liquidity facility, both of which were used to repurchase approximately $700 million of our common stock under the stock repurchase program.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to adopt various accounting policies and to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to our accounts receivable allowance for doubtful accounts; estimated useful lives of diagnostic equipment; valuation of in-process research and development (IPR&D), other intangible assets and goodwill; income taxes; legal reserves and insurance receivables; and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. We believe that the following represent our most critical accounting estimates:

Accounts Receivable Allowance for Doubtful Accounts:   We grant credit to customers in the normal course of business, and generally do not require collateral or any other security to support our accounts receivable. We maintain an allowance for doubtful accounts for potential credit losses, which primarily consists of reserves for specific customer balances that we believe may not be collectible. We determine the adequacy of this allowance by regularly reviewing the age of accounts receivable, customer financial conditions and credit histories, and current economic conditions. In some developed markets and in many emerging markets, payment of certain accounts receivable balances are made by the individual countries’ healthcare systems for which payment is dependent, to some extent, upon the political and economic environment within those countries. Although we consider our allowance for doubtful accounts to be adequate, if the financial condition of our customers or the individual countries’ healthcare systems were to deteriorate and impair their ability to make payments to us, additional allowances may be required in future periods. The allowance for doubtful accounts was $26.7 million at December 29, 2007 and $24.9 million at December 30, 2006.

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Estimated Useful Lives of Diagnostic Equipment:   Diagnostic equipment is recorded at cost and is depreciated using the straight-line method over its estimated useful life of three to five years. Diagnostic equipment primarily consists of programmers that are used by physicians and healthcare professionals to program and analyze data from pacemaker and ICD devices. The estimated useful life of this equipment is determined based on our estimates of its usage by the physicians and healthcare professionals, factoring in new technology platforms and rollouts. To the extent that we experience changes in the usage of this equipment or there are introductions of new technologies to the market, the estimated useful lives of this equipment may change in a future period. Diagnostic equipment had a net carrying value of $189.5 million at December 29, 2007 and $156.3 million at December 30, 2006.

Valuation of IPR&D, Other Intangible Assets and Goodwill:   When we acquire another company, the purchase price is allocated, as applicable, between IPR&D, other identifiable intangible assets, tangible assets and goodwill. Determining the portion of the purchase price allocated to IPR&D and other intangible assets requires us to make significant estimates.

IPR&D is defined as the value assigned to those projects for which the related products have not yet reached technological feasibility and have no future alternative use. The primary basis for determining the technological feasibility of these projects at the time of acquisition is obtaining regulatory approval to market the underlying products in an applicable geographic region. In accordance with accounting principles generally accepted in the United States, we expense the value attributed to these projects in conjunction with our acquisition. In 2005, we recorded IPR&D of $179.2 million. No IPR&D charges were incurred during fiscal years 2007 or 2006.

We use the income approach to establish the fair value of IPR&D as of the acquisition date. This approach establishes fair value by estimating the after-tax cash flows attributable to a project over its useful life and then discounting these after-tax cash flows back to a present value. We base our revenue assumptions on estimates of relevant market sizes, expected market growth, and trends in technology as well as anticipated product introductions by competitors. In arriving at the value of the projects, we consider, among other factors, the stage of completion, the complexity of the work completed, the costs incurred, the projected cost of completion, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. The discount rate used is determined at the time of acquisition and includes consideration of the assessed risk of the project not being developed to commercial feasibility. For the IPR&D we acquired in connection with our 2005 acquisitions, we used risk-adjusted discount rates ranging from 16% to 22% to discount projected cash flows. We believe that the IPR&D amounts recorded represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects.

The fair value of other identifiable intangible assets is based on detailed valuations using the income approach. Other intangible assets consist of purchased technology and patents, customer lists and relationships, distribution agreements, licenses, trademarks and tradenames, which are amortized using the straight-line method over their estimated useful lives, ranging from 3 to 20 years. We review other intangible assets for impairment as changes in circumstance or the occurrence of events suggest the carrying value may not be recoverable. Other intangible assets, net of accumulated amortization, were $498.7 million at December 29, 2007 and $560.3 million at December 30, 2006.

Goodwill represents the excess of the aggregate purchase price over the fair value of net assets, including IPR&D, of the acquired businesses. Goodwill is tested for impairment annually or more frequently if changes in circumstance or the occurrence of events suggest impairment exists. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value amounts, including projected future cash flows and the use of an appropriate risk-adjusted discount rate. Goodwill was $1,657.3 million at December 29, 2007 and $1,649.6 million at December 30, 2006.

Income Taxes:   At the beginning of fiscal year 2007, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes (SFAS No. 109). FIN 48 prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The adoption of FIN 48 did not have a material impact on our consolidated results of operations, financial position or cash flows. Upon adoption of FIN 48, we recorded an $8.5 million decrease to our liability for unrecognized income tax benefits, which was recorded as an adjustment to the opening balance of retained earnings. Additionally, we reclassified the liability for unrecognized income tax benefits from current to non-current liabilities because payment is not anticipated within one year. At December 29, 2007, our liability for unrecognized tax benefits was $95.3 million, and our accrual for interest and penalties was $17.3 million.

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As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense as well as assessing temporary differences in the treatment of items for tax and accounting purposes. These timing differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that we believe that recovery is not likely, a valuation allowance is established. At December 29, 2007, we had $297.3 million of gross deferred tax assets, including net operating loss and tax credit carryforwards that will expire from 2010 to 2025 if not utilized. We believe that our deferred tax assets, including the net operating loss and tax credit carryforwards, will be fully realized based upon our estimates of future taxable income. As such, we have not recorded any valuation allowance for our deferred tax assets. If our estimates of future taxable income are not met, a valuation allowance for some of these deferred tax assets would be required.

We have not recorded U.S. deferred income taxes on certain of our non-U.S. subsidiaries’ undistributed earnings, as such amounts are intended to be reinvested outside the United States indefinitely. However, should we change our business and tax strategies in the future and decide to repatriate a portion of these earnings to one of our U.S. subsidiaries, including cash maintained by these non-U.S. subsidiaries (see Liquidity section), additional U.S. tax liabilities would be incurred. Our 2005 repatriation of $500.0 million of foreign earnings under the provisions of the American Jobs Creation Act of 2004 was deemed to be distributed entirely from foreign earnings that had previously been treated as indefinitely invested. However, this distribution from previously indefinitely reinvested earnings does not change our position going forward that future earnings of certain of our foreign subsidiaries will be indefinitely reinvested.

We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax matters for all tax years through 2001. Federal income tax returns for 2002 - 2005 are currently under examination. Substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999.

We record our income tax provisions based on our knowledge of all relevant facts and circumstances, including the existing tax laws, our experience with previous settlement agreements, the status of current IRS examinations and our understanding of how the tax authorities view certain relevant industry and commercial matters. Although we have recorded all probable income tax accruals in accordance with FIN 48 and SFAS No. 109, our accruals represent accounting estimates that are subject to the inherent uncertainties associated with the tax audit process, and therefore include certain contingencies. We believe that any potential tax assessments from the various tax authorities that are not covered by our income tax accruals will not have a material adverse impact on our consolidated financial position or cash flows. However, they may be material to our consolidated earnings of a future period.

Legal Reserves and Insurance Receivables:   We operate in an industry that is susceptible to significant product liability and intellectual property claims. As a result, we are involved in a number of legal proceedings, the outcomes of which are not in our complete control and may not be known for extended periods of time. In accordance with SFAS No. 5, Accounting for Contingencies (SFAS No. 5), we record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments where we have assessed that a loss is probable and an amount can be reasonably estimated. We record a receivable from our product liability insurance carriers for amounts expected to be recovered. Product liability claims may be brought by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class. In addition, claims may be asserted against us in the future related to events that are not known to us at the present time. Our significant legal proceedings are discussed in detail in Note 5 to the Consolidated Financial Statements. While it is not possible to predict the outcome for most of the legal proceedings discussed in Note 5, the costs associated with such proceedings could have a material adverse effect on our consolidated earnings, financial position or cash flows of a future period.

Stock-Based Compensation:    Effective January 1, 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)). Under the fair value recognition provisions of SFAS No. 123(R), we measure stock-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the vesting period. We elected the modified-prospective method of adopting SFAS No. 123(R), under which prior periods are not retroactively revised. The valuation provisions of SFAS No. 123(R) apply to awards granted after the January 1, 2006 effective date. Estimated stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date are recognized over the remaining service period using the compensation cost estimated for SFAS No. 123, Accounting for Stock-Based Compensation pro forma disclosures.

We believe that stock-based compensation aligns the interests of managers and non-employee directors with the interests of shareholders; therefore, we do not currently expect to significantly change our various stock-based compensation programs. See Note 7 to the Consolidated Financial Statements for further information regarding our stock-based compensation programs.

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We use the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options and employee stock purchase rights. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions of other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of our stock price in future periods and expected dividend yield.

We analyze historical employee exercise and termination data to estimate the expected life assumption. We believe that historical data currently represents the best estimate of the expected life of a new employee option. We also stratify our employee population based upon distinctive exercise behavior patterns. The risk-free interest rate we use is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options. We estimate the expected volatility of our stock price in future periods by using the implied volatility in market traded options. Our decision to use implied volatility was based on the availability of actively traded options for our common stock and our assessment that implied volatility is more representative of future stock price trends than the historical volatility of our common stock. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate pre-vesting option forfeitures at the time of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the expense in future periods may differ significantly from what we have recorded in the current period and could materially affect our net earnings and net earnings per share of a future period.

ACQUISITIONS

On November 29, 2005, we completed the acquisition of Advanced Neuromodulation Systems, Inc. for $1,353.9 million, net of cash acquired. ANS had been publicly traded on the NASDAQ market under the ticker symbol ANSI. ANS designs, develops, manufactures and markets implantable neurostimulation devices used to manage chronic pain. We recorded an IPR&D charge of $107.4 million associated with this transaction. ANS now operates as a division of St. Jude Medical. The results of operations for ANS have been included in our consolidated statements of earnings since the date of the acquisition.

On January 13, 2005, we completed the acquisition of Endocardial Solutions, Inc. (ESI) for $279.4 million, net of cash acquired. ESI had been publicly traded on the NASDAQ market under the ticker symbol ECSI. ESI developed, manufactured and marketed the EnSite® System used for the navigation and localization of diagnostic and therapeutic catheters used by physician specialists to diagnose and treat cardiac rhythm disorders. We recorded an IPR&D charge of $12.4 million associated with this transaction. ESI has become part of the Atrial Fibrillation division of St. Jude Medical and its results of operations have been included in our consolidated statements of earnings since the date of the acquisition.

On April 6, 2005, we completed the acquisition of the businesses of Velocimed, LLC (Velocimed) for $70.9 million, net of cash acquired, plus additional contingent payments tied to revenues in excess of minimum future targets and a milestone payment upon U.S. Food and Drug Administration (FDA) approval of the Premere™ patent foramen ovale closure system prior to December 31, 2010. Velocimed developed and manufactured specialty interventional cardiology devices. We recorded an IPR&D charge of $13.7 million associated with this transaction. Certain funds held in escrow totaling $5.5 million were released in the fourth quarter of 2006. Velocimed has become part of the Cardiovascular division of St. Jude Medical and its results of operations have been included in our consolidated statements of earnings since the date of the acquisition.

On December 30, 2005, we completed the acquisition of Savacor, Inc. (Savacor) for $49.7 million, net of cash acquired, plus additional contingent payments related to product development milestones for regulatory approvals and revenues in excess of minimum future targets. Savacor was a development-stage company focused on the development of a device that measures left atrial pressure and body temperature to help physicians detect and manage symptoms associated with progressive heart failure. Increased pressure in the left atrium is a predictor of pulmonary congestion, which is the leading cause of hospitalization for congestive heart failure patients. We recorded an IPR&D charge of $45.7 million associated with this transaction. Savacor has become part of the Cardiac Rhythm Management division of St. Jude Medical and its results of operations have been included in our consolidated statements of earnings since the date of the acquisition.

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SEGMENT PERFORMANCE

Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Advanced Neuromodulation Systems (ANS). At the beginning of 2007 fiscal year, we combined our former Cardiac Surgery and Cardiology operating segments to form the CV operating segment. The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and ANS – neurostimulation devices.

We aggregate our four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/ANS and CV/AF. Net sales of our reportable segments include end-customer revenue from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by our selling and corporate functions, including all stock-based compensation expense, impairment charges and special charges for 2007 and 2006 have not been recorded in the individual reportable segments. As a result, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments.

The following table presents net sales and operating profit by reportable segment (in thousands):

	CRM/ANS			CV/AF			Other			Total
Fiscal Year 2007
Net sales	$	2,577,975		$	1,201,302		$	—		$	3,779,277
Operating profit		1,576,439			579,325			(1,362,261	)		793,503
Fiscal Year 2006
Net sales	$	2,235,128		$	1,067,319		$	—		$	3,302,447
Operating profit		1,337,479			502,244			(1,096,640	)		743,083
Fiscal Year 2005
Net sales	$	1,949,828		$	965,452		$	—		$	2,915,280
Operating profit		1,045,274	(a)		449,081	(b)		(881,625	)		612,730

(a)	Included in CRM/ANS 2005 operating profit are IPR&D charges of $107.4 million and $45.7 million relating to the acquisitions of ANS and Savacor, respectively.
(b)	Included in CV/AF 2005 operating profit are IPR&D charges of $13.7 million and $12.4 million relating to the acquisitions of Velocimed and ESI, respectively. Also included is an $11.5 million special credit relating to a reversal of a portion of accrued Symmetry™ device legal costs, net of settlement costs.

The following discussion of the changes in our net sales is provided by class of similar products within our four operating segments, which is the primary focus of our sales activities.

Cardiac Rhythm Management

(in thousands)		2007		2006		2005	2007 vs. 2006 % Change	2006 vs. 2005 % Change
ICD systems	$	1,304,899	$	1,099,906	$	1,006,896	18.6%	9.2%
Pacemaker systems		1,063,182		955,859		917,950	11.2%	4.1%
	$	2,368,081	$	2,055,765	$	1,924,846	15.2%	6.8%

Cardiac Rhythm Management 2007 net sales increased by 15% compared to 2006 due to strong volume growth. Foreign currency translation had a $63.0 million favorable impact on 2007 net sales compared to 2006. Net sales of ICDs increased nearly 19% to $1,304.9 million driven by strong volume growth. The volume growth in ICD net sales in 2007 was broad-based across both U.S. and international markets, which reflects our continued market penetration into new customer accounts and strong market demand for our cardiac resynchronization therapy (CRT) ICD devices. In the United States, 2007 ICD net sales of $887.8 million increased 11% over last year. Internationally, 2007 ICD net sales of $417.1 million increased nearly 38% compared to 2006. Foreign currency translation had a $30.0 million favorable impact on international ICD net sales compared to 2006. Pacemaker systems 2007 net sales increased 11% to nearly $1,063.2 million driven by strong volume growth, which was also broad-based across both U.S. and international markets. In the United States, 2007 pacemaker net sales of $507.9 million increased 9% compared to 2006. Internationally, 2007 pacemaker net sales of $555.3 million increased 13% over last year. Foreign currency translation had a $33.0 million favorable impact on international pacemaker net sales in 2007 compared to 2006.

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Cardiac Rhythm Management 2006 net sales increased 7% primarily due to volume growth from the continued international market penetration of CRT ICD devices. Foreign currency translation did not have a significant impact on 2006 net sales. In the United States, 2006 ICD net sales of $796.8 million increased only 2% over 2005. Adverse publicity relating to product recalls by a competitor depressed the 2006 rate of growth in the U.S. ICD market. Internationally, 2006 ICD net sales of $303.1 million increased nearly 35% compared to 2006. In the United States, 2006 pacemaker net sales of $464.9 million increased 4% compared to 2005. Internationally, 2006 pacemaker net sales of $491.0 million increased 4% over 2005.

Cardiovascular

(in thousands)		2007		2006		2005	2007 vs. 2006 % Change	2006 vs. 2005 % Change
Vascular closure devices	$	353,987	$	341,259	$	329,901	3.7%	3.4%
Heart valve products		290,196		270,507		254,445	7.3%	6.3%
Other cardiovascular products		146,447		129,846		127,296	12.8%	2.0%
	$	790,630	$	741,612	$	711,642	6.6%	4.2%

Cardiovascular 2007 net sales increased nearly 7% to $790.6 million compared to 2006 driven by strong volume growth for tissue heart valves and favorable product mix for our other cardiovascular products. Foreign currency translation had a $22.4 million favorable impact on CV net sales compared to 2006. Net sales of vascular closure devices increased approximately 4% compared to 2006 due to sales volume growth of Angio-Seal™, which continues to be the market share leader in the vascular closure device market. Heart valve net sales increased 7% compared to 2006 primarily due to an increase in tissue heart valve sales volumes, driven by market growth, which was partially offset by declines in sales of mechanical heart valves. Other cardiovascular products net sales increased nearly 13% compared to last year.

Cardiovascular 2006 net sales increased 4% compared to 2005, driven primarily by volume growth of tissue heart valve net sales. Foreign currency translation had a $5.9 million unfavorable impact on 2006 net sales. Heart valve net sales increased 6% compared to 2005 primarily due to sales volume growth of tissue heart valves. Net sales of vascular closure devices increased 3% compared to 2005, as a result of volume growth of our Angio-Seal™ device.

Atrial Fibrillation

(in thousands)		2007		2006		2005	2007 vs. 2006 % Change		2006 vs. 2005 % Change
Atrial fibrillation products	$	410,672	$	325,707	$	253,810	26.1	%	28.3%

Atrial Fibrillation 2007 net sales increased 26% to $410.7 million compared to 2006 net sales. The increase in AF net sales was driven by strong volume growth from continued market acceptance of device-based ablation procedures to treat the symptoms of atrial fibrillation. Our access, diagnosis, visualization and ablation products assist physicians in diagnosing and treating atrial fibrillation and other irregular heart rhythms. Foreign currency translation had a favorable impact on AF net sales of approximately $12.3 million compared to 2006.

Atrial Fibrillation 2006 net sales increased 28% compared to 2005 driven by volume growth of 30%. Foreign currency translation did not have a significant impact on 2006 net sales.

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Advanced Neuromodulation Systems

(in thousands)		2007		2006		2005	2007 vs. 2006 % Change	2006 vs. 2005 % Change
Neurostimulation devices	$	209,894	$	179,363	$	24,982	17.0%	618.0%

ANS 2007 net sales of $209.9 million represent a 17% increase over 2006 net sales. The increase in ANS 2007 net sales was driven by continued growth in the market for neurostimulation devices. Foreign currency translation did not have a significant impact on 2007 net sales.

ANS 2006 net sales of $179.4 million represent a 17% increase over 2005 net sales of $153.1 million due to sales volume increases in a growing market for neurostimulation devices. Prior to our acquisition in November 2005, net sales for ANS as a separate company were $128.1 million, with subsequent sales of an additional $25.0 million through the end of 2005. Foreign currency translation did not have a significant impact on 2006 net sales.

RESULTS OF OPERATIONS

Net Sales

(in thousands)		2007		2006		2005	2007 vs. 2006 % Change	2006 vs. 2005 % Change
Net sales	$	3,779,277	$	3,302,447	$	2,915,280	14.4%	13.3%

Overall, 2007 net sales increased 14% compared to 2006. Net sales growth was favorably impacted by strong volume growth, driven by CRM and AF product sales. Additionally, foreign currency translation had a $99.6 million, or 3%, favorable impact on net sales, primarily due to the strengthening of the Euro against the U.S. Dollar.

Overall, 2006 net sales increased 13% over 2005. The acquisition of ANS in November 2005 increased 2006 net sales by $154.4 million. The remaining volume growth of approximately 12% was driven by CRM and AF product sales. Foreign currency translation had a $6.7 million unfavorable impact on 2006 net sales.

Net sales by geographic location of the customer were as follows (in thousands):

	2007		2006		2005
United States	$	2,107,015	$	1,920,623	$	1,709,911
International
Europe		936,526		763,526		646,738
Japan		321,826		289,716		286,660
Asia Pacific		192,793		148,953		124,351
Other		221,117		179,629		147,620
		1,672,262		1,381,824		1,205,369
	$	3,779,277	$	3,302,447	$	2,915,280

Foreign currency translation relating to our international operations can have a significant impact on our operating results from year to year. The two main currencies influencing our operating results are the Euro and the Japanese Yen. As discussed above, foreign currency translation had a $99.6 million favorable impact on 2007 net sales, while the translation impact in 2006 had a $6.7 million unfavorable impact on net sales. These impacts to net sales are not indicative of the net earnings impact of foreign currency translation due to partially offsetting foreign currency translation impacts on cost of sales and operating expenses.

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Gross Profit

(in thousands)	2007			2006			2005
Gross Profit	$	2,737,683		$	2,388,934		$	2,118,519
Percentage of net sales		72.4	%		72.3	%		72.7	%

Gross profit for 2007 totaled $2,737.7 million, or 72.4% of net sales, compared with $2,388.9 million, or 72.3% of net sales, for 2006. Special charges associated with streamlining our operations and inventory and programmer write-offs negatively impacted our 2007 gross profit percentage by approximately 1.0 percentage point. The improvement in our 2007 gross profit percentage as a percent of net sales reflects favorable product mix sales from higher margin products and increased manufacturing efficiencies, partially offset by increased diagnostic equipment depreciation expense resulting from the rollout of our Merlin™ programmer platform for our ICDs and pacemakers. Refer to Note 8 of the Consolidated Financial Statements for further details of the special charges impacting gross profit.

Gross profit for 2006 totaled $2,388.9 million, or 72.3% of net sales, compared with $2,118.5 million, or 72.7% of net sales, for 2005. Gross profit percentage comparisons to 2005 were negatively impacted by 0.5 percentage points due to the $15.1 million restructuring special charge recorded in the third quarter of 2006. Additionally, the requirement to expense stock-based compensation in 2006 reduced our gross profit percentage by 0.2 percentage points in comparison to 2005. The gross profit percentage for 2006 also reflects increased manufacturing efficiencies and lower inventory and warranty reserves compared to 2005, which were partially offset by unfavorable changes in product mix for our higher margin products.

Selling, General and Administrative (SG&A) Expense

(in thousands)	2007			2006			2005
Selling, general and administrative	$	1,382,466		$	1,195,030		$	968,888
Percentage of net sales		36.6	%		36.2	%		33.2	%

SG&A expense for 2007 totaled $1,382.5 million, or 36.6% of net sales, compared with $1,195.0 million, or 36.2% of net sales in 2006. The increase in SG&A expense as a percent of net sales reflects the full-year impact of investments made in expanding our U.S. selling organization infrastructure and market development programs, which began in the second quarter of 2006.

SG&A expense for 2006 totaled $1,195.0 million, or 36.2% of net sales, compared with $968.9 million, or 33.2% of net sales in 2005. Approximately 1.4 percentage points of 2006 SG&A expense as a percent of net sales related to stock-based compensation expense, which was not required to be recognized in 2005. The remaining increase in SG&A expense as a percent of net sales related to higher amortization expense resulting from intangible assets acquired as part of fiscal year 2005 acquisitions and higher costs related to the continued expansion of our U.S. selling organization infrastructure.

Research and Development (R&D) Expense

(in thousands)	2007			2006			2005
Research and development	$	476,332		$	431,102		$	369,227
Percentage of net sales		12.6	%		13.1	%		12.7	%

R&D expense in 2007 totaled $476.3 million, or 12.6% of net sales, compared with $431.1 million, or 13.1% of net sales in 2006. While 2007 R&D expense as a percent of net sales decreased compared to 2006, total R&D expense in absolute dollar amounts increased over 10% compared to the prior year, reflecting our continuing commitment to fund future long-term growth opportunities. We will continue to balance delivering short-term results with the right investments in long-term growth drivers, and expect that R&D expense as a percentage of net sales will range from 12.0% to 13.0% in 2008.

R&D expense in 2006 totaled $431.1 million, or 13.1% of net sales, compared with $369.2 million, or 12.7% of net sales in 2005. In 2006, stock-based compensation expense accounted for approximately 0.5 percentage points of R&D expense as a percent of net sales. After excluding the impact of 2006 stock-based compensation expense that was not required to be recognized in 2005, R&D expense as a percent of net sales remained relatively flat compared to 2005. However, in absolute terms 2006 R&D expense increased approximately 17% over 2005.

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Purchased In-Process Research and Development (IPR&D) Charges

(in thousands)	2007		2006		2005
Purchased in-process research and development	$	—	$	—	$	179,174

We are responsible for the valuation of IPR&D. The fair value assigned to IPR&D is estimated by discounting each project to its present value using the after-tax cash flows expected to result from the project once it has reached technological feasibility. We discount the after-tax cash flows using an appropriate risk-adjusted rate of return (ANS – 17%, Velocimed – 22%, ESI – 16%) that takes into account the uncertainty surrounding the successful development of the projects through obtaining regulatory approval to market the underlying products in an applicable geographic region. In estimating future cash flows, we also consider other tangible and intangible assets required for successful development of the resulting technology from the IPR&D projects and adjust future cash flows for a charge reflecting the contribution of these other tangible and intangible assets to the value of the IPR&D projects.

At the time of acquisition, we expect all acquired IPR&D will reach technological feasibility, but there can be no assurance that the commercial viability of these projects will actually be achieved. The nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning, designing and conducting clinical trials necessary to obtain regulatory approvals. The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, failure of clinical trials, delay or failure to obtain required market clearances, and patent litigation. If commercial viability is not achieved, we would not realize the original estimated financial benefits expected for these projects. We fund all costs to complete IPR&D projects with internally generated cash flows.

Savacor, Inc.:   In December 2005, we acquired privately-held Savacor to complement our development efforts in heart failure diagnostic and therapy guidance products. At the date of acquisition, $45.7 million of the purchase price was expensed as IPR&D related to projects that had not yet reached technological feasibility and had no future alternative use. The IPR&D acquired related to in-process projects for a device in clinical trials both in the United States and internationally that measures left atrial pressure and body temperature. Through December 29, 2007, we have incurred costs of approximately $11.0 million related to these projects. We expect to incur approximately $29.5 million to bring the device to commercial viability on a worldwide basis within four years. As Savacor was a development-stage company, the excess of the purchase price over the fair value of the net assets acquired was allocated on a pro-rata basis to the net assets acquired. Accordingly, the majority of the excess purchase price was allocated to IPR&D, the principal asset acquired.

Advanced Neuromodulation Systems, Inc.:   In November 2005, we acquired ANS to expand our implantable microelectronics technology programs and provide us with a presence in the neuromodulation segment of the medical device industry. At the date of acquisition, $107.4 million of the purchase price was expensed as IPR&D related to projects that had not yet reached technological feasibility and had no future alternative use. The majority of the IPR&D acquired related to in-process projects for next-generation Eon™ and Genesis® rechargeable IPG devices as well as next-generation leads that deliver electrical impulses to targeted nerves that are causing pain.

A summary of the fair values assigned to each in-process project at the acquisition date and the estimated total cost to complete each project as of December 29, 2007, is presented below (in millions):

Development Projects	Assigned Fair Value		Estimated Total Cost to Complete
Eon™	$	67.2	$	5.4
Genesis®		15.3		2.0
Leads		23.7		0.1
Other		1.2		—
	$	107.4	$	7.5

Through December 29, 2007, we have incurred costs of $10.4 million related to these projects. We expect to incur an additional $7.5 million through 2009 to bring these technologies to commercial viability.

Velocimed, LLC:   In April 2005, we acquired Velocimed to further enhance our portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device that had not yet reached technological feasibility in the United States and other geographies and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. During 2007, we incurred $0.6 million in costs related to these projects and launched the Proxis™ device in the United States.

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Endocardial Solutions, Inc.: In January 2005, we acquired ESI to further enhance our portfolio of products used to treat heart rhythm disorders. At the date of acquisition, $12.4 million of the purchase price was expensed as IPR&D related to system upgrades that had not yet reached technological feasibility and had no future alternative use. These major system upgrades are part of the EnSite® system which is used for the navigation and localization of diagnostic and therapeutic catheters used in atrial fibrillation ablation and other EP catheterization procedures. In 2005, we incurred $0.7 million in costs related to these projects and in the third quarter of 2005, we achieved commercial viability and launched EnSite® system version 5.1 and the EnSite® Verismo™ segmentation tool.

Special Charges (Credits)

(in thousands)	2007		2006		2005
Cost of sales special charges	$	38,292	$	15,108	$	—
Special charges (credits)		85,382		19,719		(11,500	)
	$	123,674	$	34,827	$	(11,500	)

Fiscal Year 2007

Patent Litigation: In June 2007, we settled the Guidant 2004 Patent Litigation matter (see Note 5 to the Consolidated Financial Statements) and recorded a pre-tax charge of $35.0 million.

Restructuring Activities: In December 2007, management continued its efforts to streamline operations and implemented additional restructuring actions primarily focused at our international locations. As a result, we recorded pre-tax charges totaling $29.1 million in the fourth quarter of 2007 consisting of employee termination costs ($17.9 million) and other costs ($11.2 million). Of the total $29.1 million charge, $5.9 million was recorded in cost of sales. Employee termination costs related to severance and benefits costs for approximately 200 individuals identified for employment termination and were recorded after management determined that such severance and benefits were probable and estimable, in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. Other costs primarily represented contract termination costs.

A summary of the activity related to our 2007 restructuring accrual is as follows (in thousands):

	Employee termination costs			Other			Total
Balance at December 30, 2006	$	—		$	—		$	—
Restructuring charges		17,916			11,217			29,133
Non-cash charges used		—			(1,354	)		(1,354	)
Cash payments		(856	)		(180	)		(1,036	)
Balance at December 29, 2007	$	17,060		$	9,683		$	26,743

Impairment Charges: We recorded impairment charges of $23.7 million related to acquired intangible assets associated with a distribution agreement with a supplier of medical products to our Japanese distribution subsidiary. In December 2007, we provided notice to the supplier that we were terminating the distribution agreement. As a result, we recorded an impairment charge to state the related intangible assets at their remaining fair value. We had acquired the intangible assets as part of our acquisition of Getz Bros. Co., Ltd. (Getz Japan) in April 2003. The distribution agreement will terminate in June 2008. We do not expect future revenue or gross profit percentage to be materially impacted from the termination of this distribution agreement.

Additionally, in connection with completing our United States roll-out of the Merlin™ programmer platform for our ICDs and pacemakers during the fourth quarter of 2007, we recorded an $11.8 million special charge in cost of sales to write off the remaining carrying value of older model programmer diagnostic equipment. We also recorded $6.0 million of asset write-offs relating to the carrying value of assets that will no longer be utilized, of which $2.5 million was recorded in cost of sales.

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Discontinued Inventory: In the fourth quarter of 2007, we recorded a $14.1 million special charge in cost of sales relating to inventory that would be scrapped in connection with management’s decision to terminate certain product lines in our CV and AF divisions that were redundant with other existing products lines. By eliminating product lines with redundant characteristics, we do not anticipate any material short-term or long-term impact on future revenue or gross profit percentage. In connection with our decision to terminate a distribution agreement in Japan (see Impairment Charges discussed previously), we recorded a $4.0 million special charge in cost of sales to write off the related inventory that will not be sold.

We do not anticipate any material short-term or long-term net cost savings resulting from these special charges as we intend to use the immediate savings to fund investments in research and development and productivity improvements.

Fiscal Year 2006

Restructuring Activities: During the third quarter of 2006, management performed a review of the organizational structure of our former Cardiac Surgery and Cardiology divisions and our international selling organization. In August 2006, management approved restructuring plans to streamline operations within our former Cardiac Surgery and Cardiology divisions by combining them into one new Cardiovascular division and also implemented changes in our international selling organization by enhancing the efficiency and effectiveness of sales and customer service operations in certain international geographies.

As a result of these restructuring plans, we recorded pre-tax special charges totaling $34.8 million in the third quarter of 2006 consisting of employee termination costs ($14.7 million), inventory write-downs ($8.7 million), asset write-downs ($7.3 million) and other exit costs ($4.1 million). Of the total $34.8 million special charge, $15.1 million was recorded in cost of sales. See Note 8 to the Consolidated Financial Statements for further detail on these charges.

In connection with these restructuring plans, approximately 140 individuals were identified for employment termination. In addition, management discontinued certain product lines and disposed of related assets. We discontinued the use of the Getz trademarks in Japan, and wrote off the $4.2 million intangible asset that we acquired in connection with our 2003 acquisition of Getz Japan.

A summary of the activity related to our 2006 restructuring accrual for fiscal years 2007 and 2006 is as follows (in thousands):

	Employee termination costs			Inventory write-downs			Asset write-downs			Other			Total
Balance at December 31, 2005	$	—		$	—		$	—		$	—		$	—
Restructuring charges		14,710			8,694			7,361			4,062			34,827
Non-cash charges used		—			(8,694	)		(7,361	)		—			(16,055	)
Cash payments		(3,642	)		—			—			(586	)		(4,228	)
Balance at December 30, 2006		11,068			—			—			3,476			14,544
Cash payments		(11,068	)		—			—			(3,046	)		(14,114	)
Balance at December 29, 2007	$	—		$	—		$	—		$	430		$	430

Fiscal Year 2005

Symmetry™ Bypass System Aortic Connector Litigation:   During the third quarter of 2005, over 90% of the cases and claims asserted involving the Symmetry™ device were resolved. As a result, we reversed $14.8 million of the pre-tax $21.0 million special charge that was recorded in the third quarter of 2004 to accrue for legal fees in connection with claims involving the Symmetry™ device. Additionally, we recorded a pre-tax charge of $3.3 million in the third quarter of 2005 to accrue for settlement costs negotiated in these resolved cases. These adjustments resulted in a net pre-tax benefit of $11.5 million that we recorded in the third quarter of 2005 related to Symmetry™ device product liability litigation. See Note 5 of the Consolidated Financial Statements for further details on the Symmetry™ device litigation.

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Other Income (Expense)

(in thousands)	2007			2006			2005
Interest income	$	4,374		$	9,266		$	19,523
Interest expense		(38,229	)		(33,883	)		(10,028	)
Other		(15,343	)		2,175			(821	)
Other income (expense), net	$	(49,198	)	$	(22,442	)	$	8,674

The unfavorable change in other income (expense) during 2007 compared to 2006 was primarily the result of a $25.1 million pre-tax impairment loss recorded in other expense related to our investment in ProRhythm. Refer to Note 9 of the Consolidated Financial Statements for further details on the impairment of this investment. Other expense was partially offset by a realized pre-tax gain of $7.9 million related to the sale of our Conor Medical, Inc. common stock investment. Interest expense increased during 2007 compared to 2006 driven by higher average debt balances in 2007. During the first quarter of 2007, we borrowed $350.0 million under an interim liquidity facility and issued additional commercial paper to finance the repurchase of approximately $700 million of our common stock. These borrowings were repaid in April 2007 with proceeds from the issuance of$1.2 billion aggregate principal amount of 1.22% Convertible Debentures. Interest income decreased in 2007 compared to 2006 due to lower average invested cash balances compared to the same periods one year ago.

The unfavorable change in other income (expense) during 2006 as compared with 2005 was due to higher interest expense resulting from our issuance of $660.0 million of 2.80% Convertible Senior Debentures (2.80% Convertible Debentures) in December of 2005 to fund a portion of the ANS acquisition as well as higher commercial paper borrowings to finance the majority of our $700.0 million common stock repurchase in the second quarter of 2006. As we funded a portion of the ANS acquisition and share repurchases with cash from operations, lower average invested cash balances resulted in lower interest income during 2006 compared to 2005.

Income Taxes

(as a percent of pre-tax income)	2007	2006	2005
Effective tax rate	24.9%	23.9%	36.7%

Our effective tax rate was 24.9% in 2007 compared to 23.9% in 2006. Special charges as well as the ProRhythm investment impairment charge favorably impacted the 2007 effective tax rate by 2.1 percentage points while special charges related to 2006 restructuring activities favorably impacted the 2006 effective tax rate by 0.6 percentage points. Refer to Notes 8 and 9 of the Consolidated Financial Statements for further details of these special charges and investment impairment charge, respectively. In 2006, the United States federal extraterritorial income exclusion expired, resulting in a negative impact to our 2007 effective tax rate due to the loss of this tax benefit. In 2006 and 2005, this tax benefit had favorably impacted our effective tax rate by approximately 1 percentage point.

Certain significant items negatively impacted our 2005 effective rate by 13.0 percentage points. Non-deductible IPR&D charges of $179.2 million recorded during 2005 negatively impacted the 2005 effective tax rate by 11.0 percentage points. Additionally, $26.0 million of income tax expense associated with the repatriation of $500 million of cash from outside the United States under the American Jobs Creation Act of 2004 negatively impacted the 2005 effective tax rate by 4.2 percentage points. Partially offsetting these negative impacts was the reversal of $13.7 million of previously recorded tax expense due to the finalization of certain tax examinations, which resulted in a 2.2 percentage point benefit to the 2005 effective tax rate.

Net Earnings

(in thousands, except per share amounts)		2007		2006		2005	2007 vs. 2006 % Change	2006 vs. 2005 % Change
Net earnings	$	559,038	$	548,251	$	393,490	2.0%	39.3%
Diluted net earnings per share	$	1.59	$	1.47	$	1.04	8.2%	41.3%

Net earnings were $559.0 million in 2007, a 2.0% increase over 2006 net earnings of $548.3 million. Diluted net earnings per share were $1.59 in 2007, an 8.2% increase over 2006 diluted net earnings per share of $1.47. Net earnings for 2007 were unfavorably impacted by after-tax special charges totaling $77.2 million and an after-tax investment impairment charge of $15.7 million, for a combined impact of $0.26 per diluted share. The $15.7 million impairment charge related to our ProRhythm investment and was recorded in other income (expense). Refer to the Special Charges (Credits) section for a more detailed discussion of the components related to our special charges. Compared to 2006, the increase in net earnings and diluted net earnings per share were driven primarily by net sales growth in our CRM and AF operating segments. Additionally, the relatively larger increase in our diluted net earnings per share compared to our net earnings growth was primarily a result of our common stock repurchases, resulting in lower shares outstanding. From April 2006 through May 2007, we returned $1.7 billion to shareholders in the form of share repurchases.

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Net earnings were $548.3 million in 2006, a 39% increase over 2005 net earnings of $393.5 million. Diluted net earnings per share were $1.47 in 2006, a 41% increase over 2005 diluted net earnings per share of $1.04. Net earnings for 2006 included an after-tax $22.0 million special charge, or $0.06 per diluted share, related to restructuring activities in our former Cardiac Surgery and Cardiology divisions and international selling organization. Compared to 2005 net earnings, 2006 net earnings also included after-tax stock-based compensation expense of $49.4 million, or $0.13 per diluted share, resulting from the adoption of SFAS No. 123(R) on January 1, 2006.

LIQUIDITY

We believe that our existing cash balances, available borrowings under our commercial paper program and future cash generated from operations will be sufficient to meet our working capital and capital investment needs over the next twelve months and in the foreseeable future thereafter. Should suitable investment opportunities arise, we believe that our earnings, cash flows and balance sheet position will permit us to obtain additional debt financing or equity capital, if necessary. Primary short-term liquidity needs are provided through our commercial paper program for which credit support is provided by a long-term $1.0 billion committed credit facility.

At December 29, 2007, our short-term credit ratings were A2 from Standard & Poor’s and P2 from Moody’s. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

At December 29, 2007, a portion of our cash and cash equivalents was held by our non-U.S. subsidiaries. These funds are only available for use by our U.S. operations if they are repatriated into the United States. The funds repatriated would be subject to additional U.S. taxes upon repatriation which could range from 0% to 33% of the amount repatriated. Our repatriation of $500.0 million in 2005 was completed in accordance with the provisions of the American Jobs Creation Act of 2004, which provided a one-time repatriation opportunitythat was subject to U.S. taxes of approximately 5%.

A summary of our cash flows from operating, investing and financing activities is provided in the following table (in thousands):

	2007			2006			2005
Net cash provided by (used in):
Operating activities	$	865,569		$	648,811		$	716,313
Investing activities		(306,315	)		(325,639	)		(1,810,770	)
Financing activities		(259,484	)		(786,241	)		968,170
Effect of currency exchange rate changes on cash and cash equivalents		9,436			8,389			(27,185	)
Net increase (decrease) in cash and cash equivalents	$	309,206		$	(454,680	)	$	(153,472	)

Cash Flows from Operating Activities

Cash provided by operating activities was $865.6 million for 2007 compared to $648.8 million for 2006. Operating cash flows can fluctuate significantly from period to period due to payment timing differences of working capital accounts such as accounts receivable and accounts payable. Operating cash flows improved during 2007 compared to 2006 due to improvements in working capital and increased net earnings driven by net sales growth in our CRM and AF operating segments.

As of December 29, 2007, accounts receivable and inventory increased $92.0 million and $13.7 million, respectively, from December 30, 2006. We use two primary measures that focus on accounts receivable and inventory – days sales outstanding (DSO) and days inventory on hand (DIOH). We use DSO (calculated by dividing ending net accounts receivable by average quarterly daily sales) as a measure that places emphasis on how quickly we collect our accounts receivable balances from customers. We use DIOH (calculated by dividing ending net inventory by the average daily cost of sales for the most recent six months) as a measure that places emphasis on how efficiently we are managing our inventory levels. These measures may not be computed the same as similarly titled measures used by other companies. Although the 2007 accounts receivable balance increased year over year due to higher sales volumes at the end of 2007 compared to 2006, our DSO decreased slightly to 92 days at December 29, 2007 from 93 days at December 30, 2006. We were able to offset inventory increases necessary to support new CRM product introductions and increased sales with more effective inventory management. Accordingly, our DIOH decreased to 152 days at December 29, 2007 from 172 days at December 30, 2006. Special charges recorded in cost of sales reduced our 2007 and 2006 DIOH calculations by 11 days and 6 days, respectively. In 2006, cash provided by operating activities was $648.8 million compared to $716.3 million during 2005. The decrease in 2006 operating cash flows compared to 2005 results from changes in operating assets and liabilities as well as a required change in classification of excess tax benefits from the exercise of stock options that negatively impacted the 2006 year-over-year operating cash flow comparison.

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Cash Flows from Investing Activities

Cash used in investing activities was $306.3 million in 2007 compared to $325.6 million in 2006 and $1,810.8 million in 2005. As a result of no significant acquisitions in 2007 or 2006, less cash was used for investing activities compared to 2005, as we paid nearly $1.8 billion for the acquisitions of ANS, ESI, Velocimed and Savacor during 2005. We acquired various businesses involved in the distribution of our products for an aggregate cash consideration of $12.2 million and $38.8 million in 2007 and 2006, respectively. Additionally, during the first quarter of 2007, we received proceeds of $12.9 million upon liquidating our minority interest in Conor Medical, Inc., as a result of its acquisition by Johnson and Johnson, Inc. Beginning in 2006, we began focusing on increasing our investments in property, plant and equipment, including next-generation diagnostic equipment such as our Merlin™ Patient Care System as well as other product growth platforms currently in place, specifically in our CRM and AF operating segments. As a result, capital expenditures totaled $287.2 million and $267.9 million in 2007 and 2006, respectively, compared to $158.8 million in 2005.

Cash Flows from Financing Activities

Cash used in financing activities was $259.5 million and $786.2 million in 2007 and 2006, respectively, compared to cash provided by financing activities of $968.2 million in 2005. Our financing cash flows can fluctuate significantly depending upon our liquidity needs and the amount of stock option exercises. During 2007, we repurchased approximately $1.0 billion of our common stock, which was financed through a portion of the proceeds from the issuance of $1.2 billion of 1.22% Convertible Debentures, proceeds from the issuance of commercial paper and borrowings under an interim liquidity facility. Approximately $700 million of proceeds from the issuance of 1.22% Convertible Debentures were used to repay commercial paper borrowings and borrowings under an interim liquidity facility. We also used $101.0 million of proceeds from the issuance of our 1.22% Convertible Debentures to purchase a call option to receive shares of our common stock. Refer to the Debt and Credit Facilities section for a more detailed discussion of our call option purchase. Upon the adoption of SFAS No. 123(R) at the beginning of fiscal year 2006, excess tax benefits from the exercise of stock options were reflected as a financing cash inflow, which can fluctuate significantly based upon, among other things, the amount and exercise price of stock options exercised and the fair market value of our common stock on the exercise date. During 2006, we repurchased $700.0 million of our common stock and funded the payment of $654.5 million of our 2.80% Convertible Debentures, both of which were primarily financed through proceeds from the issuance of commercial paper.

DEBT AND CREDIT FACILITIES

Total debt increased to $1,388.0million at December 29, 2007 from $859.4 million at December 30, 2006 primarily due to the issuance of $1.2 billion of 1.22% Convertible Debentures in April 2007.

Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. We had no outstanding commercial paper borrowings at December 29, 2007 and $678.4 million of commercial paper borrowings outstanding at December 30, 2006, bearing a weighted average effective interest rate of 5.4%. During 2007 and 2006 we borrowed commercial paper at weighted average effective interest rates of 5.4% and 5.3%, respectively. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. We have a long-term $1.0 billion committed credit facility that we may draw on to support our commercial paper program and for general corporate purposes. Borrowings under this facility bear interest at the United States Dollar London InterBank Offered Rate (LIBOR) plus 0.27%, or in the event over half of the facility is drawn on, LIBOR plus 0.32%. The interest rate is subject to adjustment in the event of a change in our credit ratings. There were no outstanding borrowings under this credit facility during fiscal years 2007 or 2006.

During the first quarter of 2007, we had borrowed $350.0 million under an interim liquidity facility to finance a portion of the common stock repurchases made during the first half of 2007. Borrowings under this liquidity facility bore interest at LIBOR plus 0.35%. On April 25, 2007, this facility expired and we repaid the related outstanding borrowings using a portion of the proceeds from the issuance of the 1.22% Convertible Debentures.

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In April 2007, we issued $1.2 billion aggregate principal amount of 1.22% Convertible Debentures that mature on December 15, 2008. Interest payments related to the 1.22% Convertible Debentures are required on a semi-annual basis. We may be required to repurchase some or all of the 1.22% Convertible Debentures for cash upon the occurrence of certain corporate transactions. The 1.22% Convertible Debentures are convertible under certain circumstances for cash and shares of our common stock, if any, at an initial conversion rate of 19.2101 shares of our common stock per $1,000 principal amount of the 1.22% Convertible Debentures (equivalent to an initial conversion price of approximately $52.06 per share). Upon conversion, we are required to satisfy up to 100% of the principal amount of the 1.22% Convertible Debentures solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock, cash or a combination of common stock and cash, at our election. See Note 4 to the Consolidated Financial Statements for further details on the 1.22% Convertible Debentures.

In connection with the issuance of the 1.22% Convertible Debentures, we purchased a call option for $101.0 million in a private transaction to receive shares of our common stock. The purchase of the call option is intended to offset potential dilution to our common stock upon potential future conversion of the 1.22% Convertible Debentures. The call option is exercisable at approximately $52.06 per share and allows us to receive the same number of shares and/or amount of cash from the counterparty as we would be required to deliver upon potential future conversion of the 1.22% Convertible Debentures. The call option terminates upon the earlier of the conversion date or maturity date of the 1.22% Convertible Debentures.

Separately, we also sold warrants for 23.1 million shares of our common stock in a private transaction and received proceeds of $35.0 million. Over a two-month period beginning in April 2009, we may be required to issue shares of our common stock to the counterparty if the average price of our common stock during a defined period exceeds the warrant exercise price of approximately $60.73 per share.

In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Debentures that mature in December 2035. At both December 29, 2007 and December 30, 2006, we had $5.5 million of the 2.80% Convertible Debentures outstanding. Interest on the 2.80% Convertible Debentures is payable on a semi-annual basis. Contingent interest of 0.25% is payable in certain circumstances. Holders of the 2.80% Convertible Debentures can require us to repurchase for cash some or all of the 2.80% Convertible Debentures on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030 or upon the occurrence of certain events. In December 2006, holders required us to repurchase $654.5 million of the 2.80% Convertible Debentures for cash. We have the right to redeem some or all of the 2.80% Convertible Debentures for cash at any time. The 2.80% Convertible Debentures are convertible into less than 0.1 million shares of our common stock if the price of our common stock exceeds $64.51 per share. The total number of contingently issuable shares that could be issued to satisfy conversion of the remaining $5.5 million aggregate principal amount of the 2.80% Convertible Debentures is not material.

In May 2003, we issued 7-year, 1.02% Yen-denominated notes in Japan (Yen Notes) totaling 20.9 billion Yen, or $182.5 million at December 29, 2007 and $175.5 million at December 30, 2006. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The principal amount recorded on our balance sheet fluctuates based on the effects of foreign currency translation.

Our $1.0 billion committed credit facility and Yen Notes contain certain operating and financial covenants. Specifically, the credit facility requires that we have a leverage ratio (defined as the ratio of total debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0. The Yen Notes require that we have a ratio of total debt to total capitalization not exceeding 55% and a ratio of consolidated EBIT (net earnings before interest and income taxes) to consolidated interest expense of at least 3.0 to 1.0. Under the credit facility and the Yen Notes we also have certain limitations on additional liens or indebtedness and limitations on certain acquisitions, investments and dispositions of assets. We were in compliance with all of our debt covenants during fiscal years 2007, 2006 and 2005.

SHARE REPURCHASES

On February 22, 2008, our Board of Directors authorized a share repurchase program of up to $250.0 million of our outstanding common stock. The manner, timing and amount of any purchases will be determined by management based on their evaluation of market conditions, stock price and other factors. Repurchases of common stock under this program can be made for general corporate purposes, including offsetting dilution from our stock-based employee compensation plans.

On January 25, 2007, our Board of Directors authorized a share repurchase program of up to $1.0 billion of our outstanding common stock. We began making repurchases under this program on January 29, 2007 and completed the repurchases under the program on May 8, 2007. In total, we repurchased 23.6 million shares for approximately $1.0 billion – $775.3 million of shares in the open market and $224.6 million of shares through a private block trade in connection with the issuance of the 1.22% Convertible Debentures.

16

On April 18, 2006, our Board of Directors authorized a share repurchase program of up to $700.0 million of our outstanding common stock. The $700.0 million share repurchase program replaced our earlier share repurchase program, under which we were authorized to repurchase up to $300.0 million of our outstanding common stock. No stock was repurchased under the earlier program. We began making share repurchases under the $700.0 million program on April 21, 2006 and completed the repurchases on May 26, 2006. We repurchased the maximum amount authorized by the Board of Directors resulting in 18.6 million shares repurchased for $700.0 million. We funded the share repurchase through cash from operations and proceeds from the issuance of commercial paper.

DIVIDENDS

We did not declare or pay any cash dividends during 2007, 2006 or 2005. We currently intend to retain our earnings for use in the operation and expansion of our business and therefore do not anticipate paying any cash dividends in the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We believe that our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position or cash flows. Our off-balance sheet arrangements principally consist of operating leases for various facilities and equipment, purchase commitments and contingent acquisition commitments.

In April 2007, we issued $1.2 billion of 1.22% Convertible Debentures that are convertible under certain circumstances for cash and shares of our common stock, if any (see Note 4 to the Consolidated Financial Statements). The convertible features of the 1.22% Convertible Debentures are considered to be an equity-linked derivative which is not required to be reflected in our balance sheet. Due to the call option we purchased to offset potential dilution to our common stock upon potential future conversion of the 1.22% Convertible Debentures, we do not believe that the equity-linked derivative currently exposes us to a material amount of off-balance sheet risk.

In the normal course of business, we periodically enter into agreements that require us to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising out of our products or the negligence of our personnel or claims alleging that our products infringe third-party patents or other intellectual property. In addition, under our bylaws and indemnification agreements we have entered into with our executive officers and directors, we may be required to indemnify our executive officers and directors for losses arising from their conduct in an official capacity on behalf of St. Jude Medical. We may also be required to indemnify officers and directors of certain companies that we have acquired for losses arising from their conduct on behalf of their companies prior to the closing of our acquisition. Our maximum exposure under these indemnification obligations cannot be estimated, and we have not accrued any liabilities within our consolidated financial statements or included any indemnification provisions in our commitments table. Historically, we have not experienced significant losses on these types of indemnifications.

In addition to the amounts shown in the following table, $95.3 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, and we are uncertain as to if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $17.3 million at December 29, 2007.

17

A summary of contractual obligations and other minimum commercial commitments as of December 29, 2007 is as follows (in thousands):

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual obligations related to off-balance sheet arrangements:
Operating leases	$	95,356	$	26,029	$	35,759	$	20,881	$	12,687
Purchase commitments (a)		378,067		314,972		46,781		16,314		—
Contingent consideration payments (b)		189,567		31,637		9,717		82,963		65,250
Total	$	662,990	$	372,638	$	92,257	$	120,158	$	77,937
Contractual obligations reflected in the balance sheet:
Long-term debt (c)		1,400,141		1,222,082		178,059		—		—
Total	$	2,063,131	$	1,594,720	$	270,316	$	120,158	$	77,937

(a)	These amounts include commitments for inventory purchases and capital expenditures that do not exceed our projected requirements and are in the normal course of business. The purchase commitment amounts do not represent the entire anticipated purchases and capital expenditures in the future, but only those for which we are contractually obligated.
(b)	These amounts include contingent commitments to acquire various businesses involved in the distribution of our products and other contingent acquisition consideration payments. In connection with certain acquisitions, we may agree to provide additional consideration payments upon the achievement of certain product development milestones, which may include but are not limited to: successful levels of achievement in clinical trials and certain product regulatory approvals. We may also provide for additional consideration payments to be made upon the achievement of certain levels of future product sales. While it is not certain if and/or when these payments will be made, we have included the payments in the table based on our best estimates of the dates when we expect the milestones and/or contingencies will be met.
(c)	These amounts also include scheduled interest payments on our long-term debt. See Note 4 to the Consolidated Financial Statements for additional information on our long-term debt obligations.

MARKET RISK

We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars, Brazilian Reals, British Pounds, and Swedish Kronor. In recent years we have not entered into any forward exchange or option contracts, and we do not enter into contracts for trading or speculative purposes. We continue to evaluate our foreign currency exchange rate risk and the different mechanisms for use in managing such risk. A hypothetical 10% change in the value of the U.S. Dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $153 million on our 2007 net sales. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses.

With our acquisition of Getz Japan during 2003, we significantly increased our exposure to foreign currency exchange rate fluctuations due to transactions denominated in Japanese Yen. We elected to naturally hedge a portion of our Yen-denominated net asset exposure by issuing long term Yen-denominated debt, the proceeds of which were used to repay the short-term bank debt that we used to fund a portion of the Getz Japan purchase price. Excess cash flows from our Japan operations will be used to fund principal and interest payments on the Yen Notes. We have not entered into any Yen-denominated hedging contracts to mitigate any remaining foreign currency exchange rate risk. We are also exposed to fair value risk on our Yen Notes. As of December 29, 2007, the fair value of these notes approximated their carrying value. A hypothetical 10% change in interest rates would have an impact of approximately $0.4 million on the fair value of the Yen Notes, which is not material to our consolidated earnings or financial position.

In the United States, we issue short-term, unsecured commercial paper that bears interest at varying market rates. We also have one committed credit facility that has a variable LIBOR-based interest rate. We had no variable interest rate borrowings as of December 29, 2007. A hypothetical 10% change in interest rates assuming an average outstanding borrowing of approximately $355 million during 2007 would have had an impact of approximately $2 million on our 2007 interest expense, which is not material to our consolidated earnings.

18

We are also exposed to equity market risk on our marketable equity security investments. We hold certain marketable equity securities of emerging technology companies. Our investments in these companies had a fair value of $32.4 million at December 29, 2007, which are subject to the underlying price risk of the public equity markets.

COMPETITION AND OTHER CONSIDERATIONS

We expect that market demand, government regulation and reimbursement policies, and societal pressures will continue to change the worldwide healthcare industry resulting in further business consolidations and alliances. We participate with industry groups to promote the use of advanced medical device technology in a cost-conscious environment.

The global medical technology industry is highly competitive and is characterized by rapid product development and technological change. Our products must continually improve technologically and provide improved clinical outcomes due to the competitive nature of the industry. In addition, competitors have historically employed litigation to gain a competitive advantage.

Competition is anticipated to continue to place pressure on pricing and terms, including a trend toward vendor-owned (consignment) inventory at hospitals. Also, healthcare reform is expected to result in further hospital consolidations over time with related pressure on pricing and terms.

The ICD and pacemaker markets are highly competitive. Our two principal competitors in these markets are larger than us and have invested substantial amounts in ICD research and development. Rapid technological change in these markets is expected to continue, requiring us to invest heavily in R&D and to effectively market our products.

The cardiovascular market is also highly competitive. The majority of our sales in this market is generated from our vascular closure devices and heart valve replacement and repair products. We continue to hold the number one market position in the vascular closure device market; however, the market for vascular closure devices is highly competitive, and there are several companies, in addition to St. Jude Medical, that manufacture and market these products worldwide. The cardiovascular market also includes cardiac surgery products such as mechanical heart valves, tissue heart valves and valve repair products, which are also highly competitive. Cardiac surgery therapies have shifted to tissue valves and repair products from mechanical heart valves, resulting in an overall market share loss for us.

The atrial fibrillation therapy area is broadening to include multiple therapy methods and treatments which include drugs, percutaneous delivery of diagnostic and ablation catheters, external electrical cardioversion and defibrillation, implantable defibrillators and open-heart surgery. As a result, we have numerous competitors in the emerging atrial fibrillation market. Larger competitors may expand their presence in the atrial fibrillation market by leveraging their cardiac rhythm management capabilities.

The neuromodulation market is one of medical technology’s fastest growing segments. Competitive pressures will increase in the future as our two principal competitors attempt to secure and grow their positions in the neuromodulation market. Other companies are attempting and will attempt in the future to bring new products or therapies into this market. Barriers to entry for new competitors are high, due to a long and expensive product development and regulatory approval process as well as the intellectual property and patent positions existing in the market. However, other larger medical device companies may be able to enter the neuromodulation market by leveraging their existing medical device capabilities, thereby decreasing the time and resources required to enter the market.

We operate 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 us in the future relative to events that are not known to us at the present time. Our product liability insurance coverage is designed to help protect us against a catastrophic claim. Our product liability insurance coverage for the period June 15, 2007 through June 15, 2008 is $350 million, with a $50 million per occurrence deductible or a $100 million deductible if the claims are deemed an integrated occurrence under the policies.

Group purchasing organizations, independent delivery networks and large single accounts, such as the Veterans Administration in the United States, continue to consolidate purchasing decisions for some of our hospital customers. We have contracts in place with many of these organizations. In some circumstances, our inability to obtain a contract with such an organization could adversely affect our efforts to sell our products to that organization’s hospitals.

19

CAUTIONARY STATEMENTS

In this discussion and in other written or oral statements made from time to time, we have included and may include statements that constitute “forward-looking statements” with respect to the financial condition, results of operations, plans, objectives, new products, future performance and business of St. Jude Medical, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “forecast”, “project,” “believe” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. By identifying these statements for you in this manner, we are alerting you to the possibility that actual results may differ, possibly materially, from the results indicated by these forward-looking statements. We undertake no obligation to update any forward-looking statements. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties discussed in the previous section entitled Off-Balance Sheet Arrangements and Contractual Obligations, Market Risk and Competition and Other Considerations and in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K as well as the various factors described below. Since it is not possible to foresee all such factors, you should not consider these factors to be a complete list of all risks or uncertainties. We believe the most significant factors that could affect our future operations and results are set forth in the list below.

1.	Any legislative or administrative reform to the U.S. Medicare or Medicaid systems or international reimbursement systems that significantly reduces reimbursement for procedures using our medical devices or denies coverage for such procedures, as well as adverse decisions relating to our products by administrators of such systems on coverage or reimbursement issues.
2.	Assertion, acquisition or grant of key patents by or to others that have the effect of excluding us from market segments or requiring us to pay royalties.
3.	Economic factors, including inflation, contraction in capital markets, changes in interest rates, and changes in foreign currency exchange rates.
4.	Product introductions by competitors that have advanced technology, better features or lower pricing.
5.	Price increases by suppliers of key components, some of which are sole-sourced.
6.	A reduction in the number of procedures using our devices caused by cost-containment pressures or the development of or preferences for alternate therapies.
7.	Safety, performance or efficacy concerns about our products, many of which are expected to be implanted for many years, leading to recalls and/or advisories with the attendant expenses and declining sales.
8.	Declining industry-wide sales caused by product recalls or advisories by our competitors that result in loss of physician and/or patient confidence in the safety, performance or efficacy of sophisticated medical devices in general and/or the types of medical devices recalled in particular.
9.	Changes in laws, regulations or administrative practices affecting government regulation of our products, such as FDA laws and regulations that increase the time and/or expense of obtaining approval for products or impose additional burdens on the manufacture and sale of medical devices.
10.	Regulatory actions arising from concern over Bovine Spongiform Encephalopathy, sometimes referred to as “mad cow disease,” that have the effect of limiting our ability to market products using bovine collagen, such as Angio-Seal™, or products using bovine pericardial material, such as our Bicor® and Epic™ tissue heart valves, or that impose added costs on the procurement of bovine collagen or bovine pericardial material.
11.	Difficulties obtaining, or the inability to obtain, appropriate levels of product liability insurance or the refusal of our insurance carriers to pay for losses we incur.
12.	The ability of our Silzone® product liability insurers to meet their obligations to us.
13.	Severe weather or other natural disasters that cause damage to the facilities of our critical suppliers or one or more of our facilities, such as an earthquake affecting our facilities in California or a hurricane affecting our facilities in Puerto Rico.
14.	Healthcare industry consolidation leading to demands for price concessions and/or limitations on, or the elimination of, our ability to sell in significant market segments.
15.	Adverse developments in investigations and governmental proceedings, including the investigation of business practices in the cardiac rhythm management industry by the U.S. Attorney’s Office in Boston.
16.	Adverse developments in litigation, including product liability litigation, patent or other intellectual property litigation or shareholder litigation.
17.	Inability to successfully integrate the businesses that we have acquired in recent years and that we plan to acquire.
18.	Failure to successfully complete clinical trials for new indications for our products and/or failure to successfully develop markets for such new indications.
19.	Changes in accounting rules that adversely affect the characterization of our results of operations, financial position or cash flows.

20

Report of Management

Management’s Report on the Financial Statements

We are responsible for the preparation, integrity and objectivity of the accompanying financial statements. The financial statements were prepared in accordance with accounting principles generally accepted in the United States and include amounts which reflect management’s best estimates based on its informed judgment and consideration given to materiality. We are also responsible for the accuracy of the related data in the annual report and its consistency with the financial statements.

Audit Committee Oversight

The adequacy of our internal accounting controls, the accounting principles employed in our financial reporting and the scope of independent and internal audits are reviewed by the Audit Committee of the Board of Directors, consisting solely of outside directors. The independent registered public accounting firm meets with, and has confidential access to, the Audit Committee to discuss the results of its audit work.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of the Company’s management, including the CEO and the CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the CEO and CFO concluded that our internal control over financial reporting was effective as of December 29, 2007. Ernst & Young LLP, our independent registered public accounting firm, has also audited the effectiveness of the Company’s internal controls over financial reporting as of December 29, 2007 as stated in their report which is included herein.

/s/   Daniel J. Starks

Daniel J. Starks

Chairman, President and Chief Executive Officer

/s/   John C. Heinmiller

John C. Heinmiller

Executive Vice President and Chief Financial Officer

21

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

of St. Jude Medical, Inc.

We have audited St. Jude Medical, Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). St. Jude Medical, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management entitled Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on St. Jude Medical, Inc.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, St. Jude Medical, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 29, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of St. Jude Medical, Inc. and subsidiaries as of December 29, 2007, and December 30, 2006, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended December 29, 2007, and our report dated February 27, 2008, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 27, 2008

22

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

of St. Jude Medical, Inc.

We have audited the accompanying consolidated balance sheets of St. Jude Medical, Inc. and subsidiaries as of December 29, 2007, and December 30, 2006, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended December 29, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of St. Jude Medical, Inc. and subsidiaries at December 29, 2007, and December 30, 2006, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, using the modified prospective method. As discussed in Note 10 to the consolidated financial statements, effective December 31, 2006, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), St. Jude Medical Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2008, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 27, 2008

23

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)

Fiscal Year Ended	December 29, 2007			December 30, 2006			December 31, 2005
Net sales	$	3,779,277		$	3,302,447		$	2,915,280
Cost of sales:
Cost of sales before special charges		1,003,302			898,405			796,761
Special charges		38,292			15,108			—
Total cost of sales		1,041,594			913,513			796,761
Gross profit		2,737,683			2,388,934			2,118,519
Selling, general and administrative expense		1,382,466			1,195,030			968,888
Research and development expense		476,332			431,102			369,227
Purchased in-process research and development charges		—			—			179,174
Special charges (credits)		85,382			19,719			(11,500	)
Operating profit		793,503			743,083			612,730
Other income (expense), net		(49,198	)		(22,442	)		8,674
Earnings before income taxes		744,305			720,641			621,404
Income tax expense		185,267			172,390			227,914
Net earnings	$	559,038		$	548,251		$	393,490
Net earnings per share:
Basic	$	1.63		$	1.53		$	1.08
Diluted	$	1.59		$	1.47		$	1.04
Weighted average shares outstanding:
Basic		342,103			359,252			363,612
Diluted		352,444			372,830			379,106

See notes to the consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	December 29, 2007			December 29, 2006
ASSETS
Current Assets
Cash and cash equivalents	$	389,094		$	79,888
Accounts receivable, less allowances for doubtful accounts		1,023,952			882,098
Inventories		457,734			452,812
Deferred income taxes, net		110,710			117,330
Other		146,693			158,037
Total current assets		2,128,183			1,690,165
Property, Plant and Equipment
Land, buildings and improvements		300,360			252,285
Machinery and equipment		760,061			626,150
Diagnostic equipment		338,983			282,831
Property, plant and equipment at cost		1,399,404			1,161,266
Less accumulated depreciation		(622,609	)		(543,415	)
Net property, plant and equipment		776,795			617,851
Other Assets
Goodwill		1,657,313			1,649,581
Other intangible assets, net		498,700			560,276
Other		268,413			271,921
Total other assets		2,424,426			2,481,778
TOTAL ASSETS	$	5,329,404		$	4,789,794
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,205,498		$	—
Accounts payable		188,210			162,954
Income taxes payable		16,458			121,663
Accrued expenses
Employee compensation and related benefits		261,833			217,694
Other		177,230			173,896
Total current liabilities		1,849,229			676,207
Long-term debt		182,493			859,376
Deferred income taxes, net		107,011			163,336
Other liabilities		262,661			121,888
Total liabilities		2,401,394			1,820,807
Commitments and Contingencies (Notes 2 and 5)		—			—
Shareholders' Equity
Preferred stock		—			—
Common stock (342,846,963 and 353,932,000 shares issued and outstanding at December 29, 2007 and December 30, 2006, respectively)		34,285			35,393
Additional paid-in capital		193,662			100,173
Retained earnings		2,600,905			2,787,092
Accumulated other comprehensive income
Cumulative translation adjustment		86,754			23,243
Unrealized gain on available-for-sale securities		12,404			23,086
Total shareholders' equity		2,928,010			2,968,987
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,329,404		$	4,789,794

See notes to the consolidated financial statements.

25

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

	Common Stock					Additional Paid-In Capital			Unearned Compensation			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Number of Shares		Amount
Balance at January 1, 2005	358,760,693		$	35,876		$	277,147		$	—		$	1,951,821		$	69,084		$	2,333,928
Comprehensive income:
Net earnings													393,490						393,490
Other comprehensive income (loss):
Unrealized gain on investments, net of taxes of $3,988																6,223			6,223
Foreign currency translation adjustment, net of taxes of $(1,809)																(83,082	)		(83,082	)
Other comprehensive loss																			(76,859	)
Comprehensive income																			316,631
Options assumed in business combinations							21,997			(6,152	)								15,845
Stock-based compensation							944			511									1,455
Common stock issued under stock plans and other, net	9,143,725			914			125,199												126,113
Tax benefit from stock plans							89,073												89,073
Balance at December 31, 2005	367,904,418			36,790			514,360			(5,641	)		2,345,311			(7,775	)		2,883,045
Comprehensive income:
Net earnings													548,251						548,251
Other comprehensive income:
Unrealized gain on investments, net of taxes of $929																1,630			1,630
Foreign currency translation adjustment, net of taxes of $(2,179)																52,474			52,474
Other comprehensive income																			54,104
Comprehensive income																			602,355
Repurchases of common stock	(18,579,390	)		(1,858	)		(591,672	)					(106,470	)					(700,000	)
Stock-based compensation							70,402												70,402
Reclassification upon adoption of SFAS 123(R)							(5,641	)		5,641									—
Common stock issued under stock plans and other, net	4,606,972			461			76,901												77,362
Tax benefit from stock plans							35,823												35,823
Balance at December 30, 2006	353,932,000			35,393			100,173			—			2,787,092			46,329			2,968,987
Comprehensive income:
Net earnings													559,038						559,038
Other comprehensive income (loss):
Unrealized loss on investments, net of taxes of $(3,343)																(5,766	)		(5,766	)
Reclassification of realized gain to net earnings, net of taxes of $3,013																(4,916	)		(4,916	)
Foreign currency translation adjustment, net of taxes of $(4,227)																63,511			63,511
Other comprehensive income																			52,829
Comprehensive income																			611,867
Repurchases of common stock	(23,619,400	)		(2,361	)		(243,739	)					(753,767	)					(999,867	)
Stock-based compensation							54,540												54,540
Common stock issued under stock plans and other, net	12,534,363			1,253			185,564												186,817
Tax benefit from stock plans							125,234												125,234
Cumulative effect adjustment to retained earnings related to the adoption of FIN 48 (Note 10)													8,542						8,542
Purchase of call options, net of taxes of $(37,890)							(63,150	)											(63,150	)
Proceeds from the sale of warrants							35,040												35,040
Balance at December 29, 2007	342,846,963		$	34,285		$	193,662		$	—		$	2,600,905		$	99,158		$	2,928,010

See notes to the consolidated financial statements.

26

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Fiscal Year Ended	December 29, 2007			December 30, 2006			December 31, 2005
OPERATING ACTIVITIES
Net earnings	$	559,038		$	548,251		$	393,490
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		121,688			94,002			76,364
Amortization		75,977			72,810			53,845
Gain on sale of investment		(7,929	)		—			—
Stock-based compensation		54,540			70,402			1,455
Excess tax benefits from stock-based compensation		(97,921	)		(28,577	)
Purchased in-process research and development charges		—			—			179,174
Special charges (credits)		113,768			34,827			(11,500	)
Deferred income taxes		(6,229	)		(10,927	)		4,833
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(91,964	)		(54,945	)		(138,846	)
Inventories		(13,660	)		(77,444	)		(23,695	)
Other current assets		(5,301	)		(18,329	)		11,767
Accounts payable and accrued expenses		20,815			(29,175	)		69,458
Income taxes payable		142,747			47,916			99,968
Net cash provided by operating activities		865,569			648,811			716,313
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(287,157	)		(267,896	)		(158,768	)
Proceeds from the sale of investments		12,929			—			153,389
Business acquisition payments, net of cash acquired		(12,238	)		(38,797	)		(1,775,527	)
Other investing activities, net		(19,849	)		(18,946	)		(29,864	)
Net cash used in investing activities		(306,315	)		(325,639	)		(1,810,770	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		186,817			77,362			126,113
Excess tax benefits from stock-based compensation		97,921			28,577			—
Common stock repurchased, including related costs		(999,867	)		(700,000	)		—
Issuance (repayment) of convertible debentures		1,200,000			(654,502	)		660,000
Purchase of call options		(101,040	)		—			—
Proceeds from the sale of warrants		35,040			—			—
Borrowings under debt facilities		8,045,869			4,949,101			3,377,775
Payments under debt facilities		(8,724,224	)		(4,486,779	)		(3,195,718	)
Net cash provided by (used in) financing activities		(259,484	)		(786,241	)		968,170
Effect of currency exchange rate changes on cash and cash equivalents		9,436			8,389			(27,185	)
Net increase (decrease) in cash and cash equivalents		309,206			(454,680	)		(153,472	)
Cash and cash equivalents at beginning of year		79,888			534,568			688,040
Cash and cash equivalents at end of year	$	389,094		$	79,888		$	534,568
Supplemental Cash Flow Information
Cash paid during the year for:
Interest	$	32,686		$	39,746		$	9,392
Income taxes	$	100,599		$	140,799		$	124,515

See notes to the consolidated financial statements.

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Notes to Consolidated Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Overview:   St. Jude Medical, Inc., together with its subsidiaries (St. Jude Medical or the Company) develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology, cardiac surgery and atrial fibrillation therapy areas and implantable neurostimulation devices for the management of chronic pain. The Company’s four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Advanced Neuromodulation Systems (ANS). At the beginning of its 2007 fiscal year, the Company combined its former Cardiac Surgery and Cardiology operating segments to form the CV operating segment which focuses on the cardiology and cardiac surgery therapy areas. The Company’s principal products in each operating segment are as follows: CRM – tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology (EP) introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and ANS – neurostimulation devices. The Company markets and sells its products primarily through a direct sales force. The principal geographic markets for the Company’s products are the United States, Europe, Japan and Asia Pacific.

Principles of Consolidation:   The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year:   The Company utilizes a 52/53-week fiscal year ending on the Saturday nearest December 31^st. Fiscal years 2007, 2006 and 2005 consisted of 52 weeks and ended on December 29, 2007, December 30, 2006 and December 31, 2005, respectively.

Reclassifications: Certain prior period reportable segment information (Note 3 and Note 12) has been reclassified to conform to the current year presentation.

Use of Estimates:   Preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents:   The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents include bank certificates of deposit, money market funds and instruments and commercial paper investments. The Company performs periodic evaluations of the relative credit standing of the financial institutions and issuers of its cash equivalents and limits the amount of credit exposure with any one issuer.

Marketable securities:   Marketable securities consist of publicly-traded equity securities that are classified as available-for-sale securities and investments in mutual funds that are classified as trading securities. On the balance sheet, available-for-sale securities and trading securities are classified as other current assets and other assets, respectively.

Available-for-sale securities are recorded at fair market value based upon quoted market prices. Unrealized gains and losses, net of related incomes taxes, are recorded in accumulated other comprehensive income in shareholders’ equity. The following table summarizes the components of the balance of the Company’s available-for-sale securities (in thousands):

	December 29, 2007			December 30, 2006
Adjusted cost	$	11,920		$	15,792
Gross unrealized gains		20,553			38,036
Gross unrealized losses		(54	)		(51	)
Fair value	$	32,419		$	53,777

Realized gains (losses) from the sale of available-for-sale securities are recorded in other income (expense) and are computed using the specific identification method. Upon the sale of an available-for-sale security, the unrealized gain (loss) is reclassified out of other accumulated comprehensive income and reflected as a realized gain (loss) in net earnings. During the first quarter of 2007, the Company sold an available-for-sale security, recognizing a realized after-tax gain of $4.9 million. The total pre-tax gain of $7.9 million was recognized as other income (see Note 9). When the fair value of an available-for-sale security falls below its original cost and the Company determines that the corresponding unrealized loss is other-than-temporary, the Company records an impairment loss to net earnings in the period the determination is made. No impairment losses were recorded in 2007 or 2006 relating to available-for-sale securities.

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The Company’s investments in mutual funds are recorded at fair market value based upon quoted market prices and are held in a rabbi trust, which is not available for general corporate purposes and is subject to creditor claims in the event of insolvency. These investments are specifically designated as available to the Company solely for the purpose of paying benefits under the Company’s deferred compensation plan (see Note 11). The fair value of these investments totaled approximately $139 million at December 29, 2007 and approximately $106 million at December 30, 2006.

Accounts Receivable:   The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company maintains an allowance for doubtful accounts for potential credit losses. The allowance for doubtful accounts was $26.7 million at December 29, 2007 and $24.9 million at December 30, 2006.

Inventories:   Inventories are stated at the lower of cost or market with cost determined using the first-in, first-out method. Inventories consisted of the following at (in thousands):

	December 29, 2007		December 30, 2006
Finished goods	$	338,195	$	315,306
Work in process		32,889		29,844
Raw materials		86,650		107,662
	$	457,734	$	452,812

Property, Plant and Equipment:   Property, plant and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives, ranging from 15 to 39 years for buildings and improvements, three to seven years for machinery and equipment and three to five years for diagnostic equipment. Diagnostic equipment primarily consists of programmers that are used by physicians and healthcare professionals to program and analyze data from ICDs and pacemakers. The estimated useful lives of this equipment are based on anticipated usage by physicians and healthcare professionals and management’s expected new technology platforms and rollouts by the Company. To the extent the Company experiences changes in the usage of this equipment or introductions of new technologies to the market, the estimated useful lives of this equipment may change in a future period. Diagnostic equipment had a net carrying value of $189.5 million and $156.3 million at December 29, 2007 and December 30, 2006, respectively. Property, plant and equipment are depreciated using accelerated methods for income tax purposes.

Goodwill and Other Intangible Assets:   Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. Other intangible assets consist of purchased technology and patents, customer lists and relationships, distribution agreements, trademarks and tradenames and licenses, which are amortized on a straight-line basis using lives ranging from 3 to 20 years.

Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), requires that goodwill for each reporting unit be reviewed for impairment at least annually. The Company has four reporting units at December 29, 2007, consisting of its four operating segments (see Note 12). The Company tests goodwill for impairment using the two-step process prescribed in SFAS No. 142. In the first step, the Company compares the fair value of each reporting unit, as computed primarily by present value cash flow calculations, to its book carrying value, including goodwill. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the Company would complete step 2 in order to measure the impairment loss. In step 2, the Company calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit (as determined in step 1). If the implied fair value of goodwill is less than the carrying value of goodwill, the Company would recognize an impairment loss equal to the difference. During the fourth quarters of 2007 and 2006, management completed its annual goodwill impairment review and identified no impairment associated with the carrying values of goodwill.

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Management also reviews other intangible assets for impairment at least annually to determine if any adverse conditions exist that would indicate impairment. If the carrying value of other intangible assets exceeds the undiscounted cash flows, the carrying value is written down to fair value in the period identified. In assessing fair value, management generally utilizes present value cash flow calculations using an appropriate risk-adjusted discount rate. During the fourth quarter of 2007, management recorded a $23.7 million intangible asset impairment related to a distribution agreement. Refer to Note 8 for further detail regarding this impairment charge. During the fourth quarter of 2006, management completed its annual other intangible asset impairment review and identified no impairment associated with the carrying values of its other intangible assets.

Product Warranties:   The Company offers a warranty on various products; the most significant warranties relate to pacemaker and ICD systems. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the Company’s product warranty liability during fiscal years 2007 and 2006 were as follows (in thousands):

	2007			2006
Balance at beginning of year	$	12,835		$	19,897
Warranty expense recognized		6,412			(723	)
Warranty credits issued		(2,556	)		(6,339	)
Balance at end of year	$	16,691		$	12,835

Litigation:   The Company accrues a liability for costs related to claims, including future legal costs, settlements and judgments where it has assessed that a loss is probable and an amount can be reasonably estimated. The Company records a receivable from our product liability insurance carriers for amounts expected to be recovered.

Revenue Recognition:   The Company sells its products to hospitals primarily through a direct sales force. In certain international markets, the Company sells its products through independent distributors. The Company recognizes revenue when persuasive evidence of a sales arrangement exists, delivery of goods occurs through the transfer of title and risks and rewards of ownership, the selling price is fixed or determinable and collectibility is reasonably assured. A portion of the Company’s inventory is held by field sales representatives or consigned at hospitals. Revenue is recognized at the time the Company is notified that the inventory has been implanted or used by the customer. For products that are not consigned, revenue recognition occurs upon shipment to the hospital or, in the case of distributors, when title transfers under the contract. The Company offers sales rebates and discounts to certain customers. The Company records such rebates and discounts as a reduction of net sales in the same period revenue is recognized. The Company estimates rebates based on sales terms and historical experience.

Research and Development:   Research and development costs are expensed as incurred.

Purchased In-Process Research and Development (IPR&D):   When the Company acquires another entity, the purchase price is allocated, as applicable, between IPR&D, other identifiable intangible assets, tangible assets and goodwill. Determining the portion of the purchase price allocated to IPR&D requires the Company to make significant estimates.

The Company’s policy defines IPR&D as the value assigned to those projects for which the related products have not yet reached technological feasibility and have no future alternative use. The primary basis for determining the technological feasibility of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. In accordance with accounting principles generally accepted in the United States, the value attributed to those projects is expensed in conjunction with the acquisition. The Company recorded IPR&D of $179.2 million in 2005.

The Company uses the income approach to establish the fair value of IPR&D as of the acquisition date. This approach establishes fair value by estimating the after-tax cash flows attributable to a project over its useful life and then discounting these after-tax cash flows back to a present value. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth, and trends in technology as well as anticipated product introductions by competitors. In arriving at the value of the projects, the Company considers, among other factors, the stage of completion, the complexity of the work completed, the costs incurred, the projected cost of completion, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. The discount rate used is determined at the time of acquisition and includes consideration of the assessed risk of the project not being developed to commercial feasibility. For the IPR&D acquired in connection with the Company’s 2005 acquisitions, it used risk-adjusted discount rates ranging from 16% to 22% to discount projected cash flows. The Company believes that the IPR&D amounts recorded represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects.

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Stock-Based Compensation:   Effective January 1, 2006, the Company adopted the provisions of, and accounts for stock-based compensation in accordance with, SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)). The Company elected the modified-prospective method of adopting SFAS No. 123(R), under which prior periods are not retroactively revised. Under the fair value recognition provisions of SFAS No. 123(R), the Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is the vesting period. For the Company, the valuation provisions of SFAS No. 123(R) apply to awards granted after the January 1, 2006 effective date. Stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date is being recognized over the remaining service period using the compensation cost estimated for the SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) pro forma disclosures.

Prior to adopting SFAS No. 123(R) on January 1, 2006, the Company used a graded attribution method, as described in Financial Accounting Standards Board (FASB) Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, to recognize its pro forma stock-based compensation expense. Unrecognized stock-based compensation expense for awards granted prior to the adoption of SFAS No. 123(R) is recognized under the graded attribution method. Stock-based compensation expense for awards granted after the adoption of SFAS No. 123(R) is recognized under a straight-line attribution method.

The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting option forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will only be for those awards that vest. The Company’s awards are not eligible to vest early in the event of retirement, however, the majority of the Company’s awards vest early in the event of death, disability or change in control.

As a result of the adoption of SFAS No. 123(R), the Company’s earnings before income taxes for fiscal years 2007 and 2006 were reduced by $54.5 million and $70.4 million, respectively, and the Company’s net earnings for the same periods were reduced by $38.4 million and $49.4 million, respectively. Basic net earnings per share for fiscal years 2007 and 2006 were reduced by $0.11 and $0.14, respectively, and the Company’s diluted net earnings per share for the same periods were reduced by $0.11 and $0.13, respectively.

The following table illustrates the effect on net earnings and net earnings per share for fiscal year 2005 if the Company had accounted for its stock-based compensation under the fair value recognition provisions of SFAS No. 123 (in thousands, except per share amounts):

	2005
Net earnings, as reported	$	393,490
Add:  Total stock-based compensation expense included in net earnings, net of related tax effects		902
Less:  Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(45,946	)
Pro forma net earnings	$	348,446
Net earnings per share:
Basic-as reported	$	1.08
Basic-pro forma	$	0.96
Diluted-as reported	$	1.04
Diluted-pro forma	$	0.92

The adoption of SFAS No. 123(R) also had a material impact on the Company’s presentation of its consolidated statement of cash flows. Prior to the adoption of SFAS No. 123(R), stock option exercise tax benefits in excess of tax benefits from recognized stock-based compensation expense were reported as operating cash flows. Under SFAS No. 123(R), such excess tax benefits are reported as financing cash flows. Although total cash flows under SFAS No. 123(R) remain unchanged from what would have been reported under prior accounting standards, net operating cash flows are reduced and net financing cash flows are increased due to the adoption of SFAS No. 123(R). For fiscal years 2007 and 2006, there were excess tax benefits of $97.9 million and $28.6 million, respectively, which were required to be classified as operating cash outflows and financing cash inflows. For fiscal year 2005, there were excess tax benefits of $89.1 million, which were classified as an operating cash inflow as part of the change in income taxes payable.

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Net Earnings Per Share:   Basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares during the period, exclusive of restricted shares. Diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and dilutive securities.

The following table sets forth the computation of basic and diluted net earnings per share for fiscal years 2007, 2006 and 2005 (in thousands, except per share amounts):

	2007		2006		2005
Numerator:
Net earnings	$	559,038	$	548,251	$	393,490
Denominator:
Basic-weighted average shares outstanding		342,103		359,252		363,612
Effect of dilutive securities:
Employee stock options		10,249		13,481		15,460
Restricted stock		92		97		34
Diluted-weighted average shares outstanding		352,444		372,830		379,106
Basic net earnings per share	$	1.63	$	1.53	$	1.08
Diluted net earnings per share	$	1.59	$	1.47	$	1.04

Approximately 12.0 million, 13.9 million and 4.9 million shares of common stock subject to employee stock options and restricted stock were excluded from the diluted net earnings per share computation because they were not dilutive during fiscal years 2007, 2006 and 2005, respectively.

Additionally, diluted weighted average shares outstanding have not been adjusted for the Company’s 1.22% Convertible Senior Debentures (1.22% Convertible Debentures) or its 2.80% Convertible Senior Debentures (2.80% Convertible Debentures). As the principal values of the 1.22% Convertible Debentures and 2.80% Convertible Debentures are required to be settled only in cash, the dilutive impact would be equal to the number of shares needed to satisfy their intrinsic values, assuming conversion. The potentially dilutive common shares related to the 1.22% Convertible Debentures and 2.80% Convertible Debentures would only be included in diluted weighted average shares outstanding if the Company’s average stock price was greater than the conversion prices of $52.06 and $64.51, respectively.

Diluted weighted average shares outstanding have also not been adjusted for the warrants the Company sold in April 2007. The potentially dilutive common shares to be issued under the warrants would only be included in diluted weighted average shares outstanding if the Company’s average stock price was greater than the warrant exercise price of $60.73. The dilutive impact would be equal to the number of shares needed to satisfy the intrinsic value of the warrants, assuming exercise.

Foreign Currency Translation: Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Assets and liabilities of foreign operations are translated at period-end exchange rates. Gains and losses from translation of net assets of foreign operations, net of related income taxes, are recorded in accumulated other comprehensive income. Foreign currency transaction gains and losses are included in other income (expense).

New Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value, clarifies the definition of fair value, and requires additional disclosures about fair-value measurements. SFAS No. 157 applies only to fair value measurements that are already required or permitted by other accounting standards (except for measurements of share-based payments) and is expected to increase the consistency of those measurements. SFAS No. 157, as issued, is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of FASB Statement No. 157 (FSP SFAS No. 157-2) that deferred of the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities. Accordingly, the Company adopted certain parts of SFAS No. 157 at the beginning of fiscal year 2008 and the remaining parts of SFAS No. 157 will be adopted by the Company at the beginning of fiscal year 2009. The 2008 fiscal year adoption did not result in a material impact to the Company’s financial statements. The Company is evaluating the impact of the remaining parts of SFAS No. 157 that will be adopted in fiscal year 2009.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) amends SFAS No. 141, Business Combinations and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. Some of the revised guidance of SFAS No. 141(R) includes initial capitalization of acquired IPR&D, expensing transaction and acquired restructuring costs and recording contingent consideration payments at fair value with subsequent adjustments recorded to net earnings. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively to business combinations that are consummated after adoption of SFAS No. 141(R).

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 establishes new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned subsidiaries. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements shall be applied prospectively. As of December 29, 2007, the Company does not have any partially owned consolidated subsidiaries and therefore, does not expect an impact related to the adoption of this accounting standard.

In August 2007, the FASB issued an exposure draft of FSP Accounting Principles Board (APB) Opinion No. 14-a, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB No. 14-a). The proposed FSP requires the proceeds from the issuance of such convertible debt instruments to be allocated between a liability and an equity component in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount would be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. As originally proposed in the exposure draft, the change in accounting treatment would be effective for fiscal years beginning after December 15, 2007, and applied retrospectively to prior periods. If ultimately adopted as proposed, this FSP would change the accounting treatment for our 1.22% Convertible Debentures and 2.80% Convertible Debentures, which were issued in April 2007 and December 2005, respectively (see Note 4). The impact of this new accounting treatment could be significant and result in a material increase to non-cash interest expense for financial statements covering past and future periods. In November 2007, the FASB announced that it expected to begin its redeliberations of the proposed FSP in January 2008. (As of February 15, 2008, the FASB has not yet scheduled redeliberations of FSP APB No. 14-a.) As a result, final guidance will not be issued until sometime in 2008, and the Company believes it is unlikely the proposed effective date for fiscal years beginning after December 15, 2007 will be retained. Until the final FSP is ultimately adopted and issued by the FASB, the Company cannot determine the exact impact of the change in accounting treatment.

NOTE 2 – ACQUISITIONS

The results of operations of businesses acquired have been included in the Company’s consolidated results of operations since the dates of acquisition. Other than the acquisition of ANS, pro forma results of operations have not been presented for these acquisitions since the effects of these business acquisitions were not material to the Company either individually or in aggregate.

Fiscal Year 2007

During 2007, the Company acquired businesses involved in the distribution of the Company’s products for aggregate cash consideration of $12.2 million, which was recorded within other intangible assets.

Fiscal Year 2006

Advanced Neuromodulation Systems, Inc.:   During 2006, the Company finalized the purchase price allocation relating to the acquisition of ANS. The impacts of finalizing the purchase price allocation, individually and in the aggregate, were not material. Overall, the Company recorded a $2.9 million net increase to ANS goodwill upon finalization of the purchase accounting.

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During 2006, the Company also acquired businesses involved in the distribution of the Company’s products for aggregate cash consideration of $38.8 million, which was recorded within other intangible assets.

Fiscal Year 2005

Advanced Neuromodulation Systems, Inc.:   On November 29, 2005, the Company completed its acquisition of ANS for $1,353.9 million, which included closing costs less $5.1 million of cash acquired. The ANS acquisition did not provide for the payment of any contingent consideration. ANS had been publicly traded on the NASDAQ market under the ticker symbol ANSI. ANS designs, develops, manufactures and markets implantable neurostimulation devices used to manage chronic pain. The ANS acquisition expanded the Company’s implantable microelectronics technology programs and provided the Company a presence in the neuromodulation segment of the medical device industry. The Company recorded an IPR&D charge of $107.4 million associated with this transaction.

The goodwill recorded as a result of the ANS acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s ANS operating segment. The goodwill recognized represents future product opportunities that did not have regulatory approval at the date of acquisition. In connection with the acquisition of ANS, the Company recorded $249.3 million of developed and core technology intangible assets and $23.3 million of trademarks and tradenames. Collectively, these acquired intangible assets have estimated useful lives of 15 years.

As part of the consideration paid to acquire ANS, the Company granted replacement unvested stock options and restricted stock to ANS employees who had unvested stock options and restricted stock outstanding at the date of acquisition. As a result, the Company recorded $15.8 million of purchase consideration relating to the value of these replacement awards. These awards were valued using the Black-Scholes standard option pricing model. ANS employees are required to render future service in order to vest in the replacement stock options and restricted stock.

The following unaudited pro forma information presents the consolidated results of operations of the Company and ANS as if the acquisition of ANS had occurred at the beginning of fiscal year 2005 (in thousands, except per share amounts):

	Unaudited
	2005
Revenue	$	3,043,422
Net earnings		432,218
Net earnings per share:
Basic	$	1.19
Diluted	$	1.14

Pro forma adjustments relate to amortization of identified intangible assets, interest expense resulting from acquisition financing and certain other adjustments together with related income tax effects. Pro forma net earnings for 2005 include the $107.4 million IPR&D charge that was a direct result of the acquisition. Pro forma net earnings for 2005 also include an $85.2 million pre-tax gain on the sale of ANS’s investment in common stock of Cyberonics, Inc., which was recorded by ANS in their historical 2005 results of operations. The unaudited pro forma consolidated results of operations are for comparative purposes only and are not necessarily indicative of results that would have occurred had the acquisition occurred as of the beginning of fiscal year 2005, nor are they necessarily indicative of future results.

Endocardial Solutions, Inc. (ESI):   On January 13, 2005, the Company completed its acquisition of ESI for $279.4 million, which included closing costs less $9.4 million of cash acquired. ESI had been publicly traded on the NASDAQ market under the ticker symbol ECSI. ESI developed, manufactured and marketed the EnSite® system used for the navigation and localization of diagnostic and therapeutic catheters used by physician specialists to diagnose and treat cardiac rhythm disorders. The Company acquired ESI to strengthen its portfolio of products used to treat heart rhythm disorders. The Company recorded an IPR&D charge of $12.4 million associated with this transaction.

The goodwill recorded as a result of the ESI acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s AF operating segment. The goodwill recognized represents future product opportunities that did not have regulatory approval at the date of acquisition. In connection with the acquisition of ESI, the Company recorded $39.2 million of developed and core technology intangible assets that have estimated useful lives of 15 years and $7.5 million of customer relationship and distribution agreement intangible assets that have estimated useful lives of five years.

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Velocimed, LLC (Velocimed):   On April 6, 2005, the Company completed its acquisition of the businesses of Velocimed for $70.9 million, which included closing costs less $6.7 million of cash acquired. Velocimed developed and manufactured specialty interventional cardiology devices. The Company acquired Velocimed to strengthen its portfolio of products in the interventional cardiology market. The Company recorded an IPR&D charge of $13.7 million associated with this transaction.

The goodwill recorded as a result of the Velocimed acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s CV operating segment. The goodwill recognized represents future product opportunities that did not have regulatory approval at the date of acquisition. In connection with the acquisition of Velocimed, the Company recorded $61.9 million of developed and core technology intangible assets that have estimated useful lives of 15 years.

Certain funds held in escrow by the Company totaling $5.5 million were released in the fourth quarter of 2006 and recorded as goodwill. Additionally, contingent payments of up to $100 million are due if future revenue targets are met through 2008, and a milestone payment of up to $80 million is tied to U.S. Food and Drug Administration (FDA) approval of the Premere™ patent foramen ovale closure system, with no milestone payment being made if approval occurs after December 31, 2010. All future payments made by the Company will be recorded as additional goodwill.

Savacor, Inc. (Savacor):   On December 30, 2005, the Company acquired Savacor for $49.7 million which included closing costs less $0.4 million in cash acquired, plus additional contingent payments related to product development milestones for regulatory approvals and revenues in excess of minimum future targets. Savacor was a development-stage company focused on the development of a device that measures left atrial pressure and body temperature to help physicians detect and manage symptoms associated with progressive heart failure. The Company recorded an IPR&D charge of $45.7 million associated with this transaction.

As Savacor was a development-stage company, the excess of the purchase price over the fair value of the net assets acquired was allocated on a pro-rata basis to the net assets acquired. Accordingly, the majority of the excess purchase price was allocated to IPR&D, the principal asset acquired.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of significant acquisitions made by the Company in fiscal year 2005 (in thousands):

	ANS		ESI		Velocimed		Savacor		Total Activity
Current assets	$	247,316	$	13,617	$	1,232	$	—	$	262,165
Goodwill		826,698		201,511		8,223		—		1,036,432
Other intangible assets		272,600		46,700		61,900		—		381,200
IPR&D		107,400		12,400		13,700		45,674		179,174
Deferred income taxes		—		23,139		—		4,120		27,259
Other long-term assets		35,660		2,981		1,842		105		40,588
Total assets acquired	$	1,489,674	$	300,348	$	86,897	$	49,899	$	1,926,818
Current liabilities	$	28,746	$	20,948	$	3,832	$	245	$	53,771
Deferred income taxes		106,392		—		12,202		—		118,594
Other liabilities		603		—		—		—		603
Total liabilities assumed		135,741		20,948		16,034		245		172,968
Net assets acquired	$	1,353,933	$	279,400	$	70,863	$	49,654	$	1,753,850

During 2005, the Company entered into two additional business combinations for a total purchase price of $14.9 million, net of cash acquired. The Company also acquired businesses involved in the distribution of the Company’s products in 2005 for aggregate cash consideration of $17.8 million which was recorded as other intangible assets.

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NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for each of the Company’s reportable segments for the fiscal years ended December 29, 2007 and December 30, 2006 was as follows (in thousands):

	CRM/ANS		CV/AF		Total
Balance at December 31, 2005	$	1,181,088	$	453,885	$	1,634,973
Foreign currency translation		5,934		250		6,184
Velocimed		—		5,457		5,457
ANS		2,870		—		2,870
Other		—		97		97
Balance at December 30, 2006		1,189,893		459,688		1,649,581
Foreign currency translation		7,079		653		7,732
Balance at December 29, 2007	$	1,196,972	$	460,341	$	1,657,313

The following table provides the gross carrying amount of other intangible assets and related accumulated amortization (in thousands):

	December 29, 2007				December 30, 2006
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Purchased technology and patents	$	473,430	$	102,119	$	472,874	$	70,422
Customer lists and relationships		153,388		51,055		140,061		34,963
Distribution agreements		3,879		754		41,986		15,683
Trademarks and tradenames		23,300		3,236		23,300		1,682
Licenses and other		2,870		1,003		7,348		2,543
	$	656,867	$	158,167	$	685,569	$	125,293

Amortization expense of other intangible assets was $53.9 million, $50.1 million, and $30.1 million for fiscal years 2007, 2006, and 2005, respectively. During the fourth quarter of 2007, the Company recorded impairment charges of $23.7 million related to acquired intangible assets associated with a terminated distribution agreement (see Note 8). The gross carrying values and related accumulated amortization were written off in the fourth quarter of 2007.

The following table presents expected future amortization expense for amortizable intangible assets. Actual amounts of amortization expense may differ due to additional intangible assets acquired and foreign currency translation impacts. Expected future amortization expense for amortizable intangible assets is as follows (in thousands):

	2008		2009		2010		2011		2012			After 2012
Amortization expense	$	52,256	$	48,946	$	47,400	$	47,072	$	44,674	$	258,352

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NOTE 4 – DEBT

The Company’s long-term debt consisted of the following (in thousands):

	December 29, 2007		December 30, 2006
1.22% Convertible senior debentures	$	1,200,000	$	—
2.80% Convertible senior debentures		5,498		5,498
Commercial paper borrowings		—		678,350
1.02% Yen-denominated notes		182,493		175,523
Other		—		5
Total long-term debt		1,387,991		859,376
Less: current portion of long-term debt		1,205,498		—
Long-term debt	$	182,493	$	859,376

Total debt increased to $1,388.0million at December 29, 2007 from $859.4 million at December 30, 2006 primarily due to the issuance of $1.2 billion of 1.22% Convertible Debentures in April 2007.

1.22% Convertible Senior Debentures: In April 2007, the Company issued $1.2 billion aggregate principal amount of 1.22% Convertible Debentures that mature on December 15, 2008. Interest on the 1.22% Convertible Debentures is payable on June 15 and December 15 of each year. Holders may require the Company to repurchase some or all of the 1.22% Convertible Debentures for cash upon the occurrence of certain corporate transactions, such as a change in control. Holders may convert their 1.22% Convertible Debentures at an initial conversion rate of 19.2101 shares per $1,000 principal amount of the 1.22% Convertible Debentures (equivalent to an initial conversion price of approximately $52.06 per share) under the following circumstances: (1) during any fiscal quarter after June 30, 2007, if the closing price of the Company’s common stock is greater than 130% of the conversion price for 20 trading days during a specified period; (2) if the trading price of the 1.22% Convertible Debentures falls below a certain threshold; (3) on or after October 15, 2008; or (4) upon the occurrence of certain corporate transactions. Upon conversion, the Company is required to satisfy 100% of the principal amount of the 1.22% Convertible Debentures solely in cash, with any amounts above the principal amount to be satisfied in shares of the Company’s common stock, cash or a combination of common stock and cash, at the Company’s election. If certain corporate transactions, such as a change in control, occur on or prior to December 15, 2008, the Company will in certain circumstances increase the conversion rate by a number of additional shares of common stock or, in lieu thereof, the Company may in certain circumstances elect to adjust the conversion rate and related conversion obligation so that the 1.22% Convertible Debentures are convertible into shares of the acquiring or surviving company.

The 1.22% Convertible Debentures are unsecured and unsubordinated obligations and rank equal in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness and junior in right of payment to all of the Company’s existing and future secured debt as well as all liabilities of the Company’s subsidiaries. The 1.22% Convertible Debentures will be effectively subordinated to the claims of creditors, including trade creditors, of the Company’s subsidiaries.

In connection with the issuance of the 1.22% Convertible Debentures, the Company purchased a call option in a private transaction to receive shares of its common stock. The purchase of the call option is intended to offset potential dilution to the Company’s common stock upon potential future conversion of the 1.22% Convertible Debentures. The call option is exercisable at approximately $52.06 per share and allows the Company to receive the same number of shares and/or amount of cash from the counterparty as the Company would be required to deliver upon potential future conversion of the 1.22% Convertible Debentures. The call option terminates upon the earlier of the conversion date or maturity date of the 1.22% Convertible Debentures. The Company paid $101.0 million for the call option which was recorded as a reduction ($63.2 million, net of tax benefit) to shareholders’ equity.

Separately, the Company also sold warrants for approximately 23.1 million shares of its common stock in a private transaction. Over a two-month period beginning in April 2009, the Company may be required to issue shares of its common stock to the counterparty if the average price of the Company’s common stock during a defined period exceeds the warrant exercise price of approximately $60.73 per share. The Company received proceeds of $35.0 million from the sale of these warrants, which were recorded as an increase to shareholders’ equity.

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2.80% Convertible Senior Debentures:   In December 2005, the Company issued $660.0 million aggregate principal amount of 30-year 2.80% Convertible Debentures. The Company has the right to redeem some or all of the 2.80% Convertible Debentures for cash at any time. Interest on the 2.80% Convertible Debentures is payable on June 15 and December 15 of each year. Contingent interest of 0.25% is payable in certain circumstances. Holders of the 2.80% Convertible Debentures can require the Company to repurchase for cash some or all of the 2.80% Convertible Debentures on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030. In December 2006, holders required the Company to repurchase $654.5 million of the 2.80% Convertible Debentures for cash. As of December 29, 2007, $5.5 million aggregate principal amount of the 2.80% Convertible Debentures remains outstanding. The remaining holders may convert each of the $1,000 principal amounts of the 2.80% Convertible Debentures into 15.5009 shares of the Company’s common stock (an initial conversion price of approximately $64.51) under certain circumstances. The total number of contingently issuable shares that could be issued to satisfy conversion of the remaining $5.5 million aggregate principal amount of the 2.80% Convertible Debentures is not material.

Commercial paper borrowings:   The Company’s commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. The Company had no outstanding commercial paper borrowings at December 29, 2007 and $678.4 million of commercial paper borrowings outstanding at December 30, 2006, that bore a weighted average effective interest rate of 5.4%. During 2007 and 2006 the Company borrowed commercial paper at weighted average effective interest rates of 5.4% and 5.3%, respectively. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. The Company classifies all of its commercial paper borrowings as long-term debt as the Company has the ability to repay any short-term maturity with available cash from its existing long-term, committed credit facility.

1.02% Yen-denominated notes:   In May 2003, the Company issued 7-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $182.5 million at December 29, 2007 and $175.5 million at December 30, 2006. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The principal amount recorded on the balance sheet fluctuates based on the effects of foreign currency translation. As of December 29, 2007, the fair value of these notes approximated their carrying value.

Credit facilities:   In December 2006, the Company entered into a 5-year, $1.0 billion committed credit facility that it may draw on for general corporate purposes and to support its commercial paper program. Borrowings under this facility bear interest at the United States Dollar London InterBank Offered Rate (LIBOR) plus 0.27%, or in the event over half of the facility is drawn on, LIBOR plus 0.32%. The interest rate is subject to adjustment in the event of a change in the Company’s credit ratings. The Company has the option for borrowings to bear interest at a base rate, as further-described in the facility agreement. There were no outstanding borrowings under this credit facility during fiscal years 2007 or 2006.

During the first quarter of 2007, the Company borrowed $350.0 million under an interim liquidity facility to finance a portion of its common stock repurchases made during the first half of 2007. Borrowings under this liquidity facility bore interest at a weighted average effective interest rate of 5.7%. On April 25, 2007, this facility expired and the Company repaid the related outstanding borrowings using a portion of the proceeds from the issuance of the 1.22% Convertible Debentures.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Leases

The Company leases various facilities and equipment under noncancelable operating lease arrangements. Future minimum lease payments under these leases are as follows: $26.0 million in 2008; $19.2 million in 2009; $16.6 million in 2010; $12.1 million in 2011; $8.8 million in 2012; and $12.7 million in years thereafter. Rent expense under all operating leases was $27.4 million, $24.6 million, and $23.0 million in fiscal years 2007, 2006, and 2005, respectively.

Litigation

Silzone® Litigation and Insurance Receivables:  In July 1997, the Company began marketing mechanical heart valves which incorporated Silzone® coating. The Company later began marketing heart valve repair products incorporating Silzone® coating. Silzone® coating was intended to reduce the risk of endocarditis, a bacterial infection affecting heart tissue, which is associated with replacement heart valve surgery. In January 2000, the Company initiated a voluntary field action for products incorporating Silzone® coating after receiving information from a clinical study that patients with a Silzone®-coated heart valve had a small, but statistically significant, increased incidence of explant due to paravalvular leak compared to patients in that clinical study with heart valves that did not incorporate Silzone® coating.

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Subsequent to the Company’s voluntary field action, the Company has been sued in various jurisdictions beginning in March 2000 by some patients who received a product with Silzone® coating and, as of February 15, 2008, such cases are pending in the United States, Canada, and France. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to Silzone®-coated products. Others, who have not had their Silzone®-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all other replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims.

In 2001, the U.S. Judicial Panel on Multi-District Litigation (MDL) ruled that certain lawsuits filed in U.S. federal district court involving products with Silzone® coating should be part of MDL proceedings in the U.S. District Court in Minnesota (the District Court). As a result, actions in federal court involving products with Silzone® coating have been and will likely continue to be transferred to the District Court for coordinated or consolidated pretrial proceedings.

The District Court ruled against the Company on the issue of preemption by finding that the plaintiffs’ causes of action were not preempted by the U.S. Food and Drug Act. The Company sought to appeal this ruling, but the appellate court determined that it would not review the ruling at that point in the proceedings.

In October 2001, eight class-action complaints were consolidated into one class action case by the District Court. One proposed class in the consolidated complaint seeks injunctive relief in the form of medical monitoring. A second class in the consolidated complaint seeks an unspecified amount of monetary damages. The Company requested the Eighth Circuit Court of Appeals (the Eighth Circuit) to review the District Court’s class certification orders and, in October 2005, the Eighth Circuit issued a decision reversing the District Court’s class certification rulings. More specifically, the Eighth Circuit ruled that the District Court erred in certifying a consumer protection class seeking damages based on Minnesota’s consumer protection statutes, and required the District Court in further proceedings to conduct a thorough conflicts-of-law analysis as to each plaintiff class member before applying Minnesota law. In addition, the Eighth Circuit reversed the District Court’s certification of a medical monitoring class involving the products with Silzone® coating.

In October 2006, the District Court granted plaintiffs’ renewed motion to certify a nationwide consumer protection class under Minnesota’s consumer protection statutes and Private Attorney General Act. The Eighth Circuit accepted appellate review of the District Court’s decision, and the oral argument in this appeal occurred in October 2007. A decision from the Eighth Circuit is expected in 2008.

In addition to the purported class action before the District Court, as of February 15, 2008, there were 8individual Silzone® cases pending in federal court which are currently proceeding in accordance with the scheduling orders the District Court rendered. Plaintiffs in those cases are each requesting damages ranging from $10 thousand to $120.5 million and, in some cases, seeking an unspecified amount. The most recent individual complaint that was transferred to the MDL court was served upon the Company in December 2007.

There are 19 individual state court suits concerning Silzone®-coated products pending as of December 29, 2007, involving 29 patients. These cases are venued in Minnesota, Oklahoma, Nevada and Texas. The complaints in these state court cases are requesting damages ranging from $10 thousand to $100 thousand and, in some cases, seek an unspecified amount. The most recent individual state court complaint was served upon the Company in February 2008. These state court cases are proceeding in accordance with the orders issued by the judges in those matters.

In addition, a lawsuit seeking a class action for all persons residing in the European Economic Union member jurisdictions who have had a heart valve replacement and/or repair procedure using a product with Silzone® coating was filed in Minnesota state court and served upon the Company in February 2004 by two European citizens who now reside in Canada. The complaint seeks damages in an unspecified amount for the class, and in excess of $50 thousand for each plaintiff. The complaint also seeks injunctive relief in the form of medical monitoring. The Company is opposing the plaintiffs’ pursuit of this case on jurisdictional, procedural and substantive grounds.

In Canada, there are also four class-action cases and one individual case pending against the Company. In one such case in Ontario, the court certified that a class action involving Silzone® patients may proceed, and the trial of the initial phase of this matter is scheduled for March 2009. A second case seeking class action status in Ontario has been stayed pending resolution of the other Ontario action. A case filed as a class action in British Columbia remains pending. A court in Quebec has certified a class action, and that matter is proceeding in accordance with the court orders. Additionally, in December 2005, the Company was served with a lawsuit by the Quebec Provincial health insurer to recover the cost of insured services furnished or to be furnished to class members in the class action pending in Quebec. The complaints in these cases request damages ranging from 1.5 million to 2.0 billion Canadian Dollars (the equivalent to $1.5 million to $2.0 billion at December 29, 2007).

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In France, one case involving one plaintiff is pending as of February 15, 2008. In November 2004, an Injunctive Summons to Appear was served, requesting damages in excess of 3 million Euros (the equivalent to $4.3 million at December 29, 2007).

The Company is not aware of any unasserted claims related to Silzone®-coated products. Company management believes that the final resolution of the Silzone® cases will take a number of years.

The Company has recorded an accrual for probable legal costs that it will incur to defend the various cases involving Silzone®-coated products, and the Company has recorded a receivable from its product liability insurance carriers for amounts expected to be recovered. The Company has not accrued for any amounts associated with settlements or judgments because potential losses cannot be reasonably estimated. Based on the Company’s experience in these types of individual cases, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed by the plaintiffs and is often significantly less than the amount claimed. Management expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by the Company’s product liability insurance policies or existing reserves will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period. As of December 29, 2007, the Company’s Silzone® litigation reserve was $26.9 million and its receivable from insurance carriers was $21.6 million.

A summary of the activity relating to the Silzone® litigation reserve for the fiscal years ended December 29, 2007 and December 30, 2006 is as follows (in thousands):

Balance at December 31, 2005	$	34,907
Accrued costs		7,000
Cash payments		(2,413	)
Balance at December 30, 2006		39,494
Accrued costs adjustment		(9,000	)
Cash payments		(3,591	)
Balance at December 29, 2007	$	26,903

The Company’s remaining product liability insurance ($104.1 million at January 25, 2008) for Silzone® claims consists of a number of layers, each of which is covered by one or more insurance companies.

After the present layer of product liability insurance, under which the Company’s insurers have been covering certain Silzone® defense and indemnity costs, the Company has a $50 million layer of insurance, which is covered by American Insurance Company (AIC). In December 2007, AIC initiated a lawsuit in Minnesota Federal District Court seeking a court order declaring that it is not required to provide coverage for a portion of the Silzone® litigation defense and indemnity expenses that the Company may incur in the future. The Company believes the claims of AIC are without merit and plans to vigorously defend against the claims it has asserted. For all Silzone® legal costs incurred, the Company records insurance receivables for the amounts that it expects to recover.

Part of the Company’s final layer of insurance ($20.0 million of the final $50.0 million layer) is covered by Lumberman’s Mutual Casualty Insurance, a unit of the Kemper Insurance Companies (collectively referred to as Kemper). Prior to being no longer rated by A.M. Best, Kemper’s financial strength rating was downgraded to a “D” (poor). Kemper is currently in “run off,” which means it is no longer issuing new policies, and therefore, is not generating any new revenue that could be used to cover claims made under previously-issued policies. In the event Kemper is unable to pay claims directed to it, the Company believes the other insurance carriers in the final layer of insurance will take the position that the Company will be directly liable for any claims and costs that Kemper is unable to pay. It is possible that Silzone® costs and expenses will reach the limit of the final Kemper layer of insurance coverage, and it is possible that Kemper will be unable to meet its full obligations to the Company. Therefore, the Company could incur an expense up to $20.0 million. The Company has not accrued for any such losses as potential losses are possible, but not reasonably estimable at this time.

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Symmetry™ Bypass System Aortic Connector (Symmetry™ device) Litigation: Since August 2003, when the first lawsuit against the Company involving the Symmetry™ device was filed, the Company has successfully resolved all outstanding claims. The Company expects that any remaining costs (the components of which are settlements, judgments, legal fees and other related defense costs) will not have a material adverse effect on the Company’s consolidated earnings, financial position or cash flows.

Guidant 1996 Patent Litigation:  In November 1996, Guidant Corporation (Guidant), which became a subsidiary of Boston Scientific Corporation (Boston Scientific) in 2006, sued the Company in federal district court for the Southern District of Indiana alleging that the Company did not have a license to certain patents controlled by Guidant covering tachycardia ICDs and alleging that the Company was infringing those patents.

Guidant’s original suit alleged infringement of four patents by the Company. Guidant later dismissed its claim on the first patent and the district court ruled that the second patent was invalid, and this ruling was later upheld by the Court of Appeals for the Federal Circuit (CAFC). The third patent was found to be invalid by the district court in post-trial rulings. The fourth patent (the ‘288 patent) was initially found to be invalid by the district court judge, but the CAFC reversed this decision in August 2004. The case was returned to the district court in November 2004. The district court issued rulings on claims construction and a response to motions for summary judgment in March 2006. Guidant’s special request to appeal certain aspects of these rulings was rejected by the CAFC. In March 2007, the district court judge responsible for the case granted summary judgment in favor of the Company, ruling that the only remaining patent claim (the ‘288 patent) asserted against the Company in the case was invalid. In April 2007, Guidant appealed the district court’s March 2007 and March 2006 rulings. A decision from the CAFC is expected in 2008.

The ‘288 patent expired in December 2003. Accordingly, the final outcome of the litigation involving the ‘288 patent cannot result in an injunction precluding the Company from selling ICD products in the future. Sales of the Company’s ICD products in which Guidant asserts infringement of the ‘288 patent were approximately 18% and 16% of the Company’s consolidated net sales during fiscal years 2003 and 2002, respectively. Additionally, based on a July 2006 agreement, in exchange for the Company’s agreement not to pursue the recovery of attorneys’ fees or assert certain claims and defenses, Guidant agreed it would not seek recovery of lost profits, prejudgment interest or a royalty rate in excess of 3% of net sales for any patents found to be infringed upon by the Company. This agreement had the effect of limiting the Company’s financial exposure. However, any potential losses arising from any legal settlements or judgments could be material to the Company’s consolidated earnings, financial position and cash flows. The Company has not accrued any amounts for legal settlements or judgments related to the Guidant 1996 patent litigation. Although the Company believes that the assertions and claims in the Guidant 1996 patent litigation are without merit, potential losses arising from any legal settlements or judgments are possible, but not reasonably estimable at this time.

Guidant 2004 Patent Litigation:  In February 2004, Guidant sued the Company in federal district court in Delaware alleging that the Company’s Epic® HF ICD, Atlas®+ HF ICD and Frontier™ devices infringe U.S Patent No. RE 38,119E (the ‘119 patent). In July 2006, Guidant and the Company entered into an agreement on how the parties would litigate the case and which legal defenses would be used. This agreement had the effect of limiting the Company’s financial and operational exposure. This matter was set for trial in August 2007, but in June 2007, Mirowski Family Ventures, L.L.C. (MFV), a co-plaintiff in the case, entered into a settlement agreement with the Company, fully resolving this patent litigation matter. Pursuant to the July 2006 agreement between the Company and Guidant, the settlement agreement with MFV also fully resolved the Company’s related ‘119 patent litigation with Guidant. In connection with settling this patent litigation with MFV and Guidant, the Company made a $35.0 million payment on June 29, 2007, which was recorded as a special charge in the second quarter of 2007. The Company had not previously accrued any amounts for legal settlements or judgments because although potential losses arising from any settlements or judgments were possible, they were not estimable prior to the June settlement.

Ohio OIG Investigation:  In July 2007, the Company received a civil subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General (OIG), requesting documents regarding the Company’s relationships with ten Ohio hospitals during the period from 2003 through 2006. The Company is cooperating with the investigation and is in the process of responding to the subpoena.

Boston U.S. Attorney Investigation:  In October 2005, the U.S. Department of Justice, acting through the U.S. Attorney’s office in Boston, commenced an industry-wide investigation into whether the provision of payments and/or services by makers of ICDs and pacemakers, to doctors or other persons constitute improper inducements under the federal health care program anti-kickback law. As part of this investigation, the Company received a civil subpoena from the U.S. Attorney’s office in Boston requesting documents created since January 2000 regarding the Company’s practices related to ICDs, pacemakers, lead systems and related products marketed by the Company’s Cardiac Rhythm Management segment. The Company understands that its principal competitors in the cardiac rhythm management therapy areas received similar civil subpoenas. The Company received an additional subpoena from the U.S. Attorney’s office in Boston in September 2006, requesting documents created since January 2002 related to certain employee expense reports and certain ICD and pacemaker purchasing arrangements. The Company is cooperating with the investigation and has been producing documents and witnesses as requested.

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ANS OIG Investigation:  In January 2005, prior to being acquired by the Company, ANS received a subpoena from the OIG requesting documents related to certain of its sales and marketing, reimbursement, Medicare and Medicaid billing, and other business practices. On July 2, 2007, ANS finalized a settlement agreement with the OIG to resolve this investigation. The agreement provided for a payment of $3.0 million to the OIG, which the Company had previously accrued. Additionally, ANS entered into a three-year Corporate Integrity Agreement, under which ANS committed to further enhance its compliance program.

French Competition Investigation:  In January 2007, the French Council of Competition issued a Statement of Objections alleging that the Company’s subsidiary, St. Jude Medical France, had agreed with other suppliers of certain medical devices in France to collectively refrain from responding to a 2001 tender conducted by a group of hospital centers in France. In December 2007, the French Council of Competition issued a finding that assessed a fine against the Company, the amount of which was immaterial to the Company’s consolidated earnings, financial position and cash flows. Appeals have now been filed by several of the parties to this proceeding.

Securities Class Action Litigation:  In April and May 2006, five shareholders, each purporting to act on behalf of a class of purchasers during the period January 25 through April 4, 2006 (the Class Period), separately sued the Company and certain of its officers in federal district court in Minnesota alleging that the Company made materially false and misleading statements during the Class Period relating to financial performance, projected earnings guidance and projected sales of ICDs. The complaints, all of which seek unspecified damages and other relief, as well as attorneys’ fees, have been consolidated. The Company filed a motion to dismiss which was denied by the district court in March 2007. The Company intends to vigorously defend against the claims asserted in these actions. The Company’s directors and officers liability insurance provides $75 million of insurance coverage for the Company, the officers and the directors, after a $15 million self-insured retention level has been reached.

Derivative Action: In February 2007, a derivative action was filed in state court in Minnesota which purported to bring claims belonging to the Company against the Company’s Board of Directors and various officers and former officers for alleged malfeasance in the management of the Company. The claims are based on substantially the same allegations as those underlying the securities class action litigation described above. The defendants (consisting of the Company’s Board of Directors and various officers and former officers) filed a motion to dismiss, and in June 2007, the state court granted the motion, thus dismissing the entire derivative case for failure of the complainant to make a demand on the Board. In September 2007, the plaintiff sent a shareholder demand letter to the Board. The Board thoroughly considered the letter at its October 25, 2007 Board meeting and determined to request that the complainant provide it with details to substantiate the allegations. The Board intends to thoroughly evaluate the allegations, and determine whether or not to pursue the claims, once the complainant has provided the requested information. 

The Company is also involved in various other product liability lawsuits, claims and proceedings that arise in the ordinary course of business.

NOTE 6 – SHAREHOLDERS’ EQUITY

Capital Stock:  The Company’s authorized capital consists of 25 million shares of $1.00 per share par value preferred stock and 500 million shares of $0.10 per share par value common stock. There were no shares of preferred stock issued or outstanding during 2007, 2006 or 2005.

Shareholders’ Rights Plan:   On July 15, 2007, the Company’ shareholder rights plan expired. The Company may choose to adopt a new shareholder rights plan in the future.

Share Repurchases:  On February 22, 2008, the Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of the Company’s outstanding common stock. The manner, timing and amount of any purchases will be determined by management based on their evaluation of market conditions, stock price and other factors. Repurchases of common stock under this program can be made for general corporate purposes, including offsetting dilution from stock-based employee compensation plans.

On January 25, 2007, the Company’s Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company’s outstanding common stock. The Company began its repurchases under this program on January 29, 2007 and completed its repurchases under the program on May 8, 2007. The Company repurchased nearly the $1.0 billion amount authorized by the Board of Directors, $775.3 million of shares in the open market and $224.6 million of shares through a private block trade in connection with the issuance of the 1.22% Convertible Debentures. In total, the Company repurchased 23.6 million shares which were recorded as a $246.1 million aggregate reduction of common stock and additional paid-in capital and a $753.8 million reduction in retained earnings.

On April 18, 2006, the Company’s Board of Directors authorized a share repurchase program of up to $700.0 million of the Company’s outstanding common stock. The $700.0 million share repurchase program replaced an earlier share repurchase program, under which the Company was authorized to repurchase up to $300.0 million of its outstanding common stock. No stock had been repurchased under the earlier program. The Company began making share repurchases on April 21, 2006, and as of May 26, 2006, had repurchased the maximum amount authorized by the Board of Directors under the repurchase program. The Company repurchased 18.6 million shares, for a total of $700.0 million which was recorded as a $593.5 million aggregate reduction of common stock and additional paid-in capital and a $106.5 million reduction in retained earnings.

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NOTE 7 – STOCK-BASED COMPENSATION

Stock Compensation Plans

The Company’s stock compensation plans provide for the issuance of stock-based awards, such as restricted stock or stock options, to directors, officers, employees and consultants. Stock option awards under these plans have an exercise price equal to the fair market value on the date of grant, and generally, an eight-year contractual life and four-year vesting term. Since 2000, all stock option awards have been granted with an eight-year contractual term regardless of the maximum allowable under the plan. Restricted stock awards under these plans generally vest over a four-year period. During the vesting period, ownership of the shares cannot be transferred. Restricted stock is considered issued and outstanding at the grant date and has the same dividend and voting rights as other common stock. Directors can elect to receive half or their entire annual retainer in the form of a restricted stock grant with a six-month vesting term. At December 29, 2007, the Company had 3.5 million shares of common stock available for stock option grants under these plans. The Company has the ability to grant a portion of the remaining shares in the form of restricted stock. Specifically, in lieu of granting up to 2.4 million stock options under these plans, the Company may grant up to 0.8 million restricted stock awards (for certain grants of restricted stock awards, the number of shares available are reduced by three shares). Additionally, in lieu of granting up to 0.1 million stock options under these plans, the Company may grant up to 0.1 million restricted stock awards (for certain grants of restricted stock awards, the number of shares available are reduced by one share). The remaining 1.0 million shares of common stock are available for stock option grants.

The Company also has an Employee Stock Purchase Plan (ESPP) that allows participating employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a 12-month offering period whereby employees can purchase shares at 85% of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The maximum number of shares that employees can purchase is established at the beginning of the offering period. Employees purchased 0.7 million, 0.5 million, and 0.6 million shares in 2007, 2006, and 2005, respectively. At December 29, 2007, 4.3 million shares of common stock were available for future purchases under the ESPP.

Valuation Assumptions

The Company uses the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options and ESPP purchase rights. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions of other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of the Company’s stock price in future periods and expected dividend yield. The weighted average fair values of ESPP purchase rights granted to employees during fiscal years 2007, 2006, and 2005 were $12.07, $10.12, and $12.38, respectively. The fair value of restricted stock is based on the Company’s closing stock price on the date of grant. The weighted average fair values of restricted stock granted during fiscal years 2007, 2006, and 2005 were $47.13, $34.04, and $47.85, respectively.

The following table provides the weighted average fair value of stock options granted to employees during fiscal years 2007, 2006, and 2005 and the related weighted average assumptions used in the Black-Scholes model:

	2007			2006			2005
Fair value of options granted	$	13.13		$	11.23		$	14.71
Assumptions used:
Expected life (years)		4.2			4.1			4.4
Risk-free interest rate		3.6	%		4.5	%		4.4	%
Volatility		33.4	%		27.8	%		26.1	%
Dividend yield		0	%		0	%		0	%

Expected life: The Company analyzes historical employee exercise and termination data to estimate the expected life assumption. For determining the fair value of stock options under SFAS No. 123(R), the Company uses different expected lives for the general employee population and officers and directors. In preparing to adopt SFAS No. 123(R), the Company examined its historical pattern of stock option exercises to determine if there was a discernable pattern as to how different classes of employees exercised their stock options. The Company’s analysis showed that officers and directors held their stock options for a longer period of time before exercising compared to the rest of the employee population. Prior to adopting SFAS No. 123(R), the Company used the entire employee population for estimating the expected life assumptions.

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Risk-free interest rate: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity equal to or approximating the expected life of the options.

Volatility: The Company estimates the expected volatility of its common stock by using the implied volatility in market traded options in accordance with SEC Staff Accounting Bulletin No. 107, Share-Based Payment, which expressed the views of the SEC staff regarding the application of SFAS No. 123(R). The Company’s decision to use implied volatility was based on the availability of actively traded options for the Company’s common stock and the Company’s assessment that implied volatility is more representative of future stock price trends than the historical volatility of the Company’s common stock. Prior to adopting SFAS No. 123(R), the Company used historical volatility to determine the expected volatility.

Dividend yield: The Company does not anticipate paying any cash dividends in the foreseeable future and therefore a dividend yield of zero is assumed.

Stock Option and Restricted Stock Activity

The following table summarizes stock option activity under all stock compensation plans, including options assumed in connection with acquisitions, during the fiscal year ended December 29, 2007:

	Options (in thousands)			Weighted Average Exercise Price		Weighted Average Contractual Term (years)		Aggregate Instrinsic Value (in thousands)
Outstanding at December 30, 2006		45,902		$	25.400
Granted		5,412			40.58
Canceled		(1,186	)		40.15
Exercised		(11,803	)		13.90
Outstanding at December 29, 2007		38,325		$	30.63		4.4	$	443,324
Vested or expected to vest at December 29, 2007		35,575		$	29.77		4.2	$	439,687
Exercisable at December 29, 2007		26,501		$	25.83		3.2	$	427,181

The aggregate intrinsic value of options outstanding and options exercisable is based on the Company’s closing stock price on the last trading day of the fiscal year for in-the-money options. The total intrinsic value of options exercised during fiscal years 2007, 2006 and 2005 was $335.5 million, $105.6 million and $252.4 million, respectively.

The following table summarizes restricted stock activity under all stock compensation plans, including restricted stock assumed in connection with acquisitions, during the year ended December 29, 2007:

	Restricted Stock (in thousands)		Weighted Average Grant Price
Unvested balance at December 30, 2006	210		$	47.88
Granted	23			41.42
Vested	(77	)		47.32
Canceled	(14	)		48.17
Unvested balance at December 29, 2007	142		$	47.13

In connection with the acquisition of ANS in November 2005, the Company issued 209,364 shares of replacement St. Jude Medical restricted stock at a weighted average grant price of $48.17, which vest over a four year period. The total fair value of restricted stock vested during fiscal years 2007, 2006 and 2005 was $3.3 million, $0.6 million and $0.6 million, respectively.

At December 29, 2007, there was $108.1 million of total unrecognized stock-based compensation expense, adjusted for estimated forfeitures, which is expected to be recognized over a weighted average period of 2.9 years and will be adjusted for any future changes in estimated forfeitures.

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NOTE 8 – PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D) AND SPECIAL CHARGES (CREDITS)

IPR&D Charges

The Company is responsible for the valuation of purchased in-process research and development. The fair value assigned to IPR&D is estimated by discounting each project to its present value using the after-tax cash flows expected to result from the project once it has reached technological feasibility. The Company discounts the after-tax cash flows using an appropriate risk-adjusted rate of return (ANS – 17%, Velocimed – 22%, ESI – 16%) that takes into account the uncertainty surrounding the successful development of the projects through obtaining regulatory approval to market the underlying products in an applicable geographic region. In estimating future cash flows, the Company also considers other tangible and intangible assets required for successful development of the resulting technology from the IPR&D projects and adjusts future cash flows for a charge reflecting the contribution of these other tangible and intangible assets to the value of the IPR&D projects.

At the time of acquisition, the Company expects all acquired IPR&D will reach technological feasibility, but there can be no assurance that the commercial viability of these projects will actually be achieved. The nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning, designing and conducting clinical trials necessary to obtain regulatory approvals. The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, failure of clinical trials, delay or failure to obtain required market clearances, and patent litigation. If commercial viability is not achieved, the Company would not realize the original estimated financial benefits expected for these projects. The Company funds all costs to complete IPR&D projects with internally generated cash flows.

Savacor, Inc.:   In December 2005, the Company acquired privately-held Savacor to complement the Company’s development efforts in heart failure diagnostic and therapy guidance products. At the date of acquisition, $45.7 million of the purchase price was expensed as IPR&D related to projects that had not yet reached technological feasibility and had no future alternative use. The IPR&D acquired relates to in-process projects for a device in clinical trials both in the United States and internationally that measures left atrial pressure and body temperature. Through December 29, 2007, the Company has incurred costs of approximately $11.0 million related to these projects. The Company expects to incur approximately $29.5 million to bring the device to commercial viability on a worldwide basis within four years. As Savacor is a development-stage company, the excess of the purchase price over the fair value of the net assets acquired is allocated on a pro-rata basis to the net assets acquired. Accordingly, the majority of the excess purchase price was allocated to IPR&D, the principal asset acquired.

Advanced Neuromodulation Systems, Inc.:   In November 2005, the Company acquired ANS to expand the Company’s implantable microelectronics technology programs and provide the Company a presence in the neuromodulation segment of the medical device industry. At the date of acquisition, $107.4 million of the purchase price was expensed as IPR&D related to projects that had not yet reached technological feasibility and had no future alternative use. The majority of the IPR&D acquired relates to in-process projects for next-generation Eon™ and Genesis® rechargeable implantable pulse generator (IPG) devices as well as next-generation leads that deliver electrical impulses to targeted nerves that are causing pain.

A summary of the fair values assigned to each in-process project acquired as of the acquisition date and the estimated total cost to complete each project as of December 29, 2007 is presented below (in millions):

Development Projects	Assigned Fair Value		Estimated Total Cost to Complete
Eon™	$	67.2	$	5.4
Genesis®		15.3		2.0
Leads		23.7		0.1
Other		1.2		—
	$	107.4	$	7.5

Through December 29, 2007, the Company has incurred costs of $10.4 million related to these projects. The Company expects to incur an additional $7.5 million through 2009 to bring these technologies to commercial viability.

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Velocimed, LLC:   In April 2005, the Company acquired the business of Velocimed to further enhance the Company’s portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device that had not yet reached technological feasibility in the U.S. and other geographies, and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. During 2007, the Company incurred $0.6 million in costs related to these projects and launched the Proxis™ device in the United States.

Endocardial Solutions, Inc.:   In January 2005, the Company acquired ESI to further enhance the Company’s portfolio of products used to treat heart rhythm disorders. At the date of acquisition, $12.4 million of the purchase price was expensed as IPR&D related to system upgrades that had not yet reached technological feasibility and had no future alternative use. These major system upgrades are part of the EnSite® system which is used for the navigation and localization of diagnostic and therapeutic catheters used in atrial fibrillation ablation and other EP catheterization procedures. During 2005, the Company incurred $0.7 million in costs related to these projects and in the third quarter of 2005, the Company achieved commercial viability and launched EnSite® system version 5.1 and the EnSite® Verismo™ segmentation tool.

Special Charges (Credits)

Fiscal Year 2007

Patent Litigation: In June 2007, the Company settled the Guidant 2004 Patent Litigation matter (see Note 5) and recorded a pre-tax charge of $35.0 million.

Restructuring Activities: In December 2007, Company management continued its efforts to streamline its operations and implemented additional restructuring actions primarily focused at international locations. As a result, the Company recorded pre-tax charges totaling $29.1 million in the fourth quarter of 2007 consisting of employee termination costs ($17.9 million) and other costs ($11.2 million). Of the total $29.1 million charge, $5.9 million was recorded in cost of sales. Employee termination costs related to severance and benefits costs for approximately 200 individuals identified for employment termination and were recorded after management determined that such severance and benefits were probable and estimable, in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. Other costs primarily represented contract termination costs.

A summary of the activity related to the 2007 restructuring accrual is as follows (in thousands):

	Employee termination costs			Other			Total
Balance at December 30, 2006	$	—		$	—		$	—
Restructuring 2007 charges		17,916			11,217			29,133
Non-cash charges used		—			(1,354	)		(1,354	)
Cash payments		(856	)		(180	)		(1,036	)
Balance at December 29, 2007	$	17,060		$	9,683		$	26,743

Impairment Charges: The Company recorded impairment charges of $23.7 million related to acquired intangible assets associated with a distribution agreement with a supplier of medical products to the Company’s Japanese distribution subsidiary. In December 2007, the Company provided notice to the supplier that it was terminating the distribution agreement. As a result, the Company recorded an impairment charge to state the related intangible assets at their remaining fair value. The Company had acquired these intangible assets as part of its acquisition of Getz Bros. Co., Ltd. (Getz Japan) in April 2003. The distribution agreement will terminate in June 2008.

Additionally, in connection with the Company completing its United States roll-out of the Merlin™ programmer platform for its ICDs and pacemakers during the fourth quarter of 2007, the Company recorded an $11.8 million special charge in cost of sales to write off the remaining carrying value of older model programmer diagnostic equipment. The Company also recorded $6.0 million of asset write-offs relating to the carrying value of assets that will no longer be utilized, of which $2.5 million was recorded in cost of sales.

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Discontinued Inventory: In the fourth quarter of 2007, the Company recorded a $14.1 million special charge in cost of sales relating to inventory that would be scrapped in connection with the Company’s decision to terminate certain product lines in its CV and AF divisions that were redundant with other existing products lines. Additionally, in connection with the Company’s decision to terminate a distribution agreement in Japan (see Impairment Charges discussed previously), the Company recorded a $4.0 million special charge in cost of sales to write off the related inventory that will not be sold.

In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the 2007 special charges have not been recorded in the individual reportable segments.

Fiscal Year 2006

Restructuring Activities: During the third quarter of 2006, Company management performed a review of the organizational structure of the Company’s former Cardiac Surgery and Cardiology divisions and its international selling organization. In August 2006, Company management approved restructuring plans to streamline operations within its former Cardiac Surgery and Cardiology divisions, combining them into one new Cardiovascular division and also implemented changes in its international selling organization to enhance the efficiency and effectiveness of sales and customer service operations in certain international geographies.

As a result of these restructuring plans, the Company recorded pre-tax special charges totaling $34.8 million in the third quarter of 2006 consisting of employee termination costs ($14.7 million), inventory write-downs ($8.7 million), asset write-downs ($7.3 million) and other exit costs ($4.1 million). Of the total $34.8 million special charge, $15.1 million was recorded in cost of sales. In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the 2006 special charges have not been recorded in the individual reportable segments.

Employee termination costs related to severance and benefits costs for approximately 140 individuals. The charges for employee termination costs were recorded after management determined that such severance and benefits were probable and estimable, in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. Inventory write-downs represented the net carrying value of inventory related to product lines discontinued in connection with the reorganization. Asset write-downs represented the net book value of assets that will no longer be utilized as a result of the reorganization and restructuring, including $4.2 million of trademarks acquired in connection with the Company’s 2003 acquisition of Getz Japan as well as other assets related to product lines discontinued in connection with the reorganization. Other exit costs primarily represented contract termination costs.

A summary of the activity related to the 2006 restructuring accrual for fiscal years 2007 and 2006 is as follows (in thousands):

	Employee termination costs			Inventory write-downs			Asset write-downs			Other			Total
Balance at December 31, 2005	$	—		$	—		$	—		$	—		$	—
Restructuring charges		14,710			8,694			7,361			4,062			34,827
Non-cash charges used		—			(8,694	)		(7,361	)		—			(16,055	)
Cash payments		(3,642	)		—			—			(586	)		(4,228	)
Balance at December 30, 2006		11,068			—			—			3,476			14,544
Cash payments		(11,068	)		—			—			(3,046	)		(14,114	)
Balance at December 29, 2007	$	—		$	—		$	—		$	430		$	430

Fiscal Year 2005

Symmetry™ Bypass System Aortic Connector Litigation: During the third quarter of 2005, over 90% of the cases and claims asserted involving the Symmetry™ device were resolved. As a result, the Company reversed $14.8 million of the pre-tax $21.0 million special charge that was recorded in the third quarter of 2004 to accrue for legal fees in connection with claims involving the Symmetry™ device. Additionally, the Company recorded a pre-tax charge of $3.3 million in the third quarter of 2005 to accrue for settlement costs negotiated in these related cases. These adjustments resulted in a net pre-tax benefit of $11.5 million that the Company recorded in the third quarter of 2005 related to Symmetry™ device product liability litigation. See Note 5 for further details on the Symmetry™ device litigation.

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NOTE 9 – OTHER INCOME (EXPENSE), NET

The Company’s other income (expense) consisted of the following (in thousands):

	2007			2006			2005
Interest income	$	4,374		$	9,266		$	19,523
Interest expense		(38,229	)		(33,883	)		(10,028	)
Other		(15,343	)		2,175			(821	)
Other income (expense), net	$	(49,198	)	$	(22,442	)	$	8,674

In the fourth quarter of 2007, the Company determined that its cost method equity investment in ProRhythm, Inc. (ProRhythm) was impaired and that this impairment was other-than-temporary. The Company had previously invested an aggregate total of $25.1 million in 2005 and 2006 with a total ownership interest of 18%. The Company also had the exclusive right, but not the obligation, to acquire the remaining capital stock of ProRhythm for $125.0 million in cash.

ProRhythm filed for Chapter 11 Bankruptcy protection in December 2007. Prior to declaring bankruptcy, based on its understanding of ProRhythm’s efforts to raise additional capital, the Company expected that the carrying amount of its investment would be recoverable upon a liquidation or sale of ProRhythm. As a result of the bankruptcy proceedings, the Company’s exclusive right to acquire ProRhythm in addition to other agreements, were rejected. The resulting changes in the Company’s shareholder rights in ProRhythm changed the Company’s expectations that the carrying amount of its investment in ProRhythm would be recoverable. Given these events, the Company evaluated the fair value its investment and concluded that it was impaired. The total impairment charge of $25.1 million was recorded in other expense. The Company also recorded a realized pre-tax gain of $7.9 million in other income related to the sale of the Company’s Conor Medical, Inc. common stock investment in the first quarter of 2007.

NOTE 10 – INCOME TAXES

The Company’s earnings before income taxes were generated from its U.S. and international operations as follows (in thousands):

	2007		2006		2005
U.S.	$	550,522	$	554,581	$	347,281
International		193,783		166,060		274,123
Earnings before income taxes	$	744,305	$	720,641	$	621,404

Income tax expense consisted of the following (in thousands):

	2007			2006			2005
Current:
U.S. federal	$	141,997		$	144,115		$	158,075
U.S. state and other		12,421			12,121			22,881
International		37,078			27,081			42,125
Total current		191,496			183,317			223,081
Deferred		(6,229	)		(10,927	)		4,833
Income tax expense	$	185,267		$	172,390		$	227,914

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The tax effects of the cumulative temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes were as follows (in thousands):

	2007			2006
Deferred income tax assets:
Net operating loss carryforwards	$	9,524		$	24,060
Tax credit carryforwards		45,584			36,160
Inventories		97,930			101,530
Stock-based compensation		35,232			20,686
Accrued liabilities and other		109,047			41,847
Deferred income tax assets		297,317			224,283
Deferred income tax liabilities:
Unrealized gain on available-for-sale securities		(8,095	)		(14,733	)
Property, plant and equipment		(92,731	)		(51,174	)
Intangible assets		(192,792	)		(204,382	)
Deferred income tax liabilities		(293,618	)		(270,289	)
Net deferred income tax asset (liability)	$	3,699		$	(46,006	)

The Company has not recorded any valuation allowance for its deferred tax assets as of December 29, 2007 or December 30, 2006 as the Company believes that its deferred tax assets, including the net operating loss and tax credit carryforwards, will be fully realized based upon its estimates of future taxable income.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows (in thousands):

	2007			2006			2005
Income tax expense at the U.S. federal statutory rate of 35%	$	260,507		$	252,225		$	217,491
U.S. state income taxes, net of federal tax benefit		14,747			14,105			16,225
International taxes at lower rates		(59,154	)		(46,448	)		(47,606	)
Tax benefits from extraterritorial income exclusion		—			(9,625	)		(9,143	)
Tax benefits from domestic manufacturer's deduction		(5,414	)		(5,230	)		(3,955	)
Research and development credits		(28,007	)		(25,435	)		(23,509	)
Non-deductible IPR&D charges		—			—			68,086
Section 965 repatriation		—			—			26,000
Finalization of tax examinations		—			—			(13,700	)
Other		2,588			(7,202	)		(1,975	)
Income tax expense	$	185,267		$	172,390		$	227,914
Effective income tax rate		24.9	%		23.9	%		36.7	%

The Company’s 2007 effective tax rate compared to 2006 was negatively impacted by the loss of the tax benefit for the U.S. federal extraterritorial income exclusion, which expired at the end of 2006. The Company’s effective income tax rate is favorably affected by Puerto Rican tax exemption grants, which result in Puerto Rico earnings being partially tax exempt through the year 2018.

At December 29, 2007, the Company has $20.6 million of U.S. federal net operating loss carryforwards and $1.9 million of U.S. tax credit carryforwards that will expire from 2021 through 2025 if not utilized. The Company also has state net operating loss carryforwards of $26.1 million that will expire from 2010 through 2013 and tax credit carryforwards of $67.1 million that have an unlimited carryforward period. These amounts are subject to annual usage limitations. The Company’s net operating loss carryforwards arose primarily from acquisitions.

The Company has not recorded U.S. deferred income taxes on $725.9 million of its non-U.S. subsidiaries’ undistributed earnings, because such amounts are intended to be reinvested outside the United States indefinitely.

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At the beginning of fiscal year 2007, the Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The adoption of FIN 48 did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows and has been incorporated into its critical accounting policies and estimates. Upon adoption of FIN 48, the Company recorded an $8.5 million decrease to its liability for unrecognized income tax benefits, which was recorded as an adjustment to the opening balance of retained earnings. Additionally, the Company reclassified the liability for unrecognized income tax benefits from current to non-current liabilities because payment is not anticipated within one year. These adjustments and reclassifications were recorded in accordance with the transition provisions of FIN 48.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Balance at December 30, 2006	$	83,082
Increases related to current year tax positions		10,236
Increases related to prior year tax positions		7,571
Reductions related to prior year tax positions		(409	)
Reductions related to settlements / payments		(1,130	)
Expiration of the statute of limitations for the assessment of taxes		(4,090	)
Balance at December 29, 2007	$	95,260

At December 29, 2007, the entire unrecognized tax benefits of $95.3 million would reduce the Company’s annual effective tax rate, if recognized. The Company had approximately $17.3 million accrued for interest and penalties at the end of fiscal year 2007, and recognizes interest and penalties related to income tax matters in income tax expense. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for all tax years through 2001. Federal income tax returns for 2002 - 2005 are currently under examination. Substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999.

NOTE 11 – RETIREMENT PLANS

Defined Contribution Plans:   The Company has a 401(k) profit sharing plan that provides retirement benefits to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service limitations, with the Company matching a portion of the employees’ contributions. The Company also contributes a portion of its earnings to the plan based upon Company performance. The Company’s matching and profit sharing contributions are at the discretion of the Company’s Board of Directors. In addition, the Company has defined contribution programs for employees in certain countries outside the United States. Company contributions under all defined contribution plans totaled $54.9 million, $47.1 million and $38.0 million in 2007, 2006 and 2005, respectively.

The Company has a non-qualified deferred compensation plan that provides certain officers and employees the ability to defer a portion of their compensation until a later date. The deferred amounts and earnings thereon are payable to participants, or designated beneficiaries, at specified future dates upon retirement, death or termination from the Company. The deferred compensation liability, which is classified as other liabilities, was approximately $139 million and $106 million at December 29, 2007 and December 30, 2006, respectively.

Defined Benefit Plans:   The Company has funded and unfunded defined benefit plans for employees in certain countries outside the United States. The Company had an accrued liability totaling $26.8 million and $23.8 million at December 29, 2007 and December 30, 2006, respectively, which approximated the actuarially calculated unfunded liability. The related pension expense was not material.

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NOTE 12 – SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information:  The Company’s four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Advanced Neuromodulation Systems (ANS). The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CV – vascular closure devices and heart valve replacement and repair products; AF – EP introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and ANS – neurostimulation devices.

The Company has aggregated the four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/ANS and CV/AF. Net sales of the Company’s reportable segments include end-customer revenues from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by our selling and corporate functions, including all stock-based compensation expense, impairment charges and special charges for 2007 and 2006 have not been recorded in the individual reportable segments. As a result, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments. Additionally, certain assets are managed by the Company’s selling and corporate functions, principally including end-customer receivables, inventory, corporate cash and cash equivalents and deferred income taxes. For management reporting purposes, the Company does not compile capital expenditures by reportable segment; therefore, this information has not been presented as it is impracticable to do so.

The following table presents certain financial information by reportable segment (in thousands):

	CRM/ANS			CV/AF			Other			Total
Fiscal Year 2007
Net sales	$	2,577,975		$	1,201,302		$	—		$	3,779,277
Operating profit		1,576,439			579,325			(1,362,261	)		793,503
Depreciation and amortization expense		96,764			35,731			65,170			197,665
Total assets		1,977,174			769,194			2,583,036			5,329,404
Fiscal Year 2006
Net sales	$	2,235,128		$	1,067,319		$	—		$	3,302,447
Operating profit		1,337,479			502,244			(1,096,640	)		743,083
Depreciation and amortization expense		86,563			33,232			47,017			166,812
Total assets		1,893,200			800,907			2,095,687			4,789,794
Fiscal Year 2005
Net sales	$	1,949,828		$	965,452		$	—		$	2,915,280
Operating profit		1,045,274	(a)		449,081	(b)		(881,625	)		612,730
Depreciation and amortization expense		63,067			29,168			37,974			130,209
Total assets		1,848,847			768,041			2,227,952			4,844,840

(a)	Included in CRM/ANS 2005 operating profit are IPR&D charges of $107.4 million and $45.7 million relating to the acquisitions of ANS and Savacor, respectively.
(b)	Included in CV/AF 2005 operating profit are IPR&D charges of $13.7 million and $12.4 million relating to the acquisitions of Velocimed and ESI, respectively. Also included is an $11.5 million special credit relating to a reversal of a portion of accrued Symmetry™ device legal costs, net of settlement costs.

51

Net sales by class of similar products for the respective fiscal years were as follows (in thousands):

Net Sales	2007		2006		2005
Cardiac rhythm management	$	2,368,081	$	2,055,765	$	1,924,846
Cardiovascular		790,630		741,612		711,642
Atrial fibrillation		410,672		325,707		253,810
Advanced neuromodulation systems		209,894		179,363		24,982
	$	3,779,277	$	3,302,447	$	2,915,280

Geographic Information:   The Company markets and sells its products primarily through a direct sales force. The principal geographic markets for the Company’s products are the United States, Europe, Japan and Asia Pacific. The Company attributes net sales to geographic markets based on the location of the customer. Other than the United States, Europe, Japan and Asia Pacific no one geographic market is greater than 5% of consolidated net sales.

Net sales by significant geographic market based on customer location for the respective fiscal years were as follows (in thousands):

Net Sales	2007		2006		2005
United States	$	2,107,015	$	1,920,623	$	1,709,911
International
Europe		936,526		763,526		646,738
Japan		321,826		289,716		286,660
Asia Pacific		192,793		148,953		124,351
Other		221,117		179,629		147,620
		1,672,262		1,381,824		1,205,369
	$	3,779,277	$	3,302,447	$	2,915,280

Long-lived assets by significant geographic market were as follows (in thousands):

Long-Lived Assets	December 29, 2007		December 30, 2006		December 31, 2005
United States	$	2,840,259	$	2,765,936	$	2,596,513
International
Europe		136,661		124,071		100,068
Japan		89,309		120,503		125,075
Asia Pacific		13,134		10,718		8,808
Other		121,858		78,401		73,235
		360,962		333,693		307,186
	$	3,201,221	$	3,099,629	$	2,903,699

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NOTE 13 – QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for 2007 and 2006 was as follows (in thousands, except per share amounts):

	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
Fiscal Year 2007:
Net sales	$	886,978	$	947,336		$	926,840		$	1,018,123
Gross profit		648,001		694,313			681,981			713,388
Net earnings		145,725		134,800	(a)		160,239			118,274	(b)
Basic net earnings per share	$	0.42	$	0.40		$	0.47		$	0.35
Diluted net earnings per share	$	0.41	$	0.39		$	0.46		$	0.34
Fiscal Year 2006:
Net sales	$	784,416	$	832,922		$	821,278		$	863,831
Gross profit		575,969		605,958			580,991			626,016
Net earnings		137,069		141,032			115,540	(c)		154,610	(d)
Basic net earnings per share	$	0.37	$	0.39		$	0.33		$	0.43
Diluted net earnings per share	$	0.36	$	0.38		$	0.32		$	0.42

(a)	Includes an after-tax special charge of $21.9 million related to the settlement of a patent litigation matter.
(b)	Includes after-tax special charges of $21.4 million related to initiatives to streamline the Company’s operations, primarily internationally; $14.9 million of impairment charges related to acquired intangible assets associated with a terminated distribution agreement; $11.5 million of inventory write-offs for discontinued products; and $7.5 million associated with the write-off of the remaining carrying value of older model programmer diagnostic equipment. The Company also recorded an after-tax impairment charge of $15.7 million associated with its investment in ProRhythm.
(c)	Includes after-tax special charges of $22.0 million related to restructuring activities in the Company’s former Cardiac Surgery and Cardiology divisions and international selling organization.
(d)	Includes a $12.8 million reduction in income tax expense related to the retroactive portion of the research and development tax credit for the first nine months of 2006.

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Five-Year Summary Financial Data

(in thousands, except per share amounts)

	2007 (a)			2006 (b)			2005 (c)			2004 (d)			2003
SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:
Net sales	$	3,779,277		$	3,302,447		$	2,915,280		$	2,294,173		$	1,932,514
Gross profit	$	2,737,683		$	2,388,934		$	2,118,519		$	1,615,123		$	1,329,423
Percent of net sales		72.4	%		72.3	%		72.7	%		70.4	%		68.8	%
Operating profit	$	793,503		$	743,083		$	612,730		$	535,958		$	455,945
Percent of net sales		21.0	%		22.5	%		21.0	%		23.4	%		23.6	%
Net earnings	$	559,038		$	548,251		$	393,490		$	409,934		$	336,779
Percent of net sales		14.8	%		16.6	%		13.5	%		17.9	%		17.4	%
Diluted net earnings per share	$	1.59		$	1.47		$	1.04		$	1.10		$	0.91
FINANCIAL POSITION AT YEAR END:
Cash and cash equivalents	$	389,094		$	79,888		$	534,568		$	688,040		$	461,253
Working capital (e)		278,954			1,013,958			406,759			1,327,419			1,031,190
Total assets		5,329,404			4,789,794			4,844,840			3,230,747			2,553,482
Long-term debt, including current portion		1,387,991			859,376			1,052,970			234,865			351,813
Shareholders' equity	$	2,928,010		$	2,968,987		$	2,883,045		$	2,333,928		$	1,601,635
OTHER DATA:
Diluted weighted average shares outstanding		352,444			372,830			379,106			370,992			370,753

Fiscal year 2003 consisted of 53 weeks. All other fiscal years noted above consisted of 52 weeks. The Company did not declare or pay any cash dividends during 2003 through 2007.

(a)	Results for 2007 include after-tax special charges of $21.9 million related to the settlement of a patent litigation matter; $21.4 million related to initiatives to streamline the Company’s operations, primarily internationally; $14.9 million of impairment charges related to acquired intangible assets associated with a terminated distribution agreement; $11.5 million of inventory write-offs for discontinued products; and $7.5 million associated with the write-off of the remaining carrying value of older model programmer diagnostic equipment. The Company also recorded an after-tax impairment charge of $15.7 million associated with its investment in ProRhythm. The impact of all of these items on 2007 net earnings was $92.9 million, or $0.26 per diluted share.
(b)	Results for 2006 include after-tax special charges of $22.0 million, or $0.06 per diluted share, related to restructuring activities in the Company’s former Cardiac Surgery and Cardiology divisions and international selling organization.
(c)	Results for 2005 include $179.2 million of IPR&D charges relating to the acquisitions of ANS, Savacor, Velocimed and ESI. Additionally, the Company recorded an after-tax special credit of $7.2 million for the reversal of a portion of accrued Symmetry™ device legal costs, net of settlement costs. The Company also recorded an after-tax expense of $6.2 million as a result of a contribution to the St. Jude Medical Foundation. The Company also recorded the reversal of $13.7 million of previously recorded income tax expense due to the finalization of certain tax examinations, as well as $26.0 million of income tax expense on the repatriation of $500 million under the provisions of the American Jobs Creation Act of 2004. The impact of all of these items on 2005 net earnings was $190.5 million, or $0.50 per diluted share.
(d)	Results for 2004 include after-tax special charges of $21.9 million relating to the discontinuance of the Symmetry™ device product line and product liability litigation, as well as an after-tax special charge of $3.4 million resulting from the settlement of certain patent infringement litigation. Additionally, the Company recorded $9.1 million of IPR&D in conjunction with the acquisition of Irvine Biomedical, Inc.. Also, the Company recorded the reversal of $14.0 million of previously recorded income tax expense due to the finalization of certain tax examinations. The impact of all of these items on 2004 net earnings was $20.4 million, or $0.06 per diluted share.
(e)	Total current assets less total current liabilities. Working capital fluctuations can be significant based on the maturity dates of the Company’s long-term debt.

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Cumulative Total Shareholder Returns

(in dollars)

The graph compares the cumulative total shareholder returns for St. Jude Medical (SJM) common stock for the last five years ended December 29, 2007 with the Standard & Poor’s (S&P) 500 Index (S&P 500) and the Standard & Poor’s 500 Health Care Equipment Index (S&P 500 Health Care Equipment) weighted by market value at each measurement point. The comparison assumes that $100 was invested on December 31, 2002 in St. Jude Medical common stock and in each of these Standard & Poor’s indexes and assumes the reinvestment of any dividends.

55

Certifications

The Company has filed as exhibits to its Annual Report on Form 10-K for the year ended December 29, 2007, the Chief Executive Officer and Chief Financial Officer certifications required by section 302 of the Sarbanes-Oxley Act. The Company has also submitted the required annual Chief Executive Officer certifications to the New York Stock Exchange.

Transfer Agent

Requests concerning the transfer or exchange of shares, lost stock certificates, duplicate mailings, or change of address should be directed to the Company’s Transfer Agent at:

Computershare Trust Company, N.A.

P.O. Box 43023

Providence, Rhode Island 02940-3023

1.877.498.8861

www.equiserve.com (Account Access Availability)

Hearing impaired #TDD: 1.800.952.9245

Annual Meeting of Shareholders

The annual meeting of shareholders will be held at 9:30 a.m. on Friday, May 9, 2008, at the Minnesota Historical Center, 345 Kellogg Boulevard West, St. Paul, Minnesota, 55102.

Investor Contact

To obtain information about the Company call 1.800.552.7664, visit our website at www.sjm.com or write to:

Investor Relations

St. Jude Medical, Inc.

One Lillehei Plaza

St. Paul, Minnesota 55117-9983

The Investor Relations (IR) section on St. Jude Medical’s website includes all SEC filings, a list of analyst coverage, webcasts and presentations, financial information and a calendar of upcoming earnings announcements and IR events. St. Jude Medical’s Newsroom features press releases, company background information, fact sheets, executive bios, a product photo portfolio, and other media resources. Patient profiles can be found on our website, including the patients featured in this year’s annual report.

Company Stock Splits

2:1 on 4/27/79, 1/25/80, 9/30/86, 3/15/89, 4/30/90, 6/10/02 and 11/1/04.

3:2 on 11/16/95

Stock Exchange Listings

New York Stock Exchange

Symbol: STJ

The range of high and low prices per share for the Company’s common stock for fiscal years 2007 and 2006 is set forth below. As of February 15, 2008, the Company had 2,861 shareholders of record.

	2007				2006
Quarter	High		Low		High		Low
First	$	43.46	$	34.90	$	54.75	$	40.30
Second	$	44.91	$	37.26	$	42.00	$	31.20
Third	$	48.10	$	40.50	$	40.00	$	31.50
Fourth	$	47.02	$	36.90	$	39.07	$	32.40

Trademarks

All product names appearing in this document are trademarks owned by, or licensed to, St. Jude Medical Inc.

©2008 St. Jude Medical, Inc.

EX-21

Exhibit 21

ST. JUDE MEDICAL, INC.

SUBSIDIARIES OF THE REGISTRANT

as of December 29, 2007

St. Jude Medical, Inc. Wholly Owned Subsidiaries:

• Pacesetter, Inc. - Sylmar, California, Scottsdale, Arizona, and Maven, South Carolina
(Delaware corporation) (doing business as St. Jude Medical Cardiac Rhythm Management Division)

• St. Jude Medical S.C., Inc. – Austin, Texas (Minnesota corporation)

– Bio-Med Technologies Limited (Pennsylvania corporation)

– San Diego Pace, Inc. (California corporation)

• St. Jude Medical Europe, Inc. - St. Paul, Minnesota (Delaware corporation)

– Brussels, Belgium branch

• St. Jude Medical Canada, Inc. - Mississauga, Ontario and St. Hyacinthe, Quebec
(Ontario, Canada corporation)

• St. Jude Medical (Shanghai) Co., Ltd. – Shanghai, China (Chinese corporation)

– Beijing, Shanghai and Guangzhou representative offices

• St. Jude Medical, Inc., Cardiac Assist Division - St. Paul, Minnesota (Delaware corporation)
(Assets of St. Jude Medical, Inc., Cardiac Assist Division sold to Bard 1/19/96)

• St. Jude Medical Australia Pty., Ltd. – Sydney, Australia (Australian corporation)

• St. Jude Medical Brasil, Ltda. - Sao Paulo and Belo Horizonte, Brazil (Brazilian corporation)

• St. Jude Medical, Atrial Fibrillation Division, Inc. (Formerly St. Jude Medical, Daig Division, Inc.) - Minnesota and California (Minnesota corporation)

– Endocardial Solutions NV/SA (Belgian Corporation)

• St. Jude Medical Colombia, Ltda. - Bogota, Colombia (Colombian corporation)

• St. Jude Medical ATG, Inc. - Maple Grove, Minnesota (Minnesota corporation)

• St. Jude Medical (Thailand) Co., Ltd. – Bangkok, Thailand (Thailand corporation)

• Irvine Biomedical, Inc. – Irvine, California (California corporation)

• Frank Merger Corporation – (Delaware corporation)

• St. Jude Medical, Cardiology Division, Inc. (Formerly Velocimed, Inc.) - Minnesota (Delaware corporation)

• Light Merger Corporation – (Minnesota Corporation)

• St. Jude Medical Argentina S.A. – Buenos Aires, Argentina (Argentinean corporation)

• Advanced Neuromodulation Systems, Inc. – Plano, Texas (Texas Corporation)

– Quest Acquisition Corporation – Plano, Texas (Delaware Corporation)

– Hi-Tronics Designs, Inc. – Budd Lake, New Jersey (New Jersey Corporation)

– Neuro-Regeneration, Inc. – Plano, Texas (Texas Corporation)

– MicroNet Medical, Inc. – Plano, Texas (Minnesota Corporation)

– Hug Centers of America I, Inc. – Plano, Texas (Delaware Corporation)

– SPAC Acquisition Corp. – Wilmington, Delaware (Delaware Corporation)

– Advanced Neuromodulation Systems, UK Limited (United Kingdom corporation)

• SJM International, Inc. - St. Paul, Minnesota (Delaware corporation)

– Tokyo, Japan branch

SJM International, Inc. Wholly Owned Legal Entities (Directly and Indirectly):

• St. Jude Medical Luxembourg S.à r.l. (Luxembourg corporation)

– St. Jude Medical Nederland B.V. (Netherlands corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg S.à r.l.)

– St. Jude Medical Puerto Rico B.V. (Netherlands corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg S.à r.l.)

– St. Jude Medical Puerto Rico LLC (Puerto Rican corporation) (wholly owned subsidiary of St. Jude Medical Puerto Rico B.V.)

– St. Jude Medical AB (Swedish corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg S.à r.l.)

– SJM Coordination Center BVBA (Belgian corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg S.à r.l.)

– St. Jude Medical Holdings B.V. (Netherlands corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg S.à r.l.)

– St. Jude Medical Japan Co., Ltd. (Japanese corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical India Private Limited (Indian corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical (Singapore) Pte. Ltd. (Singaporean corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical (Malaysia) Sdn Bhd (Malaysian corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical Taiwan Co. (Taiwan corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical Korea YH (Korean corporation) (wholly owned subsidiary of St. Jude Medical Holdings B.V.)

– St. Jude Medical (Hong Kong) Limited - Central, Hong Kong (Hong Kong corporation)

– Beijing, China representative office

– Mumbai, New Delhi, Calcutta, Chennai and Bangalore, India branch offices

• St. Jude Medical Sweden AB (Swedish corporation)

• St. Jude Medical Danmark A/S (Danish corporation)

• St. Jude Medical (Portugal) - Distribuição de Produtos Médicos, Lda. (Portuguese corporation)

• St. Jude Medical Export Ges.m.b.H. (Austrian corporation)

• St. Jude Medical Medizintechnik Ges.m.b.H. (Austrian corporation)

• St. Jude Medical Italia S.p.A. (Italian corporation)

• St. Jude Medical Belgium (Belgian corporation)

• St. Jude Medical España S.A. (Spanish corporation)

• St. Jude Medical France S.A.S. (French corporation)

• St. Jude Medical Finland O/y (Finnish corporation)

• St. Jude Medical Sp.zo.o. (Polish corporation)

• St. Jude Medical GmbH (German corporation)

• St. Jude Medical Kft (Hungarian corporation)

• St. Jude Medical UK Limited (United Kingdom corporation)

• St. Jude Medical (Schweiz) AG (Swiss corporation)

• UAB “St. Jude Medical Baltic” (Lithuanian corporation)

• St. Jude Medical Norway AS (Norwegian corporation)

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report (Form 10-K) of St. Jude Medical, Inc. of our reports dated February 27, 2008, with respect to the consolidated financial statements of St. Jude Medical, Inc., and the effectiveness of internal control over financial reporting of St. Jude Medical, Inc., included in the 2007 Annual Report to Shareholders of St. Jude Medical, Inc.

Our audits also included the financial statement schedule of St. Jude Medical, Inc. listed in Item 15(a)(2). This schedule is the responsibility of St. Jude Medical, Inc.’s management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 27, 2008, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-145833) and on Form S-8 (Nos. 33-9262, 33-41459, 33-48502,33-54435, 333-42945, 333-42658, 333-42668, 333-96697, 333-127381, 333-130180, 333-136398, and 333-143090) of St. Jude Medical, Inc. of our reports dated February 27, 2008, with respect to the consolidated financial statements of St. Jude Medical, Inc., and the effectiveness of internal control over financial reporting of St. Jude Medical, Inc., incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule of St. Jude Medical, Inc. included in this Annual Report (Form 10-K) of St. Jude Medical, Inc.

/s/   Ernst & Young LLP

Minneapolis, MN

February 27, 2008

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel J. Starks, John C. Heinmiller and Pamela S. Krop, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of St. Jude Medical, Inc. for the fiscal year ended December 29, 2007, and any or all amendments to said Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and to file the same with such other authorities as necessary, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney has been signed on this 22^nd day of February, 2008, by the following persons.

/s/  DANIEL J. STARKS	/s/   BARBARA B. HILL
Daniel J. Starks	Barbara B. Hill
Chairman, President and Chief Executive Officer	Director
(Principal Executive Officer)
/s/  JOHN C. HEINMILLER	/s/   MICHAEL A. ROCCA
John C. Heinmiller	Michael A. Rocca
Executive Vice President and	Director
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/   JOHN W. BROWN	/s/   STEFAN K. WIDENSOHLER
John W. Brown	Stefan K. Widensohler
Director	Director
/s/   RICHARD R. DEVENUTI	/s/   WENDY L. YARNO
Richard R. Devenuti	Wendy L. Yarno
Director	Director
/s/   STUART M. ESSIG
Stuart M. Essig
Director
/s/   THOMAS H. GARRETT III
Thomas H. Garrett III
Director

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Starks, certify that:

1.	I have reviewed this annual report on Form 10-K of St. Jude Medical, Inc.;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 25, 2008
/s/   DANIEL J. STARKS
Daniel J. Starks Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

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 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 25, 2008
/s/   JOHN C. HEINMILLER
John C. Heinmiller Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of St. Jude Medical, Inc. (the “Company”) on Form 10-K for the period ended December 29, 2007 as filed with the Securities and Exchange Commission (the “Report”), I, Daniel J. Starks, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/   DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer
February 25, 2008

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of St. Jude Medical, Inc. (the “Company”) on Form 10-K for the period ended December 29, 2007 as filed with the Securities and Exchange Commission (the “Report”), I, John C. Heinmiller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/   JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and
Chief Financial Officer
February 25, 2008