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 January 2, 2010

Commission File Number: 1-12441

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 St. Jude Medical Drive	(651) 756-2000
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 whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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 amendment 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 the 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     (Do not check if a smaller reporting company)	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 $13.7 billion at July 2, 2009 (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 $39.34 per share.

The registrant had 325,431,377 shares of its $0.10 par value Common Stock outstanding as of February 19, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Annual Report to Shareholders for the fiscal year ended January 2, 2010, are incorporated by reference into Parts I and II. Portions of the Company’s Proxy Statement for its 2010 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	14
1B.	Unresolved Staff Comments	22
2.	Properties	22
3.	Legal Proceedings	22
4.	[Reserved]	22
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
6.	Selected Financial Data	23
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
7A.	Quantitative and Qualitative Disclosures About Market Risk	23
8.	Financial Statements and Supplementary Data	23
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
9A.	Controls and Procedures	23
9B.	Other Information	24
	PART III
10.	Directors, Executive Officers and Corporate Governance	24
11.	Executive Compensation	24
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24
13.	Certain Relationships and Related Transactions, and Director Independence	25
14.	Principal Accountant Fees and Services	25
	PART IV
15.	Exhibits and Financial Statement Schedules	26
	Signatures	31

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 neurostimulation medical devices for the management of chronic pain. Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Neuromodulation (NMD). Our CV operating segment focuses on both the cardiology and cardiac surgery 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, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology (EP) introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD – 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/NMD and CV/AF. Our performance by reportable segment is included in Note 14 of the Consolidated Financial Statements in the Financial Report included in our 2009 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K.

We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31^st. Fiscal year 2009 and 2007 consisted of 52 weeks and ended on January 2, 2010 and December 29, 2007, respectively. Fiscal year 2008 consisted of 53 weeks and ended on January 3, 2009, with the additional week reflected in our fourth quarter 2008 results.

The table below shows net sales and percentage of total net sales contributed by each of our four operating segments for the fiscal years 2009, 2008 and 2007:

Net Sales (in thousands)	2009			2008			2007
Cardiac Rhythm Management	$	2,769,034		$	2,701,463		$	2,368,081
Cardiovascular		953,620			862,136			790,630
Atrial Fibrillation		627,853			545,512			410,672
Neuromodulation		330,766			254,140			209,894
	$	4,681,273		$	4,363,251		$	3,779,277
Percentage of Total Net Sales	2009			2008			2007
Cardiac Rhythm Management		59.1	%		61.9	%		62.7	%
Cardiovascular		20.4	%		19.8	%		20.9	%
Atrial Fibrillation		13.4	%		12.5	%		10.9	%
Neuromodulation		7.1	%		5.8	%		5.5	%

Principal Products
Cardiac Rhythm Management: CRM focuses on the research, development and manufacture of products for cardiac arrhythmias, or irregular heart beats. In 2009, we introduced multiple new products, 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 (wires that connect our devices to the heart) to carry electrical impulses to the heart and provide information to the device from the heart. CRM also develops and markets programmers and remote monitoring equipment that are used by physicians and healthcare professionals to program and analyze data from our devices for the management of their patients.

Our ICDs and cardiac resynchronization therapy defibrillator (CRT-D) devices treat patients with hearts that beat inappropriately fast, a condition known as tachycardia. ICDs monitor the heartbeat and deliver high 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, and connected to the heart by leads.

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In 2009, we received approval (U.S. Food and Drug Administration (FDA) approval in January 2009 and European CE Mark approval in August 2009) of our SJ4 connector system that allows a single defibrillation lead connection between an ICD or CRT-D device and the leads that send electrical impulses to the heart. The SJ4 connector system, which includes the Durata^® SJ4 defibrillation lead and the Current^® ICD or Promote^® CRT-D families, reduces the procedure time and volume of leads implanted in the chest cavity.

Our Current Accel™, Promote Accel™, and AnalyST Accel™ devices (European CE Mark approval in March 2009) are designed to adjust settings automatically to further enhance patient safety and minimize scheduled patient follow-ups. In addition, the AnalyST Accel™ devices represent our second generation ICD devices capable of continuously monitoring the electrical charges between heartbeats, providing physicians insight into clinical events to help improve patient management.

Our Current Plus™ and Promote Plus™ devices (FDA approval in February 2009) include several new features that provide physicians more options for customizing therapy for patients with potentially lethal heart arrhythmias and heart failure. In addition, our product portfolio includes the Current™ RF (radio frequency) VR/DR (single chamber/dual chamber) ICDs and Promote™ RF CRT-D (FDA approval 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 approval in March 2006) and high energy Atlas^® II+ DR and Atlas^® II VR/DR ICDs (FDA approval in July 2006) that offer our vibratory patient alert feature designed for greater patient safety and enhanced telemetry speeds to facilitate faster patient follow-ups. Other CRT-D product offerings include the Epic^® II HF (FDA approval in March 2006) and high energy Atlas^® II HF CRT-Ds (FDA approval 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.

The St. Jude Medical QuickOpt™ Timing Cycle Optimization technology (FDA approval in July 2006) 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 offerings include the Durata™ SJ4 (FDA approval in April 2009) and Durata™ high voltage lead (FDA approval in January 2008), which features a soft silicone tip and curved right-ventricular (RV) coil designed to further improve implant performance. The Durata™ leads, along with the Riata^® ST Optim™ leads (FDA approval 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 approval in May 2004.

Our QuickSite^® Bipolar Model 1056T LV (left ventricle) 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. We received European CE Mark approval in September 2008 for our QuickFlex µ (micro) LV lead. Additionally, we received European CE Mark approval in April 2009 for our CPS Aim^® SL slittable inner catheter subselector, designed to offer safer, more efficient implantation procedures and therapy delivery for patients with heart failure. We also provide additional tools for placement of LV leads that include the CPS Direct™, CPS Aim™, CPS Luminary™, CPS Duo™, CPS Courier™ guidewires, and the CPS Venture™ wire control catheter.

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. Biventricular pacemakers can sense and pace in three chambers (atrium and both ventricle chambers).

In 2009, we received approval (European CE Mark approval in April 2009 and FDA approval in July 2009) of our Accent™ RF pacemaker and Anthem™ RF CRT-P (cardiac resynchronization therapy pacemaker). The Accent™ and Anthem™ product family features RF telemetry that enables secure, wireless communication between the implanted device and the programmer used by the clinician, utilizing wireless telemetry from implant through follow-up, allowing for more efficient and convenient care and device management.

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Our other pacing products include the 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 approval 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 (FDA approval in December 2005), which includes the Victory^® and Victory^® XL family models, provide the enhancements of previous St. Jude Medical families while adding new capabilities. New capabilities include 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.

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 approval 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. 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 the St. Jude Medical AF Suppression™ Algorithm.

Our current pacing leads include the Optisense™ Optim, Optisense™, Tendril^® STS, Tendril^® ST Optim, Tendril ST, and Tendril^® SDX (models 1688, 1488, 1788 and 1782) lead families and the IsoFlex^® Optim, IsoFlex^® S, IsoFlex P and Passive Plus^® DX passive-fixation lead families, all available worldwide. All of these lead families feature steroid elution, which helps suppress the body’s inflammatory response to a foreign object. Our Optisense™ leads offer an electrode spacing technology that has been clinically proven to significantly reduce far-field over-sensing and inappropriate mode switching.

Our CRM devices 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 implant 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 twelve months based on patient need, to download stored diagnostic information from the implanted device for physicians to verify appropriate therapeutic settings. Since the introduction of programmable pacemakers, 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, builtin 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. This programmer has had several software updates since release to extend capabilities and support new products and markets. In 2008, the programmer was updated to include Japanese and Mandarin Chinese language support.

The St. Jude Medical 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 implanted devices and patient status using the Merlin.net^TM Patient Care Network. The latest version of this system (v4.0) was launched in the United States in November 2009. This system allows patients to use their home transmitters to send data stored in 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 and pacemaker patients by conducting remote follow-up sessions and using alerts of clinically important events, thereby increasing efficiency and reducing risks for the patient. Additionally, patient flexibility is enhanced by the reduction in the number of office visits required and the ability to have a physician quickly interrogate device data whenever symptoms warrant.

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In 2008, we launched the Merlin@home line of RF transmitters (FDA approval in July 2008 and European CE Mark approval in September 2008). The RF technology enables daily monitoring and scheduled remote follow-ups to occur in the patient’s home without any required activity by the patient after the unit has been installed.

Cardiovascular: Our Cardiovascular Division focuses on both the cardiology and cardiac surgery therapy areas. 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, compression assist devices, percutaneous catheter introducers, diagnostic guidewires (including guidewires providing physiological lesion assessment) and temporary bipolar pacing catheters.

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 1.8 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. We market both the Epic™ and Biocor® stented tissue heart valves. The Epic™ stented tissue valve is identical in design to the Biocor® stented tissue valve but also incorporates an anti-calcification treatment, designed to protect against tissue mineralization or hardening. In 2009, we successfully completed U.S. enrollment of our Trifecta™ stented tissue heart valve United States Investigational Device Exemption (IDE) clinical trial.

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. In 2009, we launched the Attune® flexible annuloplasty ring, designed specifically for those physicians who prefer flexible rings for the treatment of ischemic heart disease and use the ring in conjunction with robotic or other minimally invasive surgical tools.

Our vascular closure devices are used to close radial and femoral artery puncture sites following percutaneous coronary interventions, diagnostic procedures and certain peripheral procedures. Active or passive (manual) compression is utilized to assist in closing artery puncture sites. Our active closure devices include our Angio-Seal™ product offering. Most recently, we launched the Angio-Seal^TM Evolution vascular closure system in the U.S. and most international geographies. In addition to the performance and ease of use benefits offered from prior versions of Angio-Seal^TM, Angio-Seal^TM Evolution features automated collagen compaction – thus making it easier for the clinician to ensure immediate arterial hemostasis and rapid deployment of the device. Prior versions of Angio-Seal™, Angio-Seal^TM VIP and Angio-Seal^TM STS Plus continue to generate revenue in our active closure product offering.

We estimate that manual compression is utilized in approximately two-thirds of all vascular closure cases. As a result of our 2008 Radi Medical Systems acquisition, we now have compression assist device product offerings, expanding our market presence and addressing the vascular closure preferences of all physicians. Our compression assist device offerings include both the RadiStop® and FemoStop® manual compression systems that arrest bleeding of the radial and femoral arteries, respectively. External compression devices are often used to maintain pressure on the arteriotomy in order to facilitate hemostasis.

In coronary disease diagnosis and intervention, an emerging treatment model involves the use of tools for physiologic lesion assessment rather than sole reliance on contrast-enhanced angiography. In this treatment model, blood flow through a stenotic coronary lesion is measured with a special purpose coronary guidewire containing a pressure sensor. We now market PressureWire® Certus, which provides precise measurements of intravascular pressure during a cardiovascular procedure and helps aid physicians in determining the most beneficial lesions to treat. At the October 2009 Transcatheter Cardiovascular Therapeutics conference, two-year results from the pivotal Fractional flow reserve versus Angiography in Multivessel Evaluation (FAME) study were presented which demonstrated continued reductions in mortality, morbidity, stent utilization and procedural cost when PressureWire® Certus was employed to guide the physician decision-making process. PressureWire® Certus has regulatory approval in Europe and Japan as well as FDA approval in the United States.

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.

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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™ 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 electrophysiology (EP) lab and cardiac surgery.

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 right and left atria. In addition, our Agilis™ NxT Steerable Introducer (FDA approval 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™, Supreme™ and Inquiry™ fixed curve catheters gather electrical information from the heart that indicates what may be causing an arrhythmia and/or help locate its source. Our steerable product lines include Livewire™ and Reflexion™, which allow clinicians to move the catheter tip in precise movements in order to diagnose the more anatomically challenging areas within the heart. Our Reflexion™ Spiral (FDA approval in October 2006) and Inquiry™ Optima™ PLUS (FDA approval in March 2006) are circular mapping catheters that enable the physician to check for electrical isolation of the pulmonary vein openings during an AF ablation procedure. The Reflexion HD™ (FDA approval in January 2009) is a high-density, circular mapping catheter that is designed to leverage the mapping capabilities of the EnSite™ System to create accurate high-density geometries and detailed electrical maps. In addition, our EnSite Array™ non-contact mapping catheter works with the EnSite® System and EnSite Velocity™ System, enabling physicians to quickly map complex and unstable arrhythmias in a single heartbeat without touching the walls of the patient’s heart.

In 2008, we also entered the market for implantable cardiac monitors with the release of our Confirm™ device (FDA approval and CE Mark approval in September 2008). This small implantable device is designed to help physicians monitor for abnormal cardiac conditions.

In July 2008, we acquired EP MedSystems, Inc. (EP MedSystems), broadening our portfolio of diagnostic products with the addition of the EP–WorkMate® recording system and the ViewFlex® range of ultrasound products. The EP–WorkMate® recording system is used to monitor electrical activity of the heart via intracardiac catheters and features our new ClearWave technology for high fidelity signals and an integrated stimulator. The ultrasound product line consists of the ViewMate® II ultrasound console and the ViewFlex® PLUS ultrasound catheter. This ultrasound system provides intracardiac ultrasound imaging to help provide more detail about the cardiac anatomy and guide therapy delivery.

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 technology, creates three-dimensional (3D) cardiac models, shows catheters moving within those models, and allows physicians to map and visualize electrical activity in the heart. In 2009, we introduced the EnSite Velocity™ System which provides a more streamlined workflow for the procedure and offers an intuitive user interface. There are also several important new capabilities in the EnSite Velocity™ System. The OneMap™ Tool helps create detailed chamber models more quickly with more information and the RealReview™ function allows the user to view live and pre-recorded cardiac models and electrical maps simultaneously. In 2008, we launched the EnSite® System Version 8.0 software platform, which enables the creation of cardiac models with a higher level of detail while also providing improved reproducibility as well as several new approaches to visually present arrhythmia patterns. In 2007, we 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.

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In December 2008, we acquired privately-held MediGuide, Inc. (MediGuide), a development-stage company that had been focused on developing its Medical Positioning System (gMPS^TM) technology for localization and tracking capability for interventional medical devices. In 2009, we focused our development efforts on integrating the gMPS^TM technology with our diagnostic and ablation catheters and our EnSite Velocity^TM platform.

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 standard non-irrigated tip ablation catheters include our Livewire™ TC Ablation Catheters uni- and bi-directional models that offer stability and excellent tissue contact with cardiac tissue. Our Safire™ (4mm and 5mm) and Safire TX (8mm) Bi-directional Ablation Catheter product line offers a comprehensive range of catheter tip sizes (4mm and 5mm catheter tips, FDA approval in August 2006, and 8mm catheter tip, FDA approval 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™ 4mm and 8 mm tip standard catheter lines provide 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. In addition to the standard (non-irrigated) tip ablation catheters, we also offer the open-irrigated tip Therapy Cool Path™ ablation catheter. The Therapy Cool Path™ catheter features holes at the tip of the catheter that allow infused saline to circulate around the tip during therapy delivery. The ability to infuse saline allows the tip to be cooled and lessens the potential for char or thrombus to form during ablation.

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 approval in May 2004) that creates circumferential lesions in cardiac tissue and the UltraWand™ Handheld Ablation Device (FDA approval in February 2004) that allows for additional linear lesions to be created.

Neuromodulation: The neuromodulation market has 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. All of our Neuromodulation product offerings provide neurostimulation treatment.

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. The patient’s sensation of pain is replaced 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 four components: a pulse generator/receiver that produces the electric current and is implanted under the patient’s skin; leads that carry the electrical impulses to the targeted nerve sites; a patient remote that enables the patient to control their therapy within prescribed ranges, and a clinician programmer that is used to program the power supply with individualized therapy for the patient. 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.

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

The Eon™ family of IPG’s includes the Eon™, Eon Mini™ and EonC^™ IPG. The Eon™ rechargeable IPG is a 16-contact IPG with a high capacity battery. It offers a broad range of options to help the clinician maximize success in managing chronic pain. The Eon™ IPG provides enhanced longevity between recharges, allowing patients added flexibility in their recharging schedule. It is FDA approved to operate at least 24 hours between recharges for 10 years at high settings. The device is designed to provide consistent pain therapy.

The Eon Mini^™ rechargeable 16-contact IPG’s small size offers the potential for alternative placement options, which helps clinicians treat a variety of patients. It is FDA-approved to operate at least 24 hours between recharges for 10 years at high settings – a long battery life for its small size. The Eon Mini IPG is well-suited for patients with smaller body mass and low to high power requirements.

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The EonC^™ primary cell IPG features a large-capacity battery and constant current pulse delivery for consistent, low-maintenance therapy. It is well-suited for patients with low to medium power requirements and those who prefer the simplicity of a non-rechargeable IPG.

The Genesis™ family of IPGs offer a high battery capacity-to-size ratio and flexibility in addressing diverse 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 the Renew™ system 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 with a rechargeable system, is problematic.

Each of our generator systems work with a corresponding patient remote. The remote controller enables the patient to control their therapy intensity and location with simple adjustments, enabling the patient to control their pain. The controllers work by wirelessly communicating to the implanted generator to adjust the patient’s stimulation parameters.

In combination with our wide array of generators, 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 lead offering consists of the Lamitrode™ family of leads. This family includes the Lamitrode™ 88 lead, which consists of single and dual column paddle leads that provide up to two vertebral segments of coverage; Tripole™ leads, which feature a three-column electrode array that is designed to focus stimulation more precisely for enhanced targeting of low back pain; S-Series™ leads, which feature a small profile that is intended to ease insertion, and an integrated stylet that is engineered to improve steering and control during implantation; and C-Series™ leads, shaped to mimic the curve of the epidural space of the spine and designed to facilitate lead placement and reduce lead migration. In 2009, we received FDA approval for our Penta™ paddle lead, a five column lead, designed to provide enhanced stimulation control and specificity for focused stimulation therapy.

Our systems are programmed with our Rapid Programmer™ platform. This system enables clinicians to efficiently test patients intra-operatively and program patients post-operatively. The Rapid Programmer™ is a palm-sized programmer that features a touch screen interface clinicians can navigate to create multiple programs customized for the patient. Using the foundation of our Dynamic MultiStim™ technology for real time adjustments of multiple pain areas simultaneously, we are now adding MultiSteering™. This new technology was released at the end of 2009 (FDA approval in 2009) and simplifies the programming of complex multi-focal pain by using an optimized current steering algorithm that is designed for more thorough and efficient programming sessions.

The neurostimulation market continues to develop. Deep brain stimulation (DBS) for motor disorders (e.g. Parkinson’s disease and essential tremor) continues to grow and potential new indications such as DBS for depression, obesity and occipital stimulation for migraine, continue to be investigated. In early 2009 we began a limited release in Europe of the Libra™ and LibraXP™ DBS systems for treating the symptoms of Parkinson’s disease, a neurological disorder that progressively diminishes a person’s control over his or her movements and speech. The Brio™ IPG, a small, long lasting rechargeable DBS device, and the Guardian™ burr hole cap were introduced to the European market for the treatment of Parkinson’s disease. These systems in Europe are our first approved products in the DBS market (CE mark approval in 2009). We have completed enrollment of the U.S. Parkinson’s Disease and Migraine Headache pivotal trials and continue to collect follow up data. Additionally, we continue to enroll patients in two other pivotal trials to investigate the safety and efficacy of the Libra™ DBS system for essential tremor and depression in patients for whom current available treatments are not effective. The BROADEN™ (BROdmann Area 25 Deep brain Neuromodulation) depression study is currently enrolling at a limited number of sites. Other potential indications are in various stages of evaluation, regulatory review and trial.

Competition
The medical device market is intensely competitive and 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 that 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 CRM market. Our primary competitors in this market are Medtronic, Inc. (Medtronic) and Boston Scientific Corporation (Boston Scientific). These two competitors are larger than us and have invested substantial amounts in CRM research and development (R&D). 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 are 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. Our principal competitors in the mechanical heart valve market are Sorin CarboMedics, ATS Medical, Inc. and several smaller manufacturers. In the tissue heart valve market, we compete against two principal tissue heart valve manufacturers – Edwards Lifesciences Corporation (Edwards Lifesciences) and Medtronic – as well as many other smaller manufacturers. Cardiac surgery therapies continue to shift from mechanical heart valves to tissue valves and repair products. Other competitors such as Edwards Lifesciences manufacture transcatheter heart valves that are marketed to patients who may be too frail for traditional heart valve surgery.

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, such as Medtronic, have started to extend their presence in the atrial fibrillation market through acquisitions or by leveraging their cardiac rhythm management capabilities. Our primary competitors include Biosense Webster, a division of Johnson & Johnson, Inc., C.R. Bard, Inc. and Boston Scientific.

The neuromodulation market is one of medical technology’s fastest growing segments. We are one of three principal manufacturers of neurostimulation devices. Competitive pressures will increase in the future as our primary competitors, Medtronic and Boston Scientific, attempt to secure and grow their positions in the neuromodulation market. Although we also compete against smaller competitors like Cyberonics, Inc., 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.

Patents, Licenses and 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 also have obtained certain trademarks and tradenames 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. R&D 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 R&D expenses were $559.8 million (12.0% of net sales) in 2009, $531.8 million (12.2% of net sales) in 2008 and $476.3 million (12.6% of net sales) in 2007. Although our R&D expenses have decreased as a percent of net sales in recent years, total R&D expense continues to increase each year, reflecting our continuing commitment to fund future long-term growth opportunities. We also recognized $5.8 million and $319.4 million of purchased in-process research and development expense in 2009 and 2008, respectively, in connection with the purchase of certain intellectual property assets in 2009 and acquisitions completed in 2008.

Acquisitions
In addition to generating growth internally through our own R&D 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 July 3, 2008, we completed the acquisition of EP MedSystems for $95.7 million (consisting of $59.0 million in net cash consideration and direct acquisition costs and 0.9 million shares of St. Jude Medical common stock). EP MedSystems had been publicly traded on the NASDAQ Capital Market under the ticker symbol EPMD. EP MedSystems is based in West Berlin, New Jersey and develops, manufactures and markets medical devices for the electrophysiology market which are used for visualization, diagnosis and treatment of heart rhythm disorders. We acquired EP MedSystems to strengthen our portfolio of products used to treat heart rhythm disorders. EP MedSystems has become part of our Atrial Fibrillation division.

On December 19, 2008, we completed the acquisition of Radi Medical Systems for $248.9 million in net cash consideration, including direct acquisition costs. Radi Medical Systems is based in Uppsala, Sweden and develops, manufactures and markets products that provide precise measurements of intravascular pressure during a cardiovascular procedure and manual compression systems that arrest bleeding of the femoral and radial arteries following an intravascular medical device procedure. We acquired Radi Medical Systems to accelerate our cardiovascular growth platform in these two segments of the cardiovascular medical device market in which we previously had not participated. Radi Medical Systems has become part of our Cardiovascular division.

On December 22, 2008, we completed the acquisition of MediGuide for $285.2 million in net consideration. MediGuide was a development-stage company based in Haifa, Israeli and has been focused on developing its Medical Positioning System (gMPS^TM) technology for localization and tracking capability for interventional medical devices. We plan to expend additional R&D efforts to achieve technological feasibility for this technology. MediGuide has become part of our Atrial Fibrillation division.

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 2009, 2008 or 2007 consolidated net sales.

In the United States, we sell directly to healthcare providers primarily through a direct sales force. In Europe, we have direct sales organizations selling in 23 countries. In Japan, we sell directly to healthcare providers 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 seven 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 healthcare provider 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 a particular healthcare provider.

International Operations
Our net sales and long-lived assets by significant geographic areas are presented in Note 14 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2009 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, legal 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 net sales and net earnings. See the Market Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 13 of the Consolidated Financial Statements in the Financial Report included in St. Jude Medical’s 2009 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, 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 and comparable agencies in foreign countries, 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 vascular closure devices, 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 (CMS), will reimburse hospitals for care of persons covered by Medicare. In response to rising Medicare and Medicaid costs, from time to time Congress and state legislatures consider legislation that would restrict funding 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. CMS, which administers the Medicare and Medicaid programs, uses separate Prospective Payment Systems for reimbursement to acute inpatient hospitals, hospital outpatient departments and ambulatory surgery centers. In response to rising Medicare costs, from time to time Congress considers proposals 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. From time to time, initiatives to limit the growth of healthcare costs, including price regulation, are underway in several countries in which we do business. Implementation of healthcare reforms in the United States and in significant overseas markets may limit the price of or the level at which reimbursement is provided for our products.

The United States Anti-kickback law generally prohibits payments to physicians or other purchasers of medical products under federal health care programs, including Medicare and Medicaid, as an inducement to purchase a product. Many states and foreign countries have similar laws. We subscribe to the AdvaMed Code of Ethics (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 our internal business integrity and compliance program and policies.

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 and security standards for electronic heath information under the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (HIPAA). These HIPAA privacy and security standards govern the use and disclosure of protected health information by “covered entities,” which are healthcare providers that submit electronic claims, health plans and healthcare clearinghouses. Our employee health benefit plans are considered ‘covered entities’ and therefore are subject and adhere to the HIPAA privacy and security standards. Additionally, our Merlin.net Patient Care Network system adheres to the privacy and security standards set forth in HIPAA. Failure to comply with HIPAA or any state or foreign laws regarding personal data protection may result in significant fines or penalties and/or negative publicity.

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 such as Angio-Seal™ use bovine collagen. In addition, some of the tissue heart valves we market incorporate bovine pericardial material. We are cooperating with the regulatory agencies regarding these issues.

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Product Liability
The design, manufacture and marketing of our medical devices 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 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
For the period from June 15, 2008 through June 15, 2009, we maintained product liability policies which provided $350 million of insurance coverage, with a $50 million per occurrence deductible or a $100 million deductible if the claims were deemed an integrated occurrence under the policies. However, we allowed such product liability policies to lapse, and consistent with industry practice, do not currently maintain or intend to maintain any insurance policies with respect to product liability in the future. This decision was made based on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insured retentions, increasing number of coverage limitations and high insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the future. We believe that our self-insurance program, which is based on historical loss trends, will be adequate to cover future losses, although we can provide no assurances that this will remain true as historical trends may not be indicative of future losses. These losses could have a material adverse impact on our consolidated earnings, financial condition or cash flows.

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 disruption. Furthermore, our manufacturing facilities in Puerto Rico may suffer damage as a result of hurricanes which are frequent in the Caribbean and 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 January 2, 2010, we had approximately 14,000 employees worldwide. Our employees are not represented by any labor organizations, with the exception of certain employees in Sweden and 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.

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Executive Officers of the Registrant
The following is a list of our executive officers as of February 24, 2010. 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	55	Chairman (2004), President (2001) and Chief Executive Officer (2004)
John C. Heinmiller	55	Executive Vice President (2004) and Chief Financial Officer (1998)
Michael T. Rousseau	54	Group President (2008) and President, U.S. Division (2009)
Frank J. Callaghan	56	President, Cardiovascular (2008)
Christopher G. Chavez	54	President, Neuromodulation (2005)
Eric S. Fain, M.D.	49	President, Cardiac Rhythm Management (2007)
Denis M. Gestin	46	President, International (2008)
Jane J. Song	47	President, Atrial Fibrillation (2004)
Behzad (Ben) Khosravi	53	Vice President, Global Quality (2009)
Angela D. Craig	38	Vice President, Corporate Relations (2006)
Pamela S. Krop	51	Vice President (2006), General Counsel (2006) and Corporate Secretary (2006)
Thomas R. Northenscold	52	Vice President, Information Technology (2007) and Chief Information Officer (2007)
Donald J. Zurbay	42	Vice President (2006) and Corporate Controller (2004)

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 2004. Previously, Mr. Starks was President and Chief Operating Officer of St. Jude Medical from February 2001 to May 2004. 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. 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. 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, initially responsible for the Company’s four product divisions. In November 2009, Mr. Rousseau’s Group President responsibilities were realigned, with the Company’s Cardiac Rhythm Management Division and U.S. Division reporting directly to him. Mr. Rousseau was also named President, U.S. Division.

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 to 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 serves as President, Neuromodulation Division, as a result of our acquisition of Advanced Neuromodulation Systems (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, and has since served as President, Neuromodulation Division.

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, Cardiac Rhythm Management Division.

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.

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Mr. Khosravi joined St. Jude Medical in 1998 as Vice President, Quality, Cardiac Rhythm Management. He held various positions within the Cardiac Rhythm Management division. In 2005, he was promoted to Senior Vice President Quality and Leads Development and Operations, Cardiac Rhythm Management. In 2006, he served as Executive Vice President Quality and Leads Development and Operations, Cardiac Rhythm Management. Prior to being appointed Vice President, Global Quality in 2009, Mr. Khosravi was Executive Vice President, Product Development and Leads Operations, Cardiac Rhythm Management from 2007 to 2009.

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 last served 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.

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 Our Company – Investor Relations – SEC Filings. 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.

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 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.

14

We are subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially adversely affect our financial condition and business operations.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. The process of obtaining marketing approval or clearance from the FDA and comparable foreign bodies for new products, or for enhancements or modifications to existing products, could:

• take a significant amount of time,

• require the expenditure of substantial resources,

• involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance,

• involve modifications, repairs or replacements of our products, and

• result in limitations on the indicated uses of our products.

We cannot be certain that we will receive 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 or modifications to existing products on a timely basis could have a material adverse effect on our financial condition and results of operations.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. For example, we are required to comply with the FDA’s Quality System Regulation (QSR), which mandates that manufacturers of medical devices adhere to certain quality assurance requirements pertaining to, among other things, validation of manufacturing processes, controls for purchasing product components, and documentation practices. As another example, the Federal Medical Device Reporting regulation requires 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, that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA, which may result in observations on Form 483, and in some cases warning letters, that require corrective action. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize such medical devices, order a recall, repair, replacement, or refund of such devices, or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA has recently been increasing its scrutiny of the medical device industry and the government should be expected to continue to scrutinize the industry closely with inspections, and possibly enforcement actions, by the FDA or other agencies. Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.

Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental medical device law or regulation imposed in the future may have a material adverse effect on our financial condition and business 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 of the outcome. 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.

15

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. 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 the medical devices 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 in the United States and a lawsuit being allowed to proceed as a class action 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 and Canada 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 thousand to $100 thousand and in some cases, seek an unspecified amount, and the complaints in the pending Canadian cases request damages up to 2.0 billion Canadian Dollars, the equivalent of $1.9 billion at January 2, 2010. We believe that the final resolution of the Silzone-coated product cases will take a number of 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 previously-issued product liability insurance policies and existing reserves. Any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered under our previously-issued product liability insurance policies and existing reserves could have a material adverse effect on our consolidated earnings, financial position and cash flows.

16

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.

One of our prior product liability insurers has filed suits seeking court orders declaring that they are not required to provide coverage for some of the costs we have incurred or may incur in the future in the Silzone® litigation described above. This insurer, as well as other insurers from whom we had 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 those previously-issued insurance policies. To the extent that we suffer losses that are outside of the scope of coverage of those previously-issued product liability insurance policies, those losses may have a material adverse effect on our consolidated earnings, financial position and cash flows.

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 losses which could have a material adverse effect on our consolidated earnings, financial position and cash flows.

Our self-insurance program may not be adequate to cover future losses.

For the period from June 15, 2008 through June 15, 2009, we maintained product liability policies which provided $350 million of insurance coverage, with a $50 million per occurrence deductible or a $100 million deductible if the claims were deemed an integrated occurrence under the policies. However, we allowed such product liability policies to lapse, and consistent with industry practice, do not currently maintain or intend to maintain any insurance policies with respect to product liability in the future. This decision was made based on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insured retentions, increasing number of coverage limitations and high insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the future. We believe that our self-insurance program, which is based on historical loss trends, will be adequate to cover future losses, although we can provide no assurances that this will remain true as historical trends may not be indicative of future losses. These losses could have a material adverse impact on our consolidated earnings, financial condition or cash flows.

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.

17

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 healthcare providers 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.

Major third-party payors for healthcare provider 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 healthcare provider 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. Healthcare providers 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 healthcare providers. 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 healthcare provider 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.

18

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, Australian 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. 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;

• compliance with import/export laws;

• 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; and

• economic and political instability in foreign countries, including concerns over excessive levels of national debt and budget deficits in countries where we market our products that could result in an inability to pay or timely pay outstanding payables.

19

The medical device industry is the subject of numerous governmental investigations into marketing and other business practices. These 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 ICDs, pacemakers, lead systems and related products marketed by our CRM segment. We understand that our principal competitors in the cardiac rhythm management 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 ICD and pacemaker purchasing arrangements. In December 2008, the U.S. Attorney’s Office in Boston delivered a third subpoena issued by the Department of Health & Human Services Office of Inspector General (OIG) requesting the production of documents relating to implantable cardiac rhythm device and pacemaker warranty claims. In August 2009, the U.S. Attorney’s office in Boston delivered a fourth subpoena issued by the OIG requiring production of documents relating to four CRM post-market studies.

In July 2007, we received a civil subpoena from the OIG requesting documents regarding our relationships with ten Ohio hospitals during the period from 2003 through 2006. We have received follow-up requests from the U.S. Department of Justice and the U.S. Attorney’s Office in Cleveland regarding this matter.

In October 2008, we received a letter from the Civil Division of the U.S. Department of Justice stating that we are under investigation for potential False Claims Act and common law violations relating to the sale of our Epicor^TM surgical ablation devices. The Department of Justice is investigating whether companies marketed surgical ablation devices for off-label treatment of atrial fibrillation. Other manufacturers of medical devices used in the treatment of atrial fibrillation have reported receiving similar letters. The letter requests that we provide documents from January 1, 2005, to present relating to FDA approval and marketing of Epicor^TM ablation devices.

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 or other investigations initiated by the government at any time, could have a material 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.

20

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, including acts of war. 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.

Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, 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.

The disruption in the global financial markets and the economic downturn may adversely impact the availability and cost of credit and customer purchasing and payment patterns.

Our ability to refinance our indebtedness and to obtain financing for acquisitions or other general corporate and commercial purposes will depend on our operating and financial performance and is also subject to prevailing economic conditions and to financial, business and other factors beyond our control. Disruptions in the global financial markets and the related economic downturn have adversely affected the U.S. and world economy, and may adversely affect the availability and cost of financing. Disruptions in the global financial markets and the related economic downturn have also negatively impacted customer purchasing and payment patterns. These events could have a material adverse effect on our financial condition and results of operations.

Our business, financial condition, results of operations and cash flows could be significantly and adversely affected if certain types of healthcare reform programs are adopted and other administration and legislative proposals are enacted into law.

Recently, there have been, and there could continue to be, numerous proposals to implement significant reforms to the healthcare system in the United States. Members of Congress have introduced legislation that will, among other things, reduce Medicare provider reimbursement rates, introduce and/or pilot various new patient care and payment models, including Medicare payment bundling and gain-sharing, and base reimbursement policies and rates on clinical outcomes and the comparative effectiveness and costs of different treatment technologies and modalities. In late 2009, legislation passed in both the U.S. House of Representatives and the U.S. Senate that includes an excise tax on all medical devices, requiring the medical device industry to pay an estimated $20 billion in additional taxes over a period of at least 10 years. President Obama’s fiscal year 2010 budget also included proposals to limit Medicare payments, reduce spending and increase taxes. Additionally, various healthcare reform proposals have emerged at the state level. We cannot predict what healthcare initiatives and subsequent regulations, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. However, if significant changes are made to the healthcare system in the United States, those changes may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business and results of operations, possibly materially. In addition, if the excise tax or medical device fee contained in any proposed legislation or any other similar tax or fee is enacted into law, our effective tax rate and results of operations would be materially and adversely affected.

21

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 currently operating are located in California, Minnesota, Arizona, South Carolina, Texas, New Jersey, Oregon, Brazil, Puerto Rico, Sweden, and Thailand. We own approximately 61%, or 542,920 square feet, of our total manufacturing space. We also maintain sales and administrative offices in the United States at 42 locations in 19 states and outside the United States at 100 locations in 38 countries. With the exception of 14 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 early 2009, we completed construction of our 180,000 square foot Atrial Fibrillation Technology Center located in St. Paul, Minnesota, which is utilized by our Atrial Fibrillation division for manufacturing, research and development and training, as well as general office space, including our global headquarters. We believe that we have sufficient space for our current operations and for foreseeable expansion in the next few years. We plan to open additional manufacturing facilities in Malaysia, Brazil and Costa Rica between 2010 and 2011 as part of our global business expansion plan.

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 2009 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 of 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. [RESERVED]

This item was removed and reserved pursuant to SEC Release No. 33-9089A issued on February 23, 2010

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 2009 fiscal year. The information set forth under the Stock Exchange Listings caption in the Financial Report included in St. Jude Medical’s 2009 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.

Issuer Purchases of Equity Securities

On October 23, 2009, our Board of Directors announced a share repurchase program of up to $500.0 million of our outstanding common stock with no expiration date. On October 26, 2009, we began making share repurchases through transactions in the open market in accordance with applicable securities laws. We completed the share repurchases under the program on December 11, 2009. In total, we repurchased 14.1 million shares for $500.0 million at an average repurchase price of $35.44 per share.

22

The following table provides information about the shares repurchased during the fourth quarter of 2009:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
10/04/09 – 10/31/09		3,020,898	$	34.61		3,020,898	$	395,435,001
11/01/09 – 12/05/09		9,197,741		35.33		9,197,741		70,485,422
12/06/09 – 01/02/10		1,888,424		37.32		1,888,424		—
Total		14,107,063	$	35.44		14,107,063	$	—

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 2009 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 2009 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 2009 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 2009 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 January 2, 2010.

Management’s annual report on our internal control over financial reporting is provided in the Financial Report included in St. Jude Medical’s 2009 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 January 2, 2010 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 2009 Annual Report to Shareholders and filed as Exhibit 13 to this Form 10-K and incorporated herein by reference.

23

During the fiscal quarter ended January 2, 2010, 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.

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 Nomination Process, Director Independence and Audit Committee Financial Literacy and Expertise, Committees of the Board of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in St. Jude Medical’s Proxy Statement for the 2010 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, corporate controller and all other employees. We have made our Code of Business Conduct available on our website (http://www.sjm.com) under the Our Company – About St. Jude Medical – Corporate Governance section. 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 in St. Jude Medical’s Proxy Statement for the 2010 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 in St. Jude Medical’s Proxy Statement for the 2010 Annual Meeting of Shareholders is incorporated herein by reference.

Equity Compensation Plan Information

The following table summarizes information regarding our equity compensation plans in effect as of January 2, 2010.

24

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) (1)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) (2)
Stock plans approved by securityholders (3)		36,355,372	$	35.83		11,796,994
St. Jude Medical, Inc. 2007 Employee Stock Purchase Plan approved by securityholders		—		—		3,486,460
All equity compensation plans approved by securityholders		36,355,372	$	35.83		15,283,454
Equity compensation plans not approved by securityholders		—		—		—
Total		36,355,372	$	35.83		15,283,454

(1)	Excludes, as of January 2, 2010, 373,344 shares underlying outstanding stock options, with a weighted-average exercise price of $25.54 assumed by us in connection with our acquisition of ANS which were originally granted pursuant to the following plans of ANS: the Quest Medical, Inc. 1995 Stock Option Plan, the Quest Medical, Inc. 1998 Stock Option Plan, the ANS 2000 Stock Option Plan, the ANS 2001 Employee Stock Option Plan, the ANS 2002 Stock Option Plan and the ANS 2004 Stock Incentive Plan. The options are administered pursuant to the terms of the plan under which they were originally granted. No future options will be granted under these acquired plans.
(2)	Of the 11,796,994 remaining shares available for future issuance under equity compensation plans (excluding shares reflected in column (a) and shares available under the 2007 Employee Stock Purchase Plan), no more than 4,858,110 shares can be issued as awards other than stock options or stock appreciation rights. This includes 107,439 shares available for restricted stock grants under the St. Jude Medical, Inc. 2000 Stock Plan and, if all remaining shares authorized for issuance under the St. Jude Medical, Inc. 2007 Stock Incentive Plan were allocated to restricted stock grants such that no additional stock options could be granted under such plan, up to 4,750,671 shares available for restricted stock grants under the St. Jude Medical, Inc. 2007 Stock Incentive Plan.
(3)	Includes the following Company plans, each as amended: the St. Jude Medical, Inc. 1994 Stock Option Plan; the St. Jude Medical, Inc. 1997 Stock Option Plan; the St. Jude Medical, Inc. 2000 Stock Plan; the St. Jude Medical, Inc. 2002 Stock Plan; the St. Jude Medical, Inc. 2006 Stock Plan; and the St. Jude Medical, Inc. 2007 Stock Incentive Plan.

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 Literacy and Expertise in St. Jude Medical’s Proxy Statement for the 2010 Annual Meeting of Shareholders is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the caption Proposal to Ratify the Appointment of Independent Registered Public Accounting Firm in St. Jude Medical’s Proxy Statement for the 2010 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 2009 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 January 2, 2010, January 3, 2009 and December 29, 2007
			Consolidated Balance Sheets – January 2, 2010 and January 3, 2009
			Consolidated Statements of Shareholders’ Equity – Fiscal Years ended January 2, 2010, January 3, 2009 and December 29, 2007
			Consolidated Statements of Cash Flows – Fiscal Years ended January 2, 2010, January 3, 2009 and December 29, 2007
			Notes to the 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
3.1	Articles of Incorporation, as amended on May 9, 2008, are incorporated by reference to Exhibit 3.1 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.
3.2	Bylaws, as amended and restated as of February 25, 2005, are incorporated by reference to 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 July 28, 2009, between St. Jude Medical, Inc. and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to St. Jude Medical’s Current Report on Form 8-K filed on July 28, 2009.
4.2	First Supplemental Indenture, dated as of July 28, 2009, between St. Jude Medical, Inc. and U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.2 to St. Jude Medical’s Current Report on Form 8-K filed on July 28, 2009.

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Exhibit	Exhibit Index
10.1	Form of Indemnification Agreement that St. Jude Medical, Inc. has entered into with officers and directors is incorporated by reference to 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 to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 11, 2009. *
10.3	St. Jude Medical, Inc. Management Savings Plan, restated effective January 1, 2008, is incorporated by reference to Exhibit 10.1 of St. Jude Medical’s Current Report on Form 8-K filed on October 29, 2008. *
10.4	Retirement Plan for members of the Board of Directors, as amended on March 15, 1995, is incorporated by reference to 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. 2000 Employee Stock Purchase Savings Plan is incorporated by reference to Exhibit 10.10 to St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2001. *
10.6	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 to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. *
10.7	St. Jude Medical, Inc. 2007 Employee Stock Purchase Plan is incorporated by reference to Exhibit 10.4 to St. Jude Medical’s Current Report on Form 8-K filed on May 18, 2007. *
10.8	St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by reference to Exhibit 4(a) of St. Jude Medical’s Registration Statement on Form S-8 filed July 1, 1994 (Commission File No. 33-54435). *
10.9	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by reference to Exhibit 10.1 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.10	St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by reference to Exhibit 4.1 of St. Jude Medical’s Registration Statement on Form S-8 filed December 22, 1997 (Commission File No. 333-42945). *
10.11	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by reference to Exhibit 10.2 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.12	St. Jude Medical, Inc. 2000 Stock Plan, as amended, is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.13	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2000 Stock Plan is incorporated by reference to Exhibit 10.3 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.14	St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. *
10.15	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2002 Stock Plan is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.16	Form of Non-Qualified Stock Option Agreement under the St. Jude Medical, Inc. 2002 Stock Plan, as amended, is incorporated by reference to Exhibit 10.14 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2004. *

27

Exhibit	Exhibit Index
10.17	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. *
10.18	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.5 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.19	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. *
10.20	Form of Non-Qualified Stock Option Agreement for Employees under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.4 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. *
10.21	St. Jude Medical, Inc. 2007 Stock Incentive Plan, as amended (2008), is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 12, 2008. *
10.22	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2007 Stock Incentive Plan is incorporated by reference to Exhibit 10.6 of St. Jude Medical’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. *
10.23	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. *
10.24	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. *
10.25	St. Jude Medical, Inc. Amended and Restated 1995 Stock Option Plan (formerly the Quest Medical, Inc. 1995 Stock Option Plan) is incorporated by reference to Exhibit 10.12 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.26	St. Jude Medical, Inc. Amended and Restated 1998 Stock Option Plan (formerly the Quest Medical, Inc. 1998 Stock Option Plan) is incorporated by reference to Exhibit 10.13 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.27	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 to Exhibit 10.14 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.28	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 to Exhibit 10.15 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.29	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 to Exhibit 10.16 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.30	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 to Exhibit 10.17 of St. Jude Medical’s Annual Report on Form 10-K for the year ended December 31, 2005. *
10.31	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 January 7, 2009. *

28

Exhibit	Exhibit Index
10.32	Description of Employment Agreement, dated as of January 13, 2010, between St. Jude Medical, Inc. and Joseph H. McCullough. *#
10.33	Employment Agreement, dated as of April 1, 2002, between Advanced Neuromodulation Systems, Inc. and Christopher G. Chavez is incorporated by reference to Exhibit 10.16 of Advanced Neuromodulation Systems’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. *
10.34	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. *
10.35	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.
10.36	Credit Agreement dated as of December 18, 2008 among St. Jude Medical, Inc., as the Borrower, Bank of America, N.A., as Administrative Agent 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 24, 2008.
12	Computation of Ratio of Earnings to Fixed Charges. #
13	Portions of St. Jude Medical’s 2009 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. #
101	Financial statements from the Annual Report on Form 10-K of St. Jude Medical, Inc. for the year ended January 2, 2010, formatted in XBRL: (i) the Consolidated Statements of Earnings, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements tagged as blocks of text. ##

*	Management contract or compensatory plan or arrangement.
#	Filed as an exhibit to this Annual Report on Form 10-K.
##	Furnished herewith.

29

(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
Description			Charged to Expense		Other (2)		Write-offs (1)			Other (2)			Balance at End of Year
Allowance for doubtful accounts:
Fiscal year ended
January 2, 2010	$	28,971	$	10,867	$	640	$	(5,531	)	$	—		$	34,947
January 3, 2009	$	26,652	$	9,569	$	—	$	(6,275	)	$	(975	)	$	28,971
December 29, 2007	$	24,928	$	6,939	$	—	$	(4,648	)	$	(567	)	$	26,652

(1)	Uncollectible accounts written off, net of recoveries.
(2)	In 2009, 2008 and 2007 the $640, $(975) and $(567), respectively, of “other” represent the effects of changes in foreign currency translation.

30

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:     March 2, 2010	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 2^nd day of March, 2010.

/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
Wendy L. Yarno
* By:     /s/ PAMELA S. KROP
Pamela S. Krop
Attorney-in-Fact

31

EX-10.32

Exhibit 10.32

January 5, 2010

Joe McCullough
1792 Hartford Avenue
St. Paul, MN 55116

Dear Joe,

This letter will memorialize the discussions with respect to your retirement from St. Jude Medical, Inc. It has been agreed that:

1.	Compensation. You will retire from the Company effective December 24, 2010. Beginning with the pay period that started on November 2, 2009, your current annual base pay of $575,000 has been adjusted to $500,000 per year, payable in accordance with the Company’s standard payroll practices. You will remain a full-time employee through December 24, 2010. During the period from November 2, 2009 to December 24, 2010, your duties have been and will be limited to specific matters on which Dan Starks may ask your assistance. You may terminate your relationship with the Company at any time by written notice. Should you terminate your employment before December 24, 2010, you will be entitled to receive a lump sum payment equal to $500,000 less any amounts already paid to you as salary for 2010 and less applicable taxes, to be paid in accordance with the Company’s standard practices for such payments. You are no longer eligible for the executive perquisite allowance.
2.	Non-Competition Agreement. Subject to the earlier termination of your employment with the Company, the effective date of your retirement will be December 24, 2010 for purposes of the Non-Competition Agreement with the Company dated October 2, 2007, unless your employment is terminated earlier, in which case the non-competition agreement period commences on the date of actual termination of employment.
3.	Resignation as Officer. You have resigned as an officer of the Company and all subsidiaries and affiliates effective November 1, 2009.
4.	MICP. You will continue to participate in MICP for 2009 with a target percentage at 100% of your eligible base earnings for 2009, reflecting the adjustment described in #1 above. The MICP payment will be paid during February 2010 based on performance results in accordance with the Company’s normal business practices, assuming: (a) your continued employment by the Company until the payment date; (b) that you sign and do not rescind the Release provided for in #11 below; and (c) that you cooperate with the Company in the transition of your position and otherwise comply with the terms hereof. You will not be eligible for MICP for 2010.
5.	PTO. You will arrange for the use of vacation time and other PTO days such that any available PTO balance as of November 1, 2009 will be completely consumed during 2009 and 2010 and no unused PTO will exist at December 24, 2010.
6.	Options and Restricted Stock. You will not participate in the Company’s normal December 2009 stock option grant. Any unvested stock option grants will continue to vest through December 24, 2010 or any earlier date on which you may terminate your relationship with the Company. As provided under the Company’s stock option plans, as an Early Retiree, you will have 3 years after your last day as an employee to exercise stock options that have vested as of the termination of your employment subject to the condition that no option shall be exercisable after the Expiration Date of such option. In the event your employment is terminated for the reasons of death or disability, you or your representatives will have 12 months from your termination to exercise any options that have vested as of the termination of your employment subject to the condition that no option shall be exercisable after the expiration date of the option. Upon your termination of employment, all unvested options will be forfeited. Restricted stock will be treated in accordance with its terms.

7.	Insider Trading. We understand that after November 1, 2009 you no longer had access to Company “insider information.” Consequently, as of that date you were removed from the Insider List and free to trade in shares of STJ (including the same-day sale and cashless exercise of vested stock options). Please keep in mind that, regardless of whether your name is on the Insider List, it is illegal to trade in Company securities if you are aware of material non-public information about the Company.
8.	Management Savings Plan. Pursuant to the terms of the MSP, you will begin to receive lump sum distributions from your MSP account beginning six months following the end of the quarter in which your employment terminates in accordance with the valid elections on file. You will not be eligible to contribute to the MSP in 2010.
9.	Profit Sharing. You will participate in any profit sharing made available in 2009 and paid in 2010. You will not receive this benefit for 2010.
10.	Benefits. You and your dependents may continue as participants in the Company’s benefit programs (medical, dental, vision, and life insurance) program so long as you continue your employment with the Company. The human resources department and/or our COBRA administrator (Benesyst) will provide additional information regarding your options to continue all of these plans under COBRA shortly after your retirement date.
11.	Termination of Severance Agreement and Release. You have been notified that your Severance Agreement with the Company dated December 31, 2008, was terminated, pursuant to Section 1 of that agreement, effective December 29, 2009. Contemporaneous with countersigning this letter, you will enter into a Release in a form substantially similar to the Release attached hereto as Exhibit A. As a further condition of the Company’s agreements herein, on or about December 24, 2010, you will enter into a Release in a form substantially similar to the Release attached hereto as Exhibit B.
12.	Indemnification Agreement. Your Indemnification Agreement with the Company dated September 30, 2008 will remain in full force and effect regardless of your change in position, this agreement and the Releases referenced in the paragraph above.
13.	Expense. Travel expenses that you incur that are authorized in advance, in writing, will be reimbursed in accordance with the Company’s travel expense policy for officer level employees. No expenses not specifically authorized will be reimbursed.

Thank you for your willingness to assist us through this transition and for your substantial contribution to the success of St. Jude Medical.

Sincerely,

ST. JUDE MEDICAL, INC.

/s/ Pamela S. Krop

Pamela S. Krop

Vice President and General Counsel

Acknowledged and Agreed:

/s/ Joseph H. McCullough

Joseph H. McCullough

EXHIBIT A

FULL AND FINAL RELEASE

I.            Definitions. I intend all words used in this Full and Final Release to have their plain meanings in ordinary English. Technical legal words are not needed to describe what I mean. Specific terms I use in this Full and Final Release have the following meanings:

A.          “I,” “me,” “my” and “Employee” include both me, Joseph McCullough, and anyone who has or obtains any legal rights or claims through me.

B.          “Employer,” as used in this Full and Final Release, shall at all times mean St. Jude Medical, Inc., and its parent and any subsidiary corporations, successors, predecessors and assigns, present or former officers, directors, shareholders, agents, assigns, employees, and attorneys, whether in their individual or official capacities.

C.          “Claims” mean any and all of the actual or potential claims of any kind whatsoever I may have had, or currently may have against Employer, arising up to the date I sign this Full and Final Release, regardless of whether I now know about those claims, that are in any way related to my employment with Employer or the termination of that employment. Such claims include, but are not limited to any claims for: invasion of privacy; breach of written or oral, express or implied, contract (including, without limitation, that certain Severance Agreement between Employer and me dated December 31, 2008); fraud or misrepresentation; violation of the Age Discrimination in Employment Act of 1967 (“ADEA”), 29 U.S.C. § 626, as amended, the Older Workers Benefit Protection Act of 1990 (“OWBPA”), 29 U.S.C. 626(f), Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e, et seq., the Americans with Disabilities Act (“ADA”), 29 U.S.C. § 2101, et seq., the Family and Medical Leave Act (“FMLA”), 29 U.S.C. § 2601 et seq., the Employee Retirement Income Security Act of 1978 (“ERISA”), as amended, 29 U.S.C. §§ 1001, et seq., Equal Pay Act (“EPA”), 29 U.S.C. § 206(d), the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., the Minnesota Human Rights Act, Minn. Stat. § 363A.01, et seq., Minnesota Statutes § 181 et seq. or any other state human rights or fair employment practices act, and any other federal, state, local or foreign statute, law, rule, regulation, ordinance or order. Such claims also include, but are not limited to: claims under the Management Incentive Compensation Plan; claims for violation of any civil rights laws based on protected class status; claims for assault, battery, defamation, intentional or negligent infliction of emotional distress, breach of the covenant of good faith and fair dealing, promissory estoppel, negligence, negligent hiring, retention or supervision, retaliation, constructive discharge, violation of whistleblower protection laws, unjust enrichment, violation of public policy, and all other claims for unlawful employment practices, and all other common law or statutory claims.

II.          Agreement to Release My Claims. Except as stated in Section IV of this Full and Final Release, I agree to release all my Claims. I may, but am not required to, withdraw or dismiss, or attempt to withdraw or dismiss, any charges that I may have pending against the Employer with the Equal Employment Opportunity Commission (“EEOC”) or other civil rights enforcement agency. In exchange for my agreement to release my Claims, I am receiving satisfactory consideration from Employer to which I am not otherwise entitled by law or contract. The consideration I am receiving is a full and fair payment for the release of all my Claims. Employer does not owe me anything in addition to what I will be receiving.

III.         Older Workers Benefit Protection Act. I understand and have been advised that the above release of My Claims is subject to the terms of the Older Workers Benefit Protection Act (“OWBPA”). The OWBPA provides that an individual cannot waive a right or claim under the Age Discrimination in Employment Act (“ADEA”) unless the waiver is knowing and voluntary. I have been advised of this law, and I agree that I am signing this Full and Final Release voluntarily, and with full knowledge of its consequences. I understand that the Employer is giving me twenty-one (21) days from the date I received a copy of this Full and Final Release to decide whether I want to sign it. I acknowledge that I have been advised to use this time to consult with an attorney about the effect of this Full and Final Release. If I sign this Full and Final Release before the end of the twenty-one (21) day period it will be my personal, voluntary decision to do so, and will be done with full knowledge of my legal rights. I agree that material and/or immaterial changes to this Agreement or Full and Final Release will not restart the running of this consideration period.

IV.         Exclusions from Release.

A.          The term “Claims” does not include my rights, if any, to claim the following: unemployment insurance benefits; workers compensation benefits; claims for my vested post-termination benefits under any 401(k), SERP or similar retirement benefit plan; my rights to group medical or group dental insurance coverage pursuant to section 4980B of the Internal Revenue Code of 1986, as amended (“COBRA”); my rights to indemnification, with respect to events occurring prior to the date of this Full and Final Release, under Employer’s charter documents, Minnesota corporate law, any Directors and Officers insurance maintained by the Employer and my indemnification agreement with Employer dated September 30, 2008; my rights to enforce the terms of this Full and Final Release; or my rights to assert claims that are based on events occurring after this Full and Final Release becomes effective.

B.          Nothing in this Full and Final Release interferes with my right to file or maintain a charge with the EEOC or other local civil rights enforcement agency, or participate in any manner in an EEOC or other such agency investigation or proceeding. I, however, understand that I am waiving my right to recover individual relief including, but not limited to, back pay, front pay, reinstatement, attorneys’ fees, and/or punitive damages, in any administrative or legal action whether brought by the EEOC or other civil rights enforcement agency, me, or any other party, arising from my voluntary resignation.

C.          Nothing in this Full and Final Release interferes with my right to challenge the knowing and voluntary nature of this Full and Final Release under the ADEA and/or OWBPA.

D.          I agree that the Employer reserves any and all defenses which it has or might have against any claims brought by me. This includes, but is not limited to, the Employer’s right to seek available costs and attorneys’ fees as allowed by law, and to have any monetary award granted to me, if any, reduced by the amount of money that I received in consideration for this Full and Final Release.

V.          Right to Revoke Release. I understand that insofar as this Full and Final Release relates to my rights under the Age Discrimination in Employment Act (“ADEA”), it shall not become effective or enforceable until seven (7) days after I sign it. I also have the right to revoke this Full and Final Release insofar as it extends to potential claims under the ADEA by written notice to Employer within seven (7) calendar days following my signing this Full and Final Release, and within fifteen (15) calendar days as to waiver of claims under the Minnesota Human Rights Act. Any such revocation must be in writing and hand-delivered to Employer or, if sent by mail, it must be:

A.          post-marked within the applicable seven (7) or fifteen (15) day revocation period;

B.           properly addressed to:

Pamela Krop

General Counsel

St. Jude Medical Inc.

One St. Jude Medical Drive

St. Paul, MN 55117-1799, and

C.          sent by certified mail, return receipt requested.

I understand that the payment I am receiving for settling and releasing My Claims, described in paragraphs 2-7 of the attached January 5, 2010 letter (the “Separation Letter”), is contingent upon my agreement to be bound by the terms of this Full and Final Release. Accordingly, if I decide to revoke this Full and Final Release, I understand that I am not entitled to the consideration described in paragraphs 2-7 of the Separation Letter.

VI.         Employee Representation. I represent that, as of the date I sign this Full and Final Release, I am not aware of any violations of federal or state law or regulation or Employer policy, and that I am not aware of any facts which would constitute a violation of any federal or state law or regulation or Employer policy. I further represent and warrant that I have not violated any federal or state law, statute, regulation, or ordinance.

VII.        Controlling Law. This Full and Final Release shall be governed by and interpreted in accordance with the laws of the State of Minnesota. To the extent any clause or provision of this Exhibit A shall be determined to be invalid and/or unenforceable, such a clause or provision shall be deleted and the validity and enforceability of the remainder of this Exhibit A shall be unaffected.

VIII.       I Understand the Terms of this Release. I have had the opportunity to read this Full and Final Release carefully and understand all its terms. I have had the opportunity to review this Full and Final Release with my own attorney. In agreeing to sign this Full and Final Release, I have not relied on any statements or explanations made by Employer or their attorneys. I understand and agree that this Full and Final Release, the Separation Letter and exhibits thereto, including my Non-Disclosure and Non-Competition Agreement, and my Indemnification Agreement, contain all the agreements between Employer and me. We have no other written or oral agreements.

	JOSEPH H. McCULLOUGH
Dated: January 13, 2010	/s/ Joseph H. McCullough
	Signature

EXHIBIT B

FULL AND FINAL RELEASE

I.          Definitions. I intend all words used in this Full and Final Release to have their plain meanings in ordinary English. Technical legal words are not needed to describe what I mean. Specific terms I use in this Full and Final Release have the following meanings:

A.         “I,” “me,” “my” and “Employee” include both me, Joseph McCullough, and anyone who has or obtains any legal rights or claims through me.

B.         “Employer,” as used in this Full and Final Release, shall at all times mean St. Jude Medical, Inc., and its parent and any subsidiary corporations, successors, predecessors and assigns, present or former officers, directors, shareholders, agents, assigns, employees, and attorneys, whether in their individual or official capacities.

C.         “Claims” mean any and all of the actual or potential claims of any kind whatsoever I may have had, or currently may have against Employer, arising up to the date I sign this Full and Final Release, regardless of whether I now know about those claims, that are in any way related to my employment with Employer or the termination of that employment. Such claims include, but are not limited to any claims for: invasion of privacy; breach of written or oral, express or implied, contract (including, without limitation, that certain Severance Agreement between Employer and me dated December 31, 2008); fraud or misrepresentation; violation of the Age Discrimination in Employment Act of 1967 (“ADEA”), 29 U.S.C. § 626, as amended, the Older Workers Benefit Protection Act of 1990 (“OWBPA”), 29 U.S.C. 626(f), Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e, et seq., the Americans with Disabilities Act (“ADA”), 29 U.S.C. § 2101, et seq., the Family and Medical Leave Act (“FMLA”), 29 U.S.C. § 2601 et seq., the Employee Retirement Income Security Act of 1978 (“ERISA”), as amended, 29 U.S.C. §§ 1001, et seq., Equal Pay Act (“EPA”), 29 U.S.C. § 206(d), the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., the Minnesota Human Rights Act, Minn. Stat. § 363A.01, et seq., Minnesota Statutes § 181 et seq. or any other state human rights or fair employment practices act, and any other federal, state, local or foreign statute, law, rule, regulation, ordinance or order. Such claims also include, but are not limited to: claims under the Management Incentive Compensation Plan; claims for violation of any civil rights laws based on protected class status; claims for assault, battery, defamation, intentional or negligent infliction of emotional distress, breach of the covenant of good faith and fair dealing, promissory estoppel, negligence, negligent hiring, retention or supervision, retaliation, constructive discharge, violation of whistleblower protection laws, unjust enrichment, violation of public policy, and all other claims for unlawful employment practices, and all other common law or statutory claims.

II.          Agreement to Release My Claims. Except as stated in Section IV of this Full and Final Release, I agree to release all my Claims. I may, but am not required to, withdraw or dismiss, or attempt to withdraw or dismiss, any charges that I may have pending against the Employer with the Equal Employment Opportunity Commission (“EEOC”) or other civil rights enforcement agency. In exchange for my agreement to release my Claims, I am receiving satisfactory consideration from Employer to which I am not otherwise entitled by law or contract. The consideration I am receiving is a full and fair payment for the release of all my Claims. Employer does not owe me anything in addition to what I will be receiving.

III.        Older Workers Benefit Protection Act. I understand and have been advised that the above release of My Claims is subject to the terms of the Older Workers Benefit Protection Act (“OWBPA”). The OWBPA provides that an individual cannot waive a right or claim under the Age Discrimination in Employment Act (“ADEA”) unless the waiver is knowing and voluntary. I have been advised of this law, and I agree that I am signing this Full and Final Release voluntarily, and with full knowledge of its consequences. I understand that the Employer is giving me twenty-one (21) days from the date I received a copy of this Full and Final Release to decide whether I want to sign it. I acknowledge that I have been advised to use this time to consult with an attorney about the effect of this Full and Final Release. If I sign this Full and Final Release before the end of the twenty-one (21) day period it will be my personal, voluntary decision to do so, and will be done with full knowledge of my legal rights. I agree that material and/or immaterial changes to this Agreement or Full and Final Release will not restart the running of this consideration period.

IV.         Exclusions from Release.

A.          The term “Claims” does not include my rights, if any, to claim the following: unemployment insurance benefits; workers compensation benefits; claims for my vested post-termination benefits under any 401(k), SERP or similar retirement benefit plan; my rights to group medical or group dental insurance coverage pursuant to section 4980B of the Internal Revenue Code of 1986, as amended (“COBRA”); my rights to indemnification, with respect to events occurring prior to the date of this Full and Final Release, under Employer’s charter documents, Minnesota corporate law, any Directors and Officers insurance maintained by the Employer and my indemnification agreement with Employer dated September 30, 2008; my rights to enforce the terms of this Full and Final Release; or my rights to assert claims that are based on events occurring after this Full and Final Release becomes effective.

B.          Nothing in this Full and Final Release interferes with my right to file or maintain a charge with the EEOC or other local civil rights enforcement agency, or participate in any manner in an EEOC or other such agency investigation or proceeding. I, however, understand that I am waiving my right to recover individual relief including, but not limited to, back pay, front pay, reinstatement, attorneys’ fees, and/or punitive damages, in any administrative or legal action whether brought by the EEOC or other civil rights enforcement agency, me, or any other party, arising from my voluntary resignation.

C.          Nothing in this Full and Final Release interferes with my right to challenge the knowing and voluntary nature of this Full and Final Release under the ADEA and/or OWBPA.

D.          I agree that the Employer reserves any and all defenses which it has or might have against any claims brought by me. This includes, but is not limited to, the Employer’s right to seek available costs and attorneys’ fees as allowed by law, and to have any monetary award granted to me, if any, reduced by the amount of money that I received in consideration for this Full and Final Release.

V.          Right to Revoke Release. I understand that insofar as this Full and Final Release relates to my rights under the Age Discrimination in Employment Act (“ADEA”), it shall not become effective or enforceable until seven (7) days after I sign it. I also have the right to revoke this Full and Final Release insofar as it extends to potential claims under the ADEA by written notice to Employer within seven (7) calendar days following my signing this Full and Final Release, and within fifteen (15) calendar days as to waiver of claims under the Minnesota Human Rights Act. Any such revocation must be in writing and hand-delivered to Employer or, if sent by mail, it must be:

A.          post-marked within the applicable seven (7) or fifteen (15) day revocation period;

B.          properly addressed to:

Pamela Krop

General Counsel

St. Jude Medical Inc.

One St. Jude Medical Drive

St. Paul, MN 55117-1799, and

C.          sent by certified mail, return receipt requested.

I understand that the payment I am receiving for settling and releasing My Claims, described in paragraphs 2-7 of the attached January 5, 2010 letter (the “Separation Letter”), is contingent upon my agreement to be bound by the terms of this Full and Final Release. Accordingly, if I decide to revoke this Full and Final Release, I understand that I am not entitled to the consideration described in paragraphs 2-7 of the Separation Letter.

VI.         Employee Representation. I represent that, as of the date I sign this Full and Final Release, I am not aware of any violations of federal or state law or regulation or Employer policy, and that I am not aware of any facts which would constitute a violation of any federal or state law or regulation or Employer policy. I further represent and warrant that I have not violated any federal or state law, statute, regulation, or ordinance.

VII.        Controlling Law. This Full and Final Release shall be governed by and interpreted in accordance with the laws of the State of Minnesota. To the extent any clause or provision of this Exhibit B shall be determined to be invalid and/or unenforceable, such a clause or provision shall be deleted and the validity and enforceability of the remainder of this Exhibit B shall be unaffected.

VIII.       I Understand the Terms of this Release. I have had the opportunity to read this Full and Final Release carefully and understand all its terms. I have had the opportunity to review this Full and Final Release with my own attorney. In agreeing to sign this Full and Final Release, I have not relied on any statements or explanations made by Employer or their attorneys. I understand and agree that this Full and Final Release, the Separation Letter and exhibits thereto, including my Non-Disclosure and Non-Competition Agreement, and my Indemnification Agreement, contain all the agreements between Employer and me. We have no other written or oral agreements.

	JOSEPH H. McCULLOUGH
Dated: January 13, 2010	/s/ Joseph H. McCullough
	Signature

EX-12

Exhibit 12

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

	FISCAL YEAR
	2009		2008		2007		2006		2005
EARNINGS
Earnings before income taxes	$	1,057,393	$	580,768	$	710,276	$	706,063	$	621,046
Plus fixed charges:
Interest expense (1)		45,603		72,554		72,258		48,461		10,386
Rent interest factor (2)		11,183		9,527		9,144		8,190		7,659
TOTAL FIXED CHARGES		56,786		82,081		81,402		56,651		18,045
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES	$	1,114,179	$	662,849	$	791,678	$	762,714	$	639,091
RATIO OF EARNINGS TO FIXED CHARGES		19.6		8.1		9.7		13.5		35.4

(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 medical 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 Neuromodulation (NMD). 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, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD – 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 remains focused on increasing our worldwide CRM market share, as we are one of three principal manufacturers and suppliers in the global CRM market. We are also investing in our other three major growth platforms – atrial fibrillation, neuromodulation and cardiovascular – to increase our market share.

We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31^st. Fiscal year 2009 and 2007 consisted of 52 weeks and ended on January 2, 2010 and December 29, 2007, respectively. Fiscal year 2008 consisted of 53 weeks and ended on January 3, 2009 with the additional week reflected in our fourth quarter 2008 results.

Net sales in 2009 increased 7% over 2008 net sales, as a result of broad-based volume growth across all operating segments. Unfavorable foreign currency translation comparisons decreased our 2009 net sales by $99.5 million compared to 2008. Our 2009 CRM net sales increased 3% to $2,769.0 million, compared to 2008, driven by ICD volume growth partially offset by unfavorable foreign currency translation of $64.0 million. Our 2009 AF net sales increased 15% to $627.9 million, compared to 2008, due to continued market acceptance of device-based procedures to treat the symptoms of atrial fibrillation. Our 2009 Cardiovascular net sales increased 11%, compared to the prior year, to $953.6 million, driven by incremental sales from our December 2008 Radi Medical Systems AB (Radi Medical Systems) acquisition and continued volume growth from our other cardiovascular products. Additionally, 2009 Neuromodulation net sales grew 30% to $330.8 million, compared to 2008, driven by strong volume growth in the neuromodulation market and continued market acceptance of our products. Refer to the Segment Performance section for a more detailed discussion of our net sales results by operating segment.

Our 2009 net earnings of $777.2 million and diluted net earnings per share of $2.26 increased compared to 2008 net earnings of $353.0 million and diluted net earnings per share of $1.01. Our 2009 net earnings were impacted by after-tax charges of $85.3 million, or $0.25 per diluted share, from special charges, in-process research and development (IPR&D) charges and investment impairment charges, and our fiscal year 2008 net earnings were impacted by after-tax charges of $400.1 million, or $1.15 per diluted share. Compared to 2008, our net earnings and diluted net earnings per share benefited from continued net sales growth in all of our operating segments.

Our 2009 results included $76.4 million of after-tax special charges, or $0.22 per diluted share, which consisted of the following: $51.7 million related to initiatives to enhance the efficiency and effectiveness of the sales, marketing and customer service operations and to streamline our production activities; $11.3 million of inventory obsolescence charges for discontinued products; $8.7 million of accelerated depreciation charges and write-offs for assets that will no longer be utilized; and $4.7 million associated with contract terminations and other unrelated costs. We also recognized an after-tax impairment charge of $5.2 million, or $0.02 per diluted share, related to a cost method investment deemed to be other-than-temporarily impaired and recorded after-tax IPR&D charges of $3.7 million, or $0.01 per diluted share, related to the purchase of certain pre-development technology assets. Refer to the results of operations section for further details of these charges.

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Our 2008 results included $319.4 million of IPR&D charges, or $0.92 per diluted share, primarily related to our MediGuide, Inc. (MediGuide) acquisition, and $72.7 million, or $0.21 per diluted share of after-tax special charges, which consisted of the following: $59.3 million, or $0.17 per diluted share, primarily associated with the impairment of a technology license agreement and the impairment of purchased technology intangible assets; $8.7 million, or $0.03 per diluted share, of inventory-related charges; and $4.7 million, or $0.01 per diluted share, related to providing our Merlin™@home wireless patient monitoring system to existing St. Jude Medical CRM patients at no charge. Our 2008 results also included $8.0 million, or $0.02 per diluted share, of after-tax investment impairment charges. Refer to the results of operations section for further details of these charges.

We generated $868.9 million of operating cash flows during 2009, compared to $945.6 million of operating cash flows during 2008. We ended the year with $392.9 million of cash and cash equivalents and $1,922.4 million of total debt. During 2009, we issued $1,200.0 million principal amount of debt, consisting of $700.0 million of 3.75% Senior Notes due 2014 (2014 Senior Notes) and $500.0 million of 4.875% Senior Notes due 2019 (2019 Senior Notes), (collectively, Senior Notes). We have strong short-term credit ratings of A1 from Standard & Poor’s, P2 from Moody’s and F1 from Fitch; and long-term credit ratings of A from Standard & Poor’s, Baa1 from Moody’s and A from Fitch. During 2009, we repurchased 27.1 million shares of our common stock for $1.0 billion. Since 2006, we have repurchased over 76 million shares of our common stock, returning $3.0 billion to shareholders.

NEW ACCOUNTING PRONOUNCEMENTS

Certain new accounting standards will become effective for us in fiscal year 2010 and future periods. Information regarding new accounting pronouncements that impacted 2009 or our historical consolidated financial statements and related disclosures is included in Note 1 to the Consolidated Financial Statements.

In October 2009, the Financial Accounting Standards Board (FASB) updated the revenue recognition accounting guidance of FASB Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (ASC Topic 605) relating to the accounting for revenue arrangements that involve more than one deliverable or unit of accounting. The updated guidance allows companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the economics of the transaction by revising certain thresholds for separation, and providing criteria for allocation of revenue among deliverables. The FASB also updated the scope of the revenue recognition accounting guidance of FASB ASC Topic 985, Software (ASC Topic 985) removing both non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. The updated ASC Topic 605 and ASC Topic 985 accounting guidance is effective for annual periods beginning after June 15, 2010. Early adoption is permitted and may be prospective or retrospective. We are currently evaluating the impact of adopting this accounting guidance on our consolidated financial statements but do not expect the impact to be material.

In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective for annual reporting periods beginning after November 15, 2009. We do not expect the adoption of ASU 2009-17 in the first quarter of 2010 to have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2010-6, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. We will adopt the Level 1 and Level 2 disclosures beginning in the first quarter of 2010 and the Level 3 disclosures beginning in the first quarter of 2011.

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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; inventory reserves; valuation of IPR&D, other intangible assets and goodwill; income taxes; litigation 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, 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 $34.9 million at January 2, 2010 and $29.0 million at January 3, 2009.

Inventory Reserves: We value inventory at the lower of cost or market, with cost determined using the first-in, first-out method. We maintain reserves for excess and obsolete inventory based on forecasted product sales, new product introductions by us or our competitors, product expirations and historical experience. The inventory reserves we recognize are based on our estimates of how these multiple factors are expected to impact the amount and value of inventory we expect to sell. The markets in which we operate are highly competitive and characterized by rapid product development and technological change putting our products at risk of losing market share and/or becoming obsolete. We monitor our inventory reserves on an ongoing basis, and although we consider our inventory reserves to be adequate, we may be required to recognize additional inventory reserves if future demand or market conditions are less favorable than we have estimated.

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. Prior to 2009, we expensed the value attributed to any IPR&D projects acquired in a business acquisition.

Beginning in fiscal year 2009, all IPR&D acquired in a business acquisition is subject to FASB’s ASC Topic 805, Business Combinations, which requires the fair value of IPR&D to be capitalized as an indefinite-lived intangible asset until completion of the IPR&D project or abandonment. Upon completion of the development project (generally when regulatory approval to market the product is obtained), acquired IPR&D assets are amortized over their estimated useful life. If the IPR&D projects are abandoned, the related IPR&D assets would likely be impaired and written down to the remaining fair value, if any. No IPR&D was capitalized during fiscal year 2009.

Our adoption of ASC Topic 805 did not change our accounting policy with respect to asset purchases. In many cases, the purchase of certain intellectual property assets or the rights to such intellectual property is considered a purchase of assets rather than the acquisition of a business. Accordingly, rather than being capitalized, any IPR&D acquired in such asset purchases are expensed.

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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 estimated 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.

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.

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, all of 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 $456.1 million at January 2, 2010 and $493.5 million at January 3, 2009.

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 $2,005.9 million at January 2, 2010 and $1,984.6 million at January 3, 2009.

Income Taxes: 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 financial 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 January 2, 2010, we had $402.4 million of gross deferred tax assets, including net operating loss and tax credit carryforwards that will expire from 2012 to 2027 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, additional U.S. tax liabilities would be incurred. It is not practical to estimate the amount of additional U.S. tax liabilities we would incur.

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 income tax accruals in accordance with ASC 740, Income Taxes, our accruals represent accounting estimates that are subject to the inherent uncertainties associated with the tax audit process, and therefore include certain contingencies.

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The finalization of the tax audit process across the various tax authorities, including federal, state and foreign, often takes many years. We have substantially concluded all U.S. federal income tax matters for all tax years through 2001. Additionally, substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999. The U.S. Internal Revenue Service (IRS) completed an audit of our 2002-2005 tax returns, and proposed adjustments in its audit report issued in November 2008. We are vigorously defending our positions and initiated defense of these adjustments at the IRS appellate level in January 2009. An unfavorable outcome could have a material negative impact on our effective income tax rate in future periods. At January 2, 2010, our liability for unrecognized tax benefits was $120.5 million, and our accrual for interest and penalties was $28.3 million. 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.

Litigation 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 ASC Topic 450, Contingencies, 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. 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.

We record a receivable from our product liability insurance carriers for amounts expected to be recovered. This includes amounts for legal matters where we have incurred defense costs or where we have recorded a liability for probable and estimable future legal costs, settlements or judgments. We record a receivable for the amount of insurance we expect to recover based on our assessment of the specific insurance policies, the nature of the claim, our experience with similar claims and our assessment of collectability based on our insurers’ financial condition. To the extent our insurance carriers ultimately do not reimburse us, either because such costs are deemed to be outside the scope of our product liability insurance policies or because our insurers may not be able to meet their payment obligations to us, the related losses we incur relating to these unreimbursed costs could have a material adverse effect on our consolidated earnings or cash flows. Our receivable from product liability insurance carriers was $42.5 million at January 2, 2010 and $25.6 million at January 3, 2009.

Stock-Based Compensation: Under the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation (ASC Topic 718), 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 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 (expected option life), risk-free interest rate, expected dividend yield and expected volatility of our stock price in future periods.

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. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. Since December 2008, we calculate our expected volatility assumption by equally weighting historical and implied volatility. Previously, we calculated the expected volatility assumption exclusively on the implied volatility of market-traded options. We changed the method of determining expected volatility to take into consideration how future volatility experience over the expected life of the option may differ from short-term volatility experience and thus provide a better estimate of expected volatility over the expected life of employee stock options. The impact of changing the method of determining expected volatility was not material to fiscal year 2008 stock compensation expense. Refer to Note 7 of the Consolidated Financial Statements for further details regarding the change in our expected volatility assumption.

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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 July 3, 2008, we completed the acquisition of EP MedSystems, Inc. (EP MedSystems) for $95.7 million (consisting of $59.0 million in net cash consideration and direct acquisition costs and 0.9 million shares of St. Jude Medical common stock). EP MedSystems had been publicly traded on the NASDAQ Capital Market under the ticker symbol EPMD. EP MedSystems is based in West Berlin, New Jersey and develops, manufactures and markets medical devices for the electrophysiology market which are used for visualization, diagnosis and treatment of heart rhythm disorders. We acquired EP MedSystems to strengthen our portfolio of products used to treat heart rhythm disorders. EP MedSystems has become part of our Atrial Fibrillation division.

On December 19, 2008, we completed the acquisition of Radi Medical Systems for $248.9 million in net cash consideration, including direct acquisition costs. Radi Medical Systems is based in Uppsala, Sweden and develops, manufactures and markets products that provide precise measurements of intravascular pressure during a cardiovascular procedure and manual compression systems that arrest bleeding of the femoral and radial arteries following an intravascular medical device procedure. We acquired Radi Medical Systems to accelerate our cardiovascular growth platform in these two segments of the cardiovascular medical device market in which we previously had not participated. Radi Medical Systems has become part of our Cardiovascular division.

On December 22, 2008, we completed the acquisition of MediGuide for $285.2 million in net consideration. MediGuide was a development-stage company based in Haifa, Israel and was focused on developing its Medical Positioning System (gMPS^TM) technology for localization and tracking capability for interventional medical devices. We plan to expend additional research and development efforts to achieve technological feasibility for this technology. MediGuide has become part of our Atrial Fibrillation division.

SEGMENT PERFORMANCE

Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Neuromodulation (NMD). The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CV – vascular closure devices, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD – neurostimulation devices.

We aggregate our four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/NMD 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 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, IPR&D charges and special charges 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.

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

	CRM/NMD		CV/AF		Other			Total
Fiscal Year 2009
Net sales	$	3,099,800	$	1,581,473	$	—		$	4,681,273
Operating profit		1,931,929		829,966		(1,648,849	)		1,113,046
Fiscal Year 2008
Net sales	$	2,955,603	$	1,407,648	$	—		$	4,363,251
Operating profit		1,824,023		736,979		(1,905,955	)		655,047
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

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)	2009		2008		2007		2009 vs. 2008 % Change			2008 vs. 2007 % Change
ICD systems	$	1,578,471	$	1,534,212	$	1,304,899		2.9	%		17.6	%
Pacemaker systems		1,190,563		1,167,251		1,063,182		2.0	%		9.8	%
	$	2,769,034	$	2,701,463	$	2,368,081		2.5	%		14.1	%

Cardiac Rhythm Management 2009 net sales increased 3% to $2,769.0 million compared to 2008. CRM net sales growth was driven by volume growth partially offset by unfavorable foreign currency translation comparisons of $64.0 million and a decline in our U.S. average selling prices. 2009 ICD net sales increased 3%, compared to the prior year, to $1,578.5 million due to volume growth, driven by our international markets. Internationally, 2009 ICD net sales of $580.9 million increased 6% compared to 2008 due to volume growth. Foreign currency translation had a $37.6 million unfavorable impact on international ICD net sales during 2009 compared to the prior year. 2009 U.S. ICD net sales of $997.6 million remained flat over the prior year, as low single-digit volume growth was offset by declines in average selling prices. Pacemaker systems 2009 net sales increased 2%, compared to 2008, to $1,190.6 million, benefiting from increased volume growth driven by our international markets. Internationally, pacemaker systems 2009 net sales increased 4% over 2008 to $671.6 million due to both volume growth and sales mix. Foreign currency translation had a $26.4 million unfavorable impact on international pacemaker net sales in 2009 compared to 2008. In the United States, pacemaker systems 2009 net sales of $518.9 million remained flat as low single-digit volume growth was offset by declines in average selling prices.

Cardiac Rhythm Management 2008 net sales increased 14% to $2,701.5 million compared to 2007 due to strong volume growth. Foreign currency translation had a $69.0 million favorable impact on 2008 net sales compared to 2007. Net sales of ICDs increased approximately 18% to $1,534.2 million driven by strong volume growth in both U.S. and international markets. In the United States, 2008 ICD net sales of $985.4 million increased 11% over last year. Internationally, 2008 ICD net sales of $548.8 million increased nearly 32% compared to 2007. Foreign currency translation had a $28.8 million favorable impact on international ICD net sales compared to 2007. Pacemaker systems 2008 net sales increased nearly 10% to $1,167.3 million driven by strong volume growth, which was also broad-based across both U.S. and international markets. In the United States, 2008 pacemaker net sales of $521.9 million increased 3% compared to 2007. Internationally, 2008 pacemaker net sales of $645.4 million increased 16% over last year. Foreign currency translation had a $40.2 million favorable impact on international pacemaker net sales in 2008 compared to 2007.

Cardiovascular

(in thousands)	2009		2008		2007		2009 vs. 2008 % Change			2008 vs. 2007 % Change
Vascular closure devices	$	380,965	$	367,893	$	353,987		3.6	%		3.9	%
Heart valve products		323,202		321,534		290,196		0.5	%		10.8	%
Other cardiovascular products		249,453		172,709		146,447		44.4	%		17.9	%
	$	953,620	$	862,136	$	790,630		10.6	%		9.0	%

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Cardiovascular 2009 net sales increased 11% to $953.6 million compared to 2008 driven by volume growth, including incremental sales of products from our Radi Medical Systems acquisition in December 2008. Foreign currency translation had an unfavorable impact on 2009 net sales of $18.6 million compared to 2008. Net sales of vascular closure devices, which include sales of Radi Medical Systems’ compression assist products, increased approximately 4% compared to 2008. Although 2009 heart valve sales volumes increased compared to 2008, unfavorable foreign currency translation and sales mix comparisons largely offset the benefit of increased sales volumes. Net sales of other cardiovascular products increased $76.7 million compared to 2008 due to incremental sales of pressure measurement guidewires, a product line acquired from Radi Medical Systems, and volume growth of other cardiovascular products.

Cardiovascular 2008 net sales increased 9% to $862.1 million compared to 2007 driven by increased sales volumes and favorable foreign currency translation impacts, led by both heart valve products and other cardiovascular products. Foreign currency translation had a $34.0 million favorable impact on CV net sales compared to 2007. Net sales of vascular closure devices increased approximately 4% compared to 2007 due to sales volume growth of Angio-Seal™. Heart valve net sales increased 11% compared to 2007 due to increased sales volumes for both tissue heart valves and mechanical heart valves. Other cardiovascular products net sales increased approximately 18% compared to last year due to increased sales volumes and favorable foreign currency translation.

Atrial Fibrillation

(in thousands)	2009		2008		2007		2009 vs. 2008 % Change			2008 vs. 2007 % Change
Atrial fibrillation products	$	627,853	$	545,512	$	410,672		15.1	%		32.8	%

Atrial Fibrillation 2009 net sales increased 15% to $627.9 million compared to 2008 net sales. The increase in AF net sales was driven by volume growth from continued market acceptance of device-based ablation procedures to treat the symptoms of atrial fibrillation and our expanded product offerings. Our access, diagnosis, visualization and ablation products assist physicians in diagnosing and treating atrial fibrillation and other irregular heart rhythms. Foreign currency translation had an unfavorable impact on AF net sales of $12.8 million compared to 2008.

Atrial Fibrillation 2008 net sales increased approximately 33% to $545.5 million compared to 2007 net sales. The increase in AF net sales was driven by strong volume growth. Foreign currency translation had a favorable impact on AF net sales of $16.0 million compared to 2007.

Neuromodulation

(in thousands)	2009		2008		2007		2009 vs. 2008 % Change			2008 vs. 2007 % Change
Neurostimulation devices	$	330,766	$	254,140	$	209,894		30.2	%		21.1	%

Neuromodulation 2009 net sales increased 30% to $330.8 million compared to 2008 net sales. The increase in NMD net sales was driven by strong volume growth from both continued market acceptance of our products and growth in the neuromodulation market. Foreign currency translation had an unfavorable impact on NMD net sales of $4.1 million compared to 2008.

Neuromodulation 2008 net sales increased 21% to $254.1 million compared to 2007 net sales. The increase in NMD net sales was driven by strong volume growth from both new product introductions and continued growth in the neuromodulation market. Foreign currency translation did not have a significant impact on 2008 net sales.

RESULTS OF OPERATIONS

Net Sales

(in thousands)	2009		2008		2007		2009 vs. 2008 % Change			2008 vs. 2007 % Change
Net sales	$	4,681,273	$	4,363,251	$	3,779,277		7.3	%		15.5	%

Overall, 2009 net sales increased 7% compared to 2008. Net sales growth was favorably impacted by volume growth, which was broad-based across all operating segments. Compared to 2008, foreign currency translation had an unfavorable impact on 2009 net sales of $99.5 million due primarily to the strengthening of the U.S. Dollar against the Euro.

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Overall, 2008 net sales increased 15% compared to 2007. Net sales growth was favorably impacted by strong volume growth, driven by CRM and AF product sales. Additionally, foreign currency translation had a $120.4 million, or 3%, favorable impact on 2008 net sales compared to 2007, primarily due to the strengthening of both the Euro and Japanese Yen against the U.S. Dollar.

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

Net Sales	2009		2008		2007
United States	$	2,468,191	$	2,319,645	$	2,107,015
International
Europe		1,197,912		1,152,601		936,526
Japan		480,897		387,648		321,826
Asia Pacific		254,429		234,073		192,793
Other (a)		279,844		269,284		221,117
		2,213,082		2,043,606		1,672,262
	$	4,681,273	$	4,363,251	$	3,779,277

(a)   No one geographic market is greater than 5% of consolidated net sales.

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 $99.5 million unfavorable impact on 2009 net sales, while the translation impact in 2008 had a $120.4 million favorable 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.

Gross Profit

(in thousands)	2009			2008			2007
Gross profit	$	3,427,888		$	3,192,710		$	2,737,683
Percentage of net sales		73.2	%		73.2	%		72.4	%

Gross profit for 2009 totaled $3,427.9 million, or 73.2% of net sales, compared to $3,192.7 million, or 73.2% of net sales in 2008. Special charges in 2009 negatively impacted our gross profit by approximately 0.7 percentage points related to inventory obsolescence charges for discontinued products, accelerated depreciation charges and write-offs for assets that will no longer be utilized and initiatives to streamline our production activities. Special charges in 2008 negatively impacted our gross profit by approximately 1.5 percentage points consisting primarily of charges related to the impairment of a technology license agreement, termination costs related to certain raw material purchase contracts, inventory obsolescence charges associated with a terminated distribution agreement and charges related to providing our new remote patient monitoring system to existing St. Jude Medical CRM patients at no charge. The remaining decrease in our 2009 gross profit percentage as a percent of net sales compared to 2008 was due to unfavorable foreign currency translation impacts, partially offset by productivity improvements.

Gross profit for 2008 totaled $3,192.7 million, or 73.2% of net sales, compared to $2,737.7 million, or 72.4% of net sales in 2007. Special charges in 2008 negatively impacted our gross profit by approximately 1.5 percentage points, as discussed previously. Special charges in 2007 negatively impacted our gross profit margin by approximately 1.0 percentage point and were associated with our 2007 restructuring activities. The improvement in our 2008 gross profit percentage as a percent of net sales compared to 2007 was due to favorable foreign currency translation and favorable product mix from higher margin products. Refer to Note 8 of the Consolidated Financial Statements for further details of the components of the special charges impacting our 2009, 2008 and 2007 gross profit.

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Selling, General and Administrative (SG&A) Expense

(in thousands)	2009			2008			2007
Selling, general and administrative expense	$	1,675,251		$	1,636,526		$	1,382,466
Percentage of net sales		35.8	%		37.5	%		36.6	%

SG&A expense for 2009 totaled $1,675.3 million, or 35.8% of net sales, compared with $1,636.5 million, or 37.5% of net sales in 2008. SG&A expense for 2009 as a percent of net sales benefited from $26.0 million of lower discretionary company performance-based compensation costs. SG&A expense for 2008 as a percent of net sales was unfavorably impacted by 0.8 percentage points due to our $35.0 million contribution to non-profit organizations, including the St. Jude Medical Foundation.

SG&A expense for 2008 totaled $1,636.5 million, or 37.5% of net sales, compared with $1,382.5 million, or 36.6% of net sales in 2007. The increase in SG&A expense as a percent of net sales over 2007 was primarily due to the $35.0 million of contributions to non-profit organizations discussed previously.

Research and Development (R&D) Expense

(in thousands)	2009			2008			2007
Research and development expense	$	559,766		$	531,799		$	476,332
Percentage of net sales		12.0	%		12.2	%		12.6	%

R&D expense in 2009 totaled $559.8 million, or 12.0% of net sales, compared with $531.8 million, or 12.2% of net sales in 2008. While 2009 R&D expense as a percent of net sales decreased compared to 2008, total R&D expense continues to increase each year, reflecting our continuing commitment to fund future long-term growth opportunities. We will continue to balance delivering short-term results with investments in long-term growth drivers.

R&D expense in 2008 totaled $531.8 million, or 12.2% of net sales, compared with $476.3 million, or 12.6% of net sales in 2007. While 2008 R&D expense as a percent of net sales decreased compared to 2007, total R&D expense increased over 11% compared to 2007, reflecting our continuing commitment to fund future long-term growth opportunities.

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

(in thousands)	2009		2008		2007
Purchased in-process research and development charges	$	5,842	$	319,354	$	—

Fiscal Year 2009

During 2009, we recorded IPR&D charges of $5.8 million in conjunction with the purchase of intellectual property in our CV and NMD segments since the related technological feasibility had not yet been reached and such technology had no future alternative use.

Fiscal Year 2008

MediGuide, Inc.: In December 2008, we acquired privately-held MediGuide, a development-stage company that has been focused on developing its gMPS^TM technology for localization and tracking capability for interventional medical devices. The acquisition provides us with exclusive rights to use and develop MediGuide’s gMPS^TM technology. As MediGuide 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 excess purchase price was allocated to IPR&D, the principal asset acquired. At the date of acquisition, $306.2 million of the purchase price was expensed as IPR&D since technological feasibility of the underlying projects had not yet been reached and such technology had no future alternative use. Through January 2, 2010, we have incurred costs of approximately $10 million related to these projects. We expect to incur an additional $20 million to bring the technology to commercial viability on a worldwide basis within one to two years.

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Other: In December 2008, we also made an additional minority investment in a development-stage company and, in accordance with step-acquisition accounting treatment under the equity method of accounting, allocated the excess purchase price over the fair value of the investee’s net assets to IPR&D the principal asset acquired. At the additional investment date, $11.6 million of IPR&D was expensed since technological feasibility of the underlying projects had not yet been reached and such technology had no future alternative use. Additionally, we recognized $1.6 million of IPR&D charges related to the purchase of intellectual property in our CRM and CV segments since the related technological feasibility had not yet been reached and such technology had no future alternative use.

Special Charges

(in thousands)	2009		2008		2007
Cost of sales special charges	$	33,761	$	64,603	$	38,292
Special charges		73,983		49,984		85,382
	$	107,744	$	114,587	$	123,674

Fiscal Year 2009

Employee Termination Costs: We incurred charges totaling $107.7 million, of which $71.1 million related to severance and benefit costs for approximately 725 employees. These costs were recognized after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The terminations consisted of approximately 440 employees in our U.S. and International selling divisions in an effort to enhance the efficiency and effectiveness of the sales, marketing and customer service operations in these organizations and approximately 285 employees in our manufacturing divisions related to continuing efforts to streamline our production activities. Of the total $71.1 million charge, $6.6 million was recorded in cost of sales.

Inventory Charges: We recorded $17.7 million of charges in cost of sales relating to inventory that would be scrapped in connection with management’s decision to terminate certain product lines in our CRM and AF divisions that were redundant with other existing products lines.

Fixed Asset Charges: We recorded $5.9 million of charges in cost of sales associated with the accelerated depreciation of phasing out older model diagnostic equipment. We also recognized $6.1 million of asset write-offs related to the carrying value of assets that will no longer be utilized. Of the $6.1 million charge, $3.5 million was recorded in cost of sales.

Other Charges: We recorded charges of $1.8 million associated with contract terminations and $5.1 million of other unrelated costs.

Fiscal Year 2008

Impairment Charges: In 2008, we determined that a large portion of the technology under a license agreement covering certain of our CRM devices was no longer fully utilized in our products and that certain of the patents under the license were no longer valid based upon recent patent law developments. Based upon these developments and changes in circumstances, we recognized an impairment charge of $43.5 million to cost of sales to write our intangible asset for our technology license agreement down to its fair value.

Based upon unfavorable 2008 sales performance as well as negative clinical trial results, we reduced the future revenue and cash flow projections relating to certain product lines acquired from Velocimed LLC (Velocimed) in 2005. Accordingly, we tested the related purchased technology intangible assets for impairment and recognized a $37.0 million impairment charge to write down the related intangible assets to their remaining fair value. We also recognized other impairment charges of $5.8 million in 2008 primarily related to assets in the Cardiovascular division that will no longer be utilized.

In December 2008, we decided to discontinue the use of the Advanced Neuromodulation Systems, Inc. (ANS) tradename. We had acquired ANS in November 2005 and used the related tradename through its discontinuance in December 2008. Accordingly, we wrote off the ANS tradename intangible assets and recognized a $1.7 million impairment charge.

Inventory Charges: In 2008 we entered into purchase contracts in the normal course of business for certain raw material commodities that are used in the manufacture of our products. Favorable decreases in commodity prices resulted in our election to terminate and exit the contracts, paying $10.7 million in termination costs, which was recorded as a special charge in cost of sales.

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We also recognized inventory obsolescence charges related to inventory not expected to be sold due to the termination of a distribution agreement in Japan. When we elected to terminate the distribution agreement in December 2007, we recorded a $4.0 million special charge in 2007 related to inventory that we estimated would not be sold. We increased this estimate in 2008 and recorded an additional $3.0 million charge in cost of sales.

Other Charges: In 2008, we launched our Merlin^TM @home wireless patient monitoring system and committed to provide this system without charge to our existing St. Jude Medical CRM patients. In connection with the completion of this roll-out in the fourth quarter of 2008, we recorded a $7.4 million special charge in cost of sales to accrue for the related costs. We also recognized $5.5 million of other unrelated costs.

Fiscal Year 2007

Patent Litigation: In June 2007, we settled a patent litigation matter with Guidant Corporation (a subsidiary of Boston Scientific Corporation) and Mirowski Family Ventures, L.L.C. and recorded a charge of $35.0 million.

Restructuring Activities: In December 2007, management initiated efforts to streamline operations and implemented restructuring actions primarily focused at our international locations. As a result, we recorded charges totaling $29.1 million in 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 benefit costs for approximately 200 individuals identified for employment termination. These costs were recognized after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. Other costs primarily represented contract termination costs. The actions and related payments for these restructuring activities have been completed.

Impairment Charges: We recognized 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 recognized 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 in Japan of Getz Bros. Co., Ltd. in April 2003. The distribution agreement was terminated in June 2008.

Additionally, in connection with completing our United States roll-out of the Merlin™ programmer platform for our ICDs and pacemakers, we recorded an $11.8 million charge in cost of sales to write off the remaining carrying value of older model programmer diagnostic equipment. We also recognized $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.

Discontinued Inventory: We recorded a $14.1 million 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 percentages.

Additionally, in connection with our decision to terminate the distribution agreement in Japan (see Impairment Charges discussed previously), we recorded a $4.0 million charge in cost of sales to write off the related inventory that will not be sold.

Other Income (Expense)

(in thousands)	2009			2008			2007
Interest income	$	2,057		$	16,315		$	4,374
Interest expense		(45,603	)		(72,554	)		(72,258	)
Other		(12,107	)		(18,040	)		(15,343	)
Other income (expense), net	$	(55,653	)	$	(74,279	)	$	(83,227	)

The favorable change in other income (expense) during 2009 compared to 2008 was primarily driven by lower average outstanding debt balances in 2009, resulting in less interest expense. Partially offsetting the favorable change in other income (expense) was our recognition of an $8.3 million investment impairment charge to other expense. During 2009, we determined that the fair value of a cost method investment was below its carrying value and that the impairment was other-than-temporary. During 2008, we also recognized $12.9 million of pre-tax impairment charges as other expense related to a decline in the fair values of certain investments that were deemed to be other-than-temporary.

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The favorable change in other income (expense) during 2008 compared to 2007 was the result of higher interest income driven by higher average invested cash balances compared to 2007. Interest expense for 2008 remained consistent with interest expense for 2007 as our average outstanding debt balance for both years remained consistent. During 2008, we recognized $12.9 million of pre-tax impairment charges discussed above. In 2007, we recognized a $25.1 million pre-tax impairment charge as other expense related to our investment in ProRhythm, Inc. (ProRhythm). This 2007 impairment charge was partially offset by a pre-tax gain of $7.9 million recognized as other income related to the sale of our Conor Medical, Inc. common stock investment.

Income Taxes

(as a percent of pre-tax income)	2009		2008		2007
Effective tax rate	26.5	%	39.2	%	24.3	%

Our effective tax rate differs from our U.S. federal statutory 35% tax rate because certain operations are subject to tax incentives, state and local taxes and foreign taxes that are different from the U.S. federal statutory rate. Our effective tax rate is also impacted by discrete factors or events such as IPR&D charges, special charges, impairment charges or the resolution of audits by tax authorities.

Our effective tax rate was 26.5% in 2009 compared to 39.2% in 2008 and 24.3% in 2007. Special charges, deductible IPR&D charges and an investment impairment charge favorably impacted the 2009 effective tax rate by 0.4 percentage points. In 2008, non-deductible IPR&D charges, special charges and investment impairment charges unfavorably impacted the 2008 effective tax rate by 12.2 percentage points. In 2007, special charges and investment impairment charges favorably impacted the 2007 effective tax rate by 2.3 percentage points. Refer to Purchased In-Process Research and Development (IPR&D) Charges, Special Charges and Other Income (Expense) sections above for further details regarding these charges.

The Federal Research and Development tax credit (R&D tax credit), which provides a tax benefit on certain incremental R&D expenditures, expired on December 31, 2009. Legislation to retroactively reinstate the R&D tax credit is pending in the U.S. Congress, however, it was not enacted and signed into law as of February 24, 2010. We estimate that our 2010 effective tax rate could be unfavorably impacted by approximately 2 percentage points if the R&D tax credit is not enacted into law for fiscal year 2010.

Net Earnings

							2009 vs. 2008			2008 vs. 2007
(in thousands, except per share amounts)	2009		2008		2007		% Change			% Change
Net earnings	$	777,226	$	353,018	$	537,756		120.2	%		-34.4	%
Diluted net earnings per share	$	2.26	$	1.01	$	1.53		123.8	%		-34.0	%

Our 2009 net earnings of $777.2 million and diluted net earnings per share of $2.26 increased compared to 2008 net earnings of $353.0 million and diluted net earnings per share of $1.01. Compared to 2008, our net earnings and diluted net earnings per share benefited from continued net sales growth in all of our operating segments. Net earnings for 2009 included after-tax special charges of $76.4 million, an after-tax investment impairment charge of $5.2 million and after-tax IPR&D charges of $3.7 million for a combined impact of $85.3 million, or $0.25 per diluted share. Net earnings for 2008 included IPR&D charges of $319.4 million, after-tax special charges of $72.7 million and after-tax investment impairment charges of $8.0 million for a combined impact of $400.1 million, or $1.15 per diluted share.

Net earnings were $353.0 million in 2008, a 34.4% decrease over 2007 net earnings of $537.8 million. Diluted net earnings per share were $1.01 in 2008, a 34.0% decrease over 2007 diluted net earnings per share of $1.53. Net earnings for 2008 included IPR&D charges of $319.4 million, after-tax special charges of $72.7 million and after-tax investment impairment charges of $8.0 million for a combined impact of $400.1 million, or $1.15 per diluted share. Net earnings for 2007 included after-tax special charges of $77.2 million and an after-tax investment impairment charge of $15.7 million, for a combined impact of $92.9 million, or $0.26 per diluted share. Compared to 2007, our 2008 net earnings and diluted net earnings per share benefited from increased net sales growth in all of our operating segments with net sales in our CRM and AF operating segments growing 14% and 33%, respectively.

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LIQUIDITY

We believe that our available borrowing capacity under our $1.0 billion long-term committed credit facility (Credit Facility) and related commercial paper program, existing cash balances and future cash generated from operations will be sufficient to meet our working capital, capital investment and debt service requirements over the next twelve months and in the foreseeable future thereafter. Although we believe that our earnings, cash flows and balance sheet position will permit us to obtain additional debt financing or equity capital should suitable investment opportunities arise, recent disruptions in the global financial markets may adversely impact the availability and cost of capital. As of January 2, 2010, we had $1.0 billion of available borrowing capacity under our Credit Facility and related commercial paper program. Our short-term credit ratings are A1 from Standard & Poor’s, P2 from Moody’s and F1 from Fitch. 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 January 2, 2010, 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; however, it is not practical to estimate the amount of additional U.S. tax liabilities we would incur. We currently have no plans to repatriate funds held by our non-U.S. subsidiaries.

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 as a measure that places emphasis on how quickly we collect our accounts receivable balances from customers. We use DIOH, which can also be expressed as a measure of the estimated number of days of cost of sales on hand, 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. Our DSO (ending net accounts receivable divided by average daily sales for the quarter) remained consistent year over year, increasing from 88 days at January 3, 2009 to 89 days at January 2, 2010. Our DIOH (ending net inventory divided by average daily cost of sales for the most recent six months) increased from 160 days at January 3, 2009 to 184 days at January 2, 2010. Special charges recognized in cost of sales in the fourth quarter of 2008 reduced our January 3, 2009 DIOH by 19 days. Special charges recognized in cost of sales in the second half of 2009 reduced our January 2, 2010 DIOH by 10 days. The remaining year over year increase in DIOH since January 3, 2009 was the result of higher inventory levels due to new product introductions and lower than expected 2009 net sales in the second half of the year.

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

	2009			2008			2007
Net cash provided by (used in):
Operating activities	$	868,875		$	945,592		$	865,569
Investing activities		(490,585	)		(871,073	)		(306,315	)
Financing activities		(130,696	)		(322,493	)		(259,484	)
Effect of currency exchange rate changes on cash and cash equivalents		8,890			(4,677	)		9,436
Net increase (decrease) in cash and cash equivalents	$	256,484		$	(252,651	)	$	309,206

Cash Flows from Operating Activities
Cash provided by operating activities was $868.9 million for 2009 compared to $945.6 million for 2008 and $865.6 million for 2007. Operating cash flows can fluctuate significantly from period to period due to payment timing differences of working capital accounts such as accounts receivable, accounts payable, accrued liabilities and income taxes payable.

Cash Flows from Investing Activities
Cash used in investing activities was $490.6 million in 2009 compared to $871.1 million in 2008 and $306.3 million in 2007. Our purchases of property, plant and equipment, which totaled $326.4 million, $343.9 million and $287.2 million in 2009, 2008 and 2007, respectively, reflect our continued investment in our product growth platforms currently in place. During 2009, we made a second scheduled acquisition payment of $113.8 million for MediGuide. During 2008, we spent $490.0 million of net cash consideration on acquisitions, with Radi Medical Systems, MediGuide and EP MedSystems being the most significant. During 2007, we received proceeds of $12.9 million due to liquidating our minority interest in Conor Medical, Inc., as a result of its acquisition by Johnson & Johnson.

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Cash Flows from Financing Activities
Cash used in financing activities was $130.7 million in 2009 compared to $322.5 million in 2008 and $259.5 million in 2007. Our financing cash flows can fluctuate significantly depending upon our liquidity needs and the amount of stock option exercises and the extent of our common stock repurchases. During 2009, we issued $1.2 billion of Senior Notes, made borrowings of $180.0 million under a 3-year unsecured term loan and repaid all of our commercial paper borrowings (net $19.4 million) and outstanding borrowings of $500.0 million under our $1.0 billion long-term committed Credit Facility. Additionally, we repurchased $1.0 billion of our common stock, which was financed with both proceeds from the issuance of our Senior Notes and cash generated from operations. In December 2009, we voluntarily repaid 1.5 billion Japanese Yen under a 3-year unsecured term loan totaling 8.0 billion, resulting in an outstanding balance of 6.5 billion Japanese Yen at January 2, 2010 (the equivalent of $70.7 million at January 2, 2010).

During 2008, we borrowed $500.0 million from our $1.0 billion long-term committed Credit Facility to fund the repayment of our $1.2 billion 1.22% Convertible Debentures. Additionally, we entered into a 3-year, unsecured term loan totaling $360.0 million and a 3-year, unsecured term loan totaling 8.0 billion Japanese Yen (the equivalent of $88.2 million at January 3, 2009). During 2008, we also used our outstanding cash balances to repurchase $300.0 million of our common stock.

During 2007, we repurchased approximately $1.0 billion of our common stock, which was financed through a combination of a portion of the proceeds from the issuance of $1.2 billion of 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 the convertible debentures were used to repay commercial paper borrowings and borrowings under an interim liquidity facility. Proceeds from stock options exercised and stock issued, inclusive of the related excess tax benefits, provided $152.6 million, $215.0 million and $284.7 million of cash inflows during 2009, 2008 and 2007, respectively. Proceeds from stock options exercised and stock issued 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 when stock options are exercised.

DEBT AND CREDIT FACILITIES

Total debt increased to $1,922.4 million at January 2, 2010 from $1,201.6 million at January 3, 2009 primarily due to the Company’s issuance of the $1.2 billion Senior Notes.

We have a long-term $1.0 billion committed Credit Facility used to support our commercial paper program and for general corporate purposes. Borrowings under this facility bear interest at the United States Prime Rate (Prime Rate) or the United States Dollar London InterBank Offered Rate (LIBOR) plus 0.235%, at our election. In the event over half of the Credit Facility is drawn upon, an additional five basis points is added to the elected Prime or LIBOR rate. The interest rates are subject to adjustment in the event of a change in our credit ratings. There were no outstanding borrowings under the Credit Facility as of January 2, 2010, as we repaid $500.0 million of borrowings in August 2009 with the net proceeds from the issuance of the Senior Notes.

Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. During the first quarter of 2009, we repaid a net $19.4 million of our commercial paper borrowings. As of January 2, 2010, we had no outstanding commercial paper borrowings. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. We annually have only issued commercial paper up to the amount of our available borrowings capacity under the Credit Facility, as such commercial paper has lower interest rates.

In July 2009, we issued $700.0 million aggregate principal amount of 5-year, 3.75% Senior Notes and $500.0 million aggregate principal amount of 10-year, 4.875% Senior Notes. In August 2009, we used $500.0 million of the net proceeds from the Senior Notes to repay all amounts outstanding under our Credit Facility. Additionally, we repurchased $1.0 billion of our outstanding common stock under two different authorized share repurchase programs using both net proceeds from the issuance of our Senior Notes and available cash generated from operations. As of January 2, 2010, the outstanding balance of the 2014 Senior Notes was $699.0 million and the outstanding balance of the 2019 Senior Notes was $493.9 million. Interest payments are required on a semi-annual basis. We may redeem the Senior Notes at any time at the applicable redemption price. The Senior Notes are senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness.

In December 2008, we entered into a 3-year, unsecured term loan (2011 Term Loan), which can be used for general corporate purposes or to refinance certain other outstanding borrowings of the Company. The 2011 Term Loan bears interest at LIBOR plus 2.0%, although we may also elect the Prime Rate plus 1.0%, which is subject to adjustment in the event of a change in our credit ratings. We are required to make quarterly principal payments in the amount of 5% ($27.0 million) of the total borrowings. Accordingly, we made $108.0 million of principal payments during 2009. As of January 2, 2010, we had total borrowings of $432.0 million under the 2011 Term Loan.

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In December 2008, we entered into a 3-year, Yen-denominated unsecured term loan in Japan (Yen Term Loan) totaling 8.0 billion Japanese Yen (the equivalent of $88.2 million at January 3, 2009). In December 2009, we voluntarily repaid 1.5 billion Japanese Yen, resulting in an outstanding balance of 6.5 billion Japanese Yen at January 2, 2010 (the equivalent of $70.7 million at January 2, 2010). We can initiate future borrowings up to the 8.0 billion Japanese Yen term loan amount. The borrowings bear interest at the Yen LIBOR plus 2.0%. Interest payments are required on a semi-annual basis and the entire principal balance is due in December 2011. The principal amount recorded on the balance sheet for the Yen Term Loan fluctuates based on the effects of foreign currency translation.

In May 2003, we issued 7-year, 1.02% Yen-denominated notes in Japan (Yen Notes) totaling 20.9 billion Yen (the equivalent of $226.8 million at January 2, 2010 and $230.1 million at January 3, 2009). Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The principal amount for the Yen Notes recorded on our balance sheet fluctuates based on the effects of foreign currency translation.

Our Credit Facility, 2011 Term Loan and Yen Notes contain certain operating and financial covenants. Specifically, the Credit Facility and 2011 Term Loan require 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, 2011 Term Loan, Senior Notes and Yen Notes we also have certain limitations on how we conduct our business, including limitations on additional liens or indebtedness and limitations on certain acquisitions, mergers, investments and dispositions of assets. We were in compliance with all of our debt covenants as of January 2, 2010.

SHARE REPURCHASES

On October 22, 2009, our Board of Directors authorized a share repurchase program of up to $500.0 million of our outstanding common stock. We completed the repurchases under the program on December 11, 2009. In total, we repurchased 14.1 million shares for $500.0 million at an average repurchase price of $35.44 per share. On July 21, 2009, our Board of Directors authorized a share repurchase program of up to $500.0 million of our outstanding common stock. We completed the repurchases under the program on September 15, 2009. In total, we repurchased 13.0 million shares for $500.0 million at an average repurchase price of $38.32 per share. For fiscal year 2009, we repurchased a total of 27.1 million shares for $1.0 billion at an average repurchase price of $36.83 per share.

On February 22, 2008, our Board of Directors authorized a share repurchase program of up to $250.0 million of our outstanding common stock. On April 8, 2008, our Board of Directors authorized an additional $50.0 million of share repurchases as part of this share repurchase program. We completed the repurchases under the program on May 1, 2008. In total, we repurchased 6.7 million shares for $300.0 million at an average repurchase price of $44.51 per share.

DIVIDENDS

We did not declare or pay any cash dividends during 2009, 2008 or 2007. 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 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.

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In addition to the amounts shown in the following table, our noncurrent liability for unrecognized tax benefits was $120.5 million as of January 2, 2010, and we are uncertain as to if or when such amounts may be settled. Related to these unrecognized tax benefits, our liability for potential penalties and interest was $28.3 million as of January 2, 2010.

A summary of contractual obligations and other minimum commercial commitments as of January 2, 2010 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	$	95,178	$	32,067	$	35,142	$	19,260	$	8,709
Purchase commitments (a)		355,542		313,909		41,592		41		—
Contingent consideration payments (b)		142,417		60,689		60,115		921		20,692
Total	$	593,137	$	406,665	$	136,849	$	20,222	$	29,401
Contractual obligations reflected in the balance sheet:
Debt obligations (c)		2,302,076		398,206		506,057		788,125		609,688
Total	$	2,895,213	$	804,871	$	642,906	$	808,347	$	639,089

(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)	Includes current debt obligations, scheduled maturities of long-term debt and scheduled interest payments. See Note 4 to the Consolidated Financial Statements for additional information on our debt obligations.

MARKET RISK

We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars, Australian Dollars, Brazilian Reals, British Pounds, and Swedish Kronor. When the U.S. Dollar weakens against foreign currencies, the dollar value of sales denominated in foreign currencies increases. When the U.S. Dollar strengthens against foreign currencies, the dollar value of sales denominated in foreign currencies decreases. 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 $209.7 million on our 2009 net sales. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on the related cost of sales and operating expenses in the applicable foreign currencies.

During 2009, we hedged a portion of our foreign currency exchange rate risk through the use of forward exchange contracts. We use forward exchange contracts to manage foreign currency exposures related to intercompany receivables and payables arising from intercompany purchases of manufactured products. These forward contracts are not designated as qualifying hedging relationships under ASC Topic 815, Derivatives and Hedging (ASC Topic 815). We measure our foreign currency exchange rate contracts at fair value on a recurring basis. The fair value of outstanding contracts was immaterial as of January 2, 2010. During 2009, the Company recorded a $6.7 million net loss to other income (expense) for its forward currency exchange contracts not designated as hedging instruments under ASC Topic 815. The net losses were almost entirely offset by corresponding net gains on the foreign currency exposures being managed. We do not enter into contracts for trading or speculative purposes. Our policy is to enter into hedging contracts with major financial institutions that have at least an “A” (or equivalent) credit rating. Although we are exposed to credit loss in the event of nonperformance by counterparties on our outstanding derivative contracts, we do not anticipate nonperformance by any of the counterparties. We did not enter into any hedging contracts during 2007. We continue to evaluate our foreign currency exchange rate risk and the different mechanisms for use in managing such risk, including using derivative financial instruments and operational hedges, such as international manufacturing operations. Our derivative financial instruments accounting policy is discussed in detail in Note 1 to the Consolidated Financial Statements.

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Although we have not entered into any derivative hedging contracts to hedge the net asset exposure of our foreign subsidiaries, we have elected to use natural hedging strategies in certain geographies. We have naturally hedged a portion of our Yen-denominated net asset exposure by issuing long-term Yen-denominated debt.

We are also exposed to fair value risk on our Senior Notes and Yen Notes. As of January 2, 2010, the aggregate fair value of our Senior Notes (measured using quoted prices in active markets) was $1,216.8 million compared to the aggregate carrying value of $1,193.0 million. Our 2014 Senior Notes have a fixed interest rate of 3.75% and our 2019 Senior Notes have a fixed rate of interest of 4.875%. A hypothetical one-percentage point change in the interest rates would have an aggregate impact of approximately $65 million on the fair value of our Senior Notes. As of January 2, 2010, the fair value of our Yen Notes, which have a fixed interest rate of 1.02%, approximated their carrying value. A hypothetical one-percentage point change in its interest rate would have an impact of approximately $1 million on the fair value of the Yen Notes.

Our variable-rate debt consists of loans in the United States and Japan. Assuming average outstanding borrowings of $500 million during 2010, a hypothetical one-percentage point change in the interest rates (based upon a weighted average interest rate of 2.3% at January 2, 2010) would have an impact of approximately $5 million on our 2010 interest expense.

We are also exposed to equity market risk on our marketable equity security investments. We hold certain marketable equity securities of publically-traded companies. Our investments in these companies had a fair value of $31.7 million at January 2, 2010, 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. Also, healthcare reform may result in reduced Medicare provider reimbursement rates, the introduction and/or pilot of various new patient care and payment models, the establishment of reimbursement policies and rates based on clinical outcomes and cost effective treatments, and the institution of an excise tax on all medical devices, requiring the medical device industry to pay an estimated $20 billion in additional taxes over 10 years. Additionally, we believe healthcare reform will result in further hospital consolidations over time with related pressure on pricing and terms from our customers.

The CRM market is highly competitive. Our two principal competitors in these markets are larger than us and have invested substantial amounts in R&D. 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 with numerous competitors. The majority of our sales 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 continue to shift to tissue valves and repair products from mechanical heart valves.

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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 have begun to expand their presence in the atrial fibrillation market by leveraging their cardiac rhythm management capabilities and through acquisitions.

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.

For the period from June 15, 2008 through June 15, 2009, we maintained product liability policies which provided $350 million of insurance coverage, with a $50 million per occurrence deductible or a $100 million deductible if the claims were deemed an integrated occurrence under the policies. However, we decided to allow such product liability policies to lapse, and consistent with industry practice, do not currently maintain or intend to maintain any insurance policies with respect to product liability in the future. This decision was made based on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insured retentions, increasing number of coverage limitations and high insurance premium rates. We will continue to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the future. While based on historical loss trends, we believe that our self-insurance program will be adequate to cover future losses, we can provide no assurances that this will remain true as historical trends may not be indicative of future losses. These losses could have a material adverse impact on our consolidated earnings, financial condition or cash flows.

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.

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.

19

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, changes in tax laws 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 alternative 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 Biocor® and Epic™ tissue heart valves, or that impose added costs on the procurement of bovine collagen or bovine pericardial material.
11.	The intent and ability of our product liability insurers to meet their obligations to us, including losses related to our Silzone® litigation, and our ability to fund future product liability losses related to claims made subsequent to becoming self-insured.
12.	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.
13.	Healthcare industry changes leading to demands for price concessions and/or limitations on, or the elimination of, our ability to sell in significant market segments.
14.	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.
15.	Adverse developments in litigation, including product liability litigation, patent or other intellectual property litigation or shareholder litigation.
16.	Inability to successfully integrate the businesses that we have acquired in recent years and that we plan to acquire.
17.	Failure to successfully complete clinical trials for new indications for our products and/or failure to successfully develop markets for such new indications.
18.	Changes in accounting rules that adversely affect the characterization of our results of operations, financial position or cash flows.
19.	The disruptions in the financial markets and the economic downturn that adversely impact the availability and cost of credit and customer purchasing and payment patterns.
20.	Conditions imposed in resolving, or any inability to timely resolve, any regulatory issues raised by the FDA, including Form 483 observations or warning letters, as well as risks generally associated with our regulatory compliance and quality systems.
21.	Governmental legislation and/or regulation that significantly impacts the healthcare system in the United States and that results in lower reimbursement for our products, reduces medical procedure volumes or otherwise adversely affects our business and results of operations, including the imposition of an excise tax or other fee on certain medical devices.

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 independent 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 January 2, 2010. Ernst & Young LLP, our independent registered public accounting firm, has also audited the effectiveness of the Company’s internal control over financial reporting as of January 2, 2010 as stated in its 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 January 2, 2010, 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 titled 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 January 2, 2010, 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. as of January 2, 2010 and January 3, 2009, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended January 2, 2010, and our report dated March 2, 2010, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota
March 2, 2010

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. as of January 2, 2010 and January 3, 2009, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended January 2, 2010. 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. at January 2, 2010 and January 3, 2009, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 2, 2010, in conformity with U.S. generally accepted accounting principles.

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 January 2, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2010, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota
March 2, 2010

23

CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)

Fiscal Year Ended	January 2, 2010			January 3, 2009			December 29, 2007
Net sales	$	4,681,273		$	4,363,251		$	3,779,277
Cost of sales:
Cost of sales before special charges		1,219,624			1,105,938			1,003,302
Special charges		33,761			64,603			38,292
Total cost of sales		1,253,385			1,170,541			1,041,594
Gross profit		3,427,888			3,192,710			2,737,683
Selling, general and administrative expense		1,675,251			1,636,526			1,382,466
Research and development expense		559,766			531,799			476,332
Purchased in-process research and development charges		5,842			319,354			—
Special charges		73,983			49,984			85,382
Operating profit		1,113,046			655,047			793,503
Other income (expense), net		(55,653	)		(74,279	)		(83,227	)
Earnings before income taxes		1,057,393			580,768			710,276
Income tax expense		280,167			227,750			172,520
Net earnings	$	777,226		$	353,018		$	537,756
Net earnings per share:
Basic	$	2.28		$	1.03		$	1.57
Diluted	$	2.26		$	1.01		$	1.53
Weighted average shares outstanding:
Basic		340,880			342,888			342,103
Diluted		344,359			349,722			352,444

See notes to the consolidated financial statements.

24

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

	January 2, 2010			January 3, 2009
ASSETS
Current Assets
Cash and cash equivalents	$	392,927		$	136,443
Accounts receivable, less allowances for doubtful accounts		1,170,579			1,101,258
Inventories		659,960			546,499
Deferred income taxes, net		164,738			137,042
Other current assets		172,002			158,821
Total current assets		2,560,206			2,080,063
Property, Plant and Equipment
Land, buildings and improvements		424,310			386,519
Machinery and equipment		1,188,614			918,254
Diagnostic equipment		336,492			371,206
Property, plant and equipment at cost		1,949,416			1,675,979
Less accumulated depreciation		(796,330	)		(695,803	)
Net property, plant and equipment		1,153,086			980,176
Goodwill		2,005,851			1,984,566
Other intangible assets, net		456,142			493,535
Other assets		250,526			184,164
TOTAL ASSETS	$	6,425,811		$	5,722,504
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current debt obligations	$	334,787		$	75,518
Accounts payable		132,543			238,310
Income taxes payable		13,498			17,608
Accrued expenses
Employee compensation and related benefits		269,293			297,287
Other		317,192			399,801
Total current liabilities		1,067,313			1,028,524
Long-term debt		1,587,615			1,126,084
Deferred income taxes, net		132,392			112,231
Other liabilities		314,940			219,759
Total liabilities		3,102,260			2,486,598
Commitments and Contingencies (Note 5)		—			—
Shareholders’ Equity
Preferred stock		—			—
Common stock (324,537,581 and 345,332,272 shares issued and outstanding at January 2, 2010 and January 3, 2009, respectively)		32,454			34,533
Additional paid-in capital		5,860			219,041
Retained earnings		3,191,203			2,977,630
Accumulated other comprehensive income (loss):
Cumulative translation adjustment		82,033			(1,023	)
Unrealized gain on available-for-sale securities		12,001			6,136
Unrealized loss on derivative financial instruments		—			(411	)
Total shareholders’ equity		3,323,551			3,235,906
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	6,425,811		$	5,722,504

See notes to the consolidated financial statements.

25

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)

													Accumulated Other Comprehensive Income (Loss)
	Common Stock						Additional Paid-In Capital									Total Shareholders’ Equity
	Number of Shares			Amount						Retained Earnings
Balance at December 30, 2006		353,932,000		$	35,393		$	100,173		$	2,787,331		$	46,329		$	2,969,226
Comprehensive income:
Net earnings											537,756						537,756
Other comprehensive income (loss):
Unrealized loss on available-for-sale securities, net of taxes of $(3,343)														(5,766	)		(5,766	)
Reclassification of realized gain on available-for-sale securities 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																	590,585
Equity conversion option on convertible debentures, net of taxes of $31,411								52,352									52,352
Repurchases of common stock		(23,619,400	)		(2,361	)		(296,091	)		(701,415	)					(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 for adoption of FIN 48											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		$	2,632,214		$	99,158		$	2,959,319
Comprehensive income:
Net earnings											353,018						353,018
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net of taxes of $(3,675)														(6,268	)		(6,268	)
Unrealized loss on derivative financial instruments, net of taxes of $(247)														(411	)		(411	)
Foreign currency translation adjustment, net of taxes of $(4,281)														(87,777	)		(87,777	)
Other comprehensive loss																	(94,456	)
Comprehensive income																	258,562
Repurchases of common stock		(6,736,888	)		(674	)		(291,724	)		(7,602	)					(300,000	)
Stock-based compensation								52,935									52,935
Common stock issued under stock plans and other, net		8,319,532			832			165,182									166,014
Common stock issued in connection with acquisition		902,665			90			36,621									36,711
Tax benefit from stock plans								62,365									62,365
Balance at January 3, 2009		345,332,272		$	34,533		$	219,041		$	2,977,630		$	4,702		$	3,235,906
Comprehensive income:
Net earnings											777,226						777,226
Other comprehensive gain:
Unrealized gain on available-for-sale securities, net of taxes of $3,369														5,865			5,865
Reclassification of realized loss on derivative financial instruments to net earnings, net of taxes of $247														411			411
Foreign currency translation adjustment, net of taxes of $(173)														83,056			83,056
Other comprehensive income																	89,332
Comprehensive income																	866,558
Repurchases of common stock		(27,154,078	)		(2,715	)		(433,632	)		(563,653	)					(1,000,000	)
Stock-based compensation								59,795									59,795
Common stock issued under stock plans and other, net		6,359,387			636			125,620									126,256
Tax benefit from stock plans								35,036									35,036
Balance at January 2, 2010		324,537,581		$	32,454		$	5,860		$	3,191,203		$	94,034		$	3,323,551

See notes to the consolidated financial statements.

26

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Fiscal Year Ended	January 2, 2010			January 3, 2009			December 29, 2007
OPERATING ACTIVITIES
Net earnings	$	777,226		$	353,018		$	537,756
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization		213,465			202,428			197,665
Amortization of debt discount		370			49,973			34,029
Stock-based compensation		59,795			52,935			54,540
Excess tax benefits from stock-based compensation		(26,373	)		(48,995	)		(97,921	)
Investment impairment charges		8,300			12,902			25,094
Gain on sale of investment		—			—			(7,929	)
Purchased in-process research and development charges		5,842			319,354			—
Deferred income taxes		(14,058	)		(50,362	)		(18,976	)
Other, net		11,982			87,833			41,500
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(39,090	)		(92,301	)		(91,491	)
Inventories		(104,463	)		(73,763	)		4,380
Other current assets		10,303			(19,996	)		(5,301	)
Accounts payable and accrued expenses		(65,100	)		68,366			49,476
Income taxes payable		30,676			84,200			142,747
Net cash provided by operating activities		868,875			945,592			865,569
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(326,408	)		(343,912	)		(287,157	)
Proceeds from the sale of investments		—			—			12,929
Business acquisition payments, net of cash acquired		(129,507	)		(490,027	)		(12,238	)
Other investing activities, net		(34,670	)		(37,134	)		(19,849	)
Net cash used in investing activities		(490,585	)		(871,073	)		(306,315	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		126,256			166,014			186,817
Excess tax benefits from stock-based compensation		26,373			48,995			97,921
Common stock repurchased, including related costs		(1,000,000	)		(300,000	)		(999,867	)
Borrowings under debt facilities		11,151,754			967,622			8,045,869
Payments under debt facilities		(10,435,079	)		—			(8,724,224	)
Issuance (repayment) of convertible debentures		—			(1,205,124	)		1,200,000
Purchase of call options		—			—			(101,040	)
Proceeds from the sale of warrants		—			—			35,040
Net cash used in financing activities		(130,696	)		(322,493	)		(259,484	)
Effect of currency exchange rate changes on cash and cash equivalents		8,890			(4,677	)		9,436
Net increase (decrease) in cash and cash equivalents		256,484			(252,651	)		309,206
Cash and cash equivalents at beginning of year		136,443			389,094			79,888
Cash and cash equivalents at end of year	$	392,927		$	136,443		$	389,094
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes	$	225,062		$	211,860		$	100,599
Interest	$	24,549		$	21,712		$	32,686
Noncash investing activities:
Issuance of stock in connection with EP MedSystms, Inc. acquisition	$	—		$	36,711		$	—

See notes to the consolidated financial statements.

27

Notes to the 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 Neuromodulation (NMD). 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, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology (EP) introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD – 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 year 2009 and 2007 consisted of 52 weeks and ended on January 2, 2010 and December 29, 2007, respectively. Fiscal year 2008 consisted of 53 weeks and ended on January 3, 2009, with the additional week reflected in the Company’s fourth quarter 2008 results.

Reclassifications: Certain prior period amounts within the Statements of Cash Flows have 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 (U.S. GAAP) 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 fair 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 value based upon quoted market prices (see Note 12). Unrealized gains and losses, net of related incomes taxes, are recorded in accumulated other comprehensive income in shareholders’ equity. Realized gains (losses) from the sale of available-for-sale securities are recorded to other income (expense) and are computed using the specific identification method.

The Company’s investments in mutual funds are recorded at fair market value based upon quoted market prices (see Note 12) 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).

28

Available-for-sale securities are classified as other current assets. The following table summarizes the components of the balance of the Company’s available-for-sale securities at January 2, 2010 and January 3, 2009 (in thousands):

	January 2, 2010			January 3, 2009
Adjusted cost	$	12,122		$	12,187
Gross unrealized gains		19,797			9,944
Gross unrealized losses		(208	)		(66	)
Fair value	$	31,711		$	22,065

Unrealized gains and losses, net of related income taxes are recorded in accumulated other comprehensive income in shareholders’ equity. 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 accumulated other comprehensive income and reflected as a realized gain (loss) in net earnings. There were no realized gains (losses) from the sale of available-for-sale securities recorded during fiscal years 2009 or 2008. In 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). Additionally, 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 recognizes an impairment loss to net earnings in the period the determination is made. In 2008, the Company recognized a pre-tax impairment charge of $0.7 million in other expense related to a decline in the fair value of an available-for-sale security that was deemed other-than-temporary. No available-for-sale security impairment losses were recognized during fiscal years 2009 or 2007.

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 $34.9 million and $29.0 million at January 2, 2010 and January 3, 2009, respectively.

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 (in thousands):

	January 2, 2010		January 3, 2009
Finished goods	$	460,600	$	398,452
Work in process		60,702		39,143
Raw materials		138,658		108,904
	$	659,960	$	546,499

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 the timing and impact of 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 $190.9 million and $205.3 million at January 2, 2010 and January 3, 2009, 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, trademarks and tradenames, licenses and distribution agreements, which are amortized on a straight-line basis over the estimated useful life ranging from 3 to 20 years.

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The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other (ASC Topic 350), requires that goodwill for each reporting unit be reviewed for impairment at least annually. The Company has four reporting units as of January 2, 2010, consisting of its four operating segments (see Note 14). The Company tests goodwill for impairment using the two-step process prescribed in ASC Topic 350. 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 analysis 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 potential 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 2009, 2008 and 2007, the Company completed its annual goodwill impairment test and identified no impairment associated with the carrying values of goodwill.

The Company 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 related undiscounted future cash flows, the carrying value is written down to fair value in the period identified. In assessing fair value, the Company generally utilizes present value cash flow calculations using an appropriate risk-adjusted discount rate. In 2008, the Company recorded a $37.0 million impairment charge to write down purchased technology intangible assets associated with its 2005 Velocimed LLC (Velocimed) acquisition and a $1.7 million impairment charge to write off Advanced Neuromodulation Systems, Inc. (ANS) tradename intangible assets. In 2007, the Company recorded a $23.7 million impairment charge to write down intangible assets associated with a distribution agreement in Japan. There was no impairment of intangible assets during 2009. Refer to Note 8 for further detail regarding these impairment charges.

Product Warranties: The Company offers a warranty on various products; the most significant of which 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 2009 and 2008 were as follows (in thousands):

	2009			2008
Balance at beginning of year	$	15,724		$	16,691
Warranty expense recognized		6,627			1,515
Warranty credits issued		(2,440	)		(2,482	)
Balance at end of year	$	19,911		$	15,724

Product Liability: The Company accrues for product liability claims when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. As a result of higher costs and increasing coverage limitations, effective June 16, 2009, the Company ceased purchasing product liability insurance. Receivables for insurance recoveries from prior product liability insurance coverage are recorded when it is probable that a recovery will be realized.

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.

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 collectability 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. Research and development costs include product development costs, pre-approval regulatory costs and clinical research expenses.

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Purchased In-Process Research and Development (IPR&D): The Company’s policy defines IPR&D as the value of technology acquired 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. Prior to 2009, the Company expensed the value attributed to any IPR&D acquired in a business acquisition.

Beginning in fiscal year 2009, all IPR&D acquired in a business combination is subject to ASC Topic 805, Business Combinations, which requires the fair value of IPR&D to be capitalized as an indefinite-lived intangible asset until completion of the IPR&D project or abandonment. Upon completion of the development project (generally when regulatory approval to market the product is obtained), acquired IPR&D assets are amortized over their estimated useful life. If the IPR&D projects are abandoned, the related IPR&D assets would likely be impaired and written down to the remaining fair value, if any. No IPR&D was capitalized during fiscal year 2009.

The Company’s adoption of ASC Topic 805 did not change the Company’s accounting policy with respect to asset purchases. In many cases, the purchase of certain intellectual property assets or the rights to such intellectual property is considered a purchase of assets rather than the acquisition of a business. Accordingly, rather than being capitalized, any IPR&D acquired in such asset purchases are expensed.

Stock-Based Compensation: The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (ASC Topic 718). Under the fair value recognition provisions of ASC Topic 718, 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, using 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 a change in control.

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 stock. 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 2009, 2008 and 2007 (in thousands, except per share amounts):

	2009		2008		2007
Numerator:
Net earnings	$	777,226	$	353,018	$	537,756
Denominator:
Basic-weighted average shares outstanding		340,880		342,888		342,103
Effect of dilutive securities:
Employee stock options		3,456		6,765		10,249
Restricted stock		23		69		92
Diluted-weighted average shares outstanding		344,359		349,722		352,444
Basic net earnings per share	$	2.28	$	1.03	$	1.57
Diluted net earnings per share	$	2.26	$	1.01	$	1.53

Approximately 22.8 million, 15.0 million, and 12.0 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 2009, 2008 and 2007, respectively.

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 (loss). Foreign currency transaction gains and losses are included in other income (expense).

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Derivative Financial Instruments: The Company follows the provisions of ASC Topic 815, Derivatives and Hedging (ASC Topic 815) to account for its derivative instruments and hedging activities. ASC Topic 815 requires all derivative financial instruments to be recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recognized in net earnings or other comprehensive income depending on whether the derivative is designated as part of a qualifying hedging transaction.

The Company uses forward contracts to manage foreign currency exposures primarily related to intercompany receivables and payables arising from intercompany purchases of manufactured products. These forward contracts are not designated as qualifying hedges and therefore, the changes in the fair values of these derivatives are recognized in net earnings and classified in other income (expense). The gains and losses on these forward contracts largely offset the losses or gains on the foreign currency exposures being managed.

The Company has periodically entered into interest rate swap contracts to hedge the risk to net earnings associated with movements in interest rates by converting variable-rate borrowings into fixed-rate borrowings. As designated cash flow hedges, the fair value of the swap contract is recorded to other current assets or other accrued expenses with the related unrealized gain (loss) recorded to other comprehensive income. Payments made or received under the swap contract are recorded to interest expense.

New Accounting Pronouncements: The Company adopted new accounting standards in fiscal year 2009, the impacts of which have been reflected in the 2009 consolidated financial statements and historical consolidated financial statements, as applicable.

In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles (SFAS No. 168) which establishes the FASB Accounting Standards Codification (ASC or the Codification) as the source of authoritative accounting principles to be applied by U.S. nongovernmental entities in the preparation of financial statements. The Company adopted SFAS No. 168 in the third quarter of 2009. Accordingly, the Company now references U.S. GAAP by using the numbering system prescribed by the Codification. The Codification did not change existing U.S. GAAP, and the adoption of SFAS No. 168 did not have an impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued Staff Position (FSP) Accounting Principles Board (APB) Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This legacy accounting change is now included as part of the authoritative accounting guidance of FASB ASC Topic 470, Debt, (ASC Topic 470) and requires the proceeds from the issuance of certain 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 is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Retrospective adoption of this accounting guidance was required. The Company adopted this guidance at the beginning of fiscal year 2009 and has retrospectively applied it to all periods presented.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161). This legacy accounting standard is now included as part of the authoritative accounting guidance of FASB ASC Topic 815, Derivatives and Hedging (ASC Topic 815). The updated accounting guidance incorporated into ASC Topic 815 expands disclosures about derivative instruments and hedging activities (see Note 13) to provide a better understanding of a company’s use of derivatives and their effect on the financial statements. The Company’s adoption of this standard at the beginning of fiscal year 2009 did not have a material impact to the Company’s consolidated financial statements (see Note 13).

In April 2009, the FASB issued two related FASB Staff Positions (FSPs): (i) FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments and (ii) FSP SFAS No. 107-1 and APB Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments. These legacy FSPs are now included as part of the authoritative accounting guidance of FASB ASC Topic 320, Investments – Debt and Equity Securities (ASC Topic 320) and FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC Topic 820), respectively. The updated accounting guidance incorporated into ASC Topic 320 modifies the requirement for recognizing other-than-temporary impairments, changes the existing impairment model, and modifies the presentation and frequency of related disclosures. The updated accounting guidance incorporated into ASC Topic 820 requires fair value disclosures at interim reporting periods for financial instruments not reflected in the condensed consolidated balance sheets at fair value, which are similar to the fair value disclosures required in annual financial statements for those same assets and liabilities. The Company’s adoption of this accounting guidance in the second quarter of 2009 did not have a material impact to the Company’s consolidated financial statements (see Note 13).

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NOTE 2 – ACQUISITIONS

The Company made acquisitions during 2009, 2008 and 2007; the more significant acquisitions are described below. The results of operations of businesses acquired have been included in the Company’s consolidated results of operations since the dates of acquisition. Pro forma results of operations have not been presented for these acquisitions since the effects of these business acquisitions were not material to the Company either individually or in aggregate.

EP MedSystems, Inc.: On July 3, 2008, the Company completed the acquisition of EP MedSystems, Inc. (EP MedSystems) for $95.7 million (consisting of $59.0 million in net cash consideration and direct acquisition costs and 0.9 million shares of St. Jude Medical common stock). EP MedSystems had been publicly traded on the NASDAQ Capital Market under the ticker symbol EPMD. EP MedSystems is based in West Berlin, New Jersey and develops, manufactures and markets medical devices for the electrophysiology market which are used for visualization, diagnosis and treatment of heart rhythm disorders. The Company acquired EP MedSystems to strengthen its portfolio of products used to treat heart rhythm disorders.

The goodwill recorded as a result of the EP MedSystems acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s Atrial Fibrillation operating segment. The goodwill represents the strategic benefits of growing our Atrial Fibrillation product portfolio and the expected revenue growth from increased market penetration from future product and customers. In connection with the acquisition of EP MedSystems, the Company recorded $17.0 million of developed and core technology intangible assets and $3.3 million of customer relationship intangible assets that both have estimated useful lives of 7 to 10 years. The aggregate EP MedSystems purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. During 2009, the Company finalized the EP MedSystems purchase price allocation and recorded a $3.3 million net decrease to goodwill. The impacts of finalizing the purchase price allocation were not material.

Radi Medical Systems AB: On December 19, 2008, the Company completed the acquisition of Radi Medical Systems AB (Radi Medical Systems) for $248.9 million in net cash consideration, including direct acquisition costs. Radi Medical Systems is based in Uppsala, Sweden and develops, manufactures and markets products that provide precise measurements of intravascular pressure during a cardiovascular procedure and compression systems that arrest bleeding of the femoral and radial arteries following an intravascular medical device procedure. The Company acquired Radi Medical Systems to accelerate its cardiovascular growth platform in these two segments of the cardiovascular medical device market in which the Company previously had not participated.

The goodwill recognized as a result of the Radi Medical Systems acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s Cardiovascular operating segment. The goodwill represents the strategic benefits of growing our Cardiovascular product portfolio and the expected revenue growth from increased market penetration from future products and customers. In connection with the acquisition of Radi Medical Systems, the Company recorded $46.0 million of developed and core technology intangible assets that have estimated useful lives of 8 to 10 years. During 2009, the Company finalized the Radi Medical Systems purchase price allocation and recorded a $3.3 million net decrease to goodwill. The impacts of finalizing the purchase price allocation were not material.

MediGuide, Inc.: On December 22, 2008, the Company completed the acquisition of MediGuide, Inc. (MediGuide), a development stage company, for $285.2 million in net consideration, which included additional cash consideration payments of approximately $145.1 million and direct acquisition costs. The additional cash consideration payments consisted of a $113.8 million payment paid in November 2009 and an estimated $31.3 million payment due in April 2010. The final cash payment has been held as security for potential indemnification obligations of MediGuide. MediGuide was a development-stage company based in Haifa, Israel and has been focused on developing a Medical Positioning System (gMPS^TM) technology that provides localization and tracking capability for interventional medical devices. As MediGuide was a development-stage company, the excess of the purchase price over the fair value of the net assets acquired was allocated to IPR&D, the principal asset acquired.

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the significant business acquisitions (EP MedSystems and Radi Medical Systems) and asset acquisition (MediGuide) made by the Company in fiscal year 2008 (in thousands):

	EP MedSystems		Radi Medical Systems		MediGuide		Total
Current assets	$	8,506	$	21,224	$	132	$	29,862
Goodwill		69,719		219,428		—		289,147
Other intangible assets		20,250		46,000		—		66,250
IPR&D		—		—		306,202		306,202
Deferred income taxes, net		17,213		—		—		17,213
Other long-term assets		1,101		6,629		408		8,138
Total assets acquired	$	116,789	$	293,281	$	306,742	$	716,812
Current liabilities		21,084	$	31,405		21,580		74,069
Deferred income taxes, net		—		12,930		—		12,930
Net assets acquired	$	95,705	$	248,946	$	285,162	$	629,813
Cash paid, net of cash acquired	$	58,994	$	248,946	$	140,104		448,044
Non-cash (SJM shares at fair value)		36,711		—		—		36,711
Future cash consideration		—		—		145,058		145,058
Net assets acquired	$	95,705	$	248,946	$	285,162	$	629,813

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 January 2, 2010 and January 3, 2009 were as follows (in thousands):

	CRM/NMD		CV/AF			Total
Balance at December 29, 2007	$	1,196,972	$	460,341		$	1,657,313
EP Medsystems		—		69,719			69,719
Radi Medical Systems		—		219,428			219,428
Foreign currency translation and other		14,566		23,540			38,106
Balance at January 3, 2009	$	1,211,538	$	773,028		$	1,984,566
EP Medsystems		—		(3,261	)		(3,261	)
Radi Medical Systems		—		(3,265	)		(3,265	)
Foreign currency translation and other		27,478		333			27,811
Balance at January 2, 2010	$	1,239,016	$	766,835		$	2,005,851

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

	January 2, 2010				January 3, 2009
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Purchased technology and patents	$	506,893	$	171,760	$	494,796	$	124,749
Customer lists and relationships		182,368		81,129		166,637		63,385
Trademarks and tradenames		24,286		6,336		22,651		4,789
Licenses, distribution agreements and other		5,693		3,873		5,529		3,155
	$	719,240	$	263,098	$	689,613	$	196,078

Amortization expense of other intangible assets was $58.5 million, $53.4 million and $53.9 million for fiscal years 2009, 2008 and 2007, respectively. In 2008, the Company recorded a $37.0 million impairment charge to write down purchased technology intangible assets associated with its 2005 Velocimed acquisition and a $1.7 million impairment charge to write off its ANS tradename intangible assets (see Note 8). In 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 amounts for these impairment charges were written off in the respective periods.

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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 (in thousands):

	2010		2011		2012		2013		2014		After 2014
Amortization expense	$	60,245	$	59,576	$	57,178	$	55,366	$	53,048	$	170,729

NOTE 4 – DEBT

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

	January 2, 2010		January 3, 2009
Senior notes due 2014	$	699,036	$	—
Senior notes due 2019		493,927		—
Term loan due 2011		432,000		360,000
1.02% Yen-denominated notes due 2010		226,787		230,088
Yen-denominated term loan due 2011		70,652		88,222
Credit facility borrowings		—		500,000
Commercial paper borrowings		—		19,400
Other		—		3,892
Total debt		1,922,402		1,201,602
Less: current debt obligations		334,787		75,518
Long-term debt	$	1,587,615	$	1,126,084

Future minimum principal payments under the Company’s total debt obligations are as follows: $334.8 million in 2010; $394.7 million in 2011; $700.0 million in 2014; and $500.0 million in years thereafter.

Senior notes due 2014: On July 28, 2009, the Company issued $700.0 million principal amount, 5-year, 3.75% unsecured senior notes (2014 Senior Notes) that mature in July 2014. Interest payments are required on a semi-annual basis. The 2014 Senior Notes were issued at a discount, yielding an effective interest rate of 3.784% at issuance. The debt discount is being amortized as interest expense through maturity. The Company may redeem the 2014 Senior Notes at any time at the applicable redemption price.

Senior notes due 2019: On July 28, 2009, the Company issued $500.0 million principal amount, 10-year, 4.875% unsecured senior notes (2019 Senior Notes) that mature in July 2019. Interest payments are required on a semi-annual basis. The 2019 Senior Notes were issued at a discount, yielding an effective interest rate of 5.039% at issuance. The debt discount is being amortized as interest expense through maturity. The Company may redeem the 2019 Senior Notes at any time at the applicable redemption price.

Term loan due 2011: In December 2008, the Company entered into a 3-year, unsecured term loan (2011 Term Loan). The Company initially borrowed $360.0 million in December 2008 and borrowed an additional $180.0 million in January 2009, resulting in total original borrowings of $540.0 million under the 2011 Term Loan. The Company is required to make quarterly principal payments in the amount of 5% ($27.0 million) of the total original borrowings. These borrowings bear interest at United States Dollar London InterBank Offered Rate (LIBOR) plus 2.0%, although the Company may elect the United States Prime Rate (Prime Rate) plus 1.0%. The interest rates are subject to adjustment in the event of a change in the Company’s credit ratings. Borrowings under the 2011 Term Loan incurred interest at a weighted average interest rate of 2.3% during 2009.

1.02% Yen-denominated notes due 2010: In May 2003, the Company issued 7-year, 1.02% unsecured notes in Japan (Yen Notes) totaling 20.9 billion Yen (the equivalent of $226.8 million at January 2, 2010 and $230.1 million at January 3, 2009). The principal amount of the Yen Notes recorded on the balance sheet fluctuates based on the effects of foreign currency translation. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010.

Yen-denominated term loan due 2011: In December 2008, the Company entered into a 3-year, Yen-denominated unsecured term loan in Japan (Yen Term Loan) totaling 8.0 billion Japanese Yen (the equivalent of $88.2 million at January 3, 2009). In December 2009, the Company voluntarily repaid 1.5 billion Japanese Yen, resulting in an outstanding balance of 6.5 billion Japanese Yen at January 2, 2010 (the equivalent of $70.7 million at January 2, 2010). The Company can initiate future borrowings up to the 8.0 billion Japanese Yen term loan amount. The principal amount of the Yen Term Loan recorded on the balance sheet fluctuates based on the effects of foreign currency translation. The borrowings bear interest at the Yen LIBOR plus 2.0%. Interest payments are required on a semi-annual basis and the entire principal balance is due in December 2011.

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Credit facility borrowings: In December 2006, the Company entered into a 5-year, $1.0 billion committed credit facility (Credit Facility) that it may draw on for general corporate purposes and to support its commercial paper program. Borrowings under the Credit Facility bear interest at the Prime Rate or LIBOR plus 0.235%, at the election of the Company. In the event that over half of the Credit Facility is drawn upon, an additional five basis points is added to the elected Prime Rate or LIBOR rate. The interest rates are subject to adjustment in the event of a change in the Company’s credit ratings. In October 2008, the Company borrowed $500.0 million under the Credit Facility to partially fund the retirement of other outstanding borrowings in December 2008. In August 2009, the Company repaid the $500.0 million of Credit Facility borrowings with proceeds from the issuance of the 2014 Senior Notes and 2019 Senior Notes. Accordingly, as of January 2, 2010 the Company has $1.0 billion of available borrowing capacity under the Credit Facility.

In November 2008, the Company entered into an interest rate swap contract to convert $400.0 million of variable-rate borrowings under the Credit Facility into fixed-rate borrowings. The swap contract terminated in February 2009 and payments made or received were recorded to interest expense. Inclusive of the interest rate swap, borrowings under the Credit Facility incurred interest at a weighted average interest rate of 1.0% during 2009.

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 commercial paper borrowings outstanding as of January 2, 2010. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. Interest incurred during 2009 and 2008 was not material. 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.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Leases

The Company leases various facilities and equipment under non-cancelable operating lease arrangements. Future minimum lease payments under these leases are as follows: $32.1 million in 2010; $20.3 million in 2011; $14.8 million in 2012; $11.4 million in 2013; $7.9 million in 2014; and $8.7 million in years thereafter. Rent expense under all operating leases was $33.5 million, $28.6 million, and $27.4 million in fiscal years 2009, 2008 and 2007, respectively.

Litigation

Silzone® Litigation and Insurance Receivables: The Company has been sued in various jurisdictions beginning in March 2000 by some patients who received a heart valve product with Silzone® coating, which we stopped selling in January 2000. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to these 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 October 2001, various class-action complaints related to Silzone heart valves were consolidated into one class action case by the U.S. District Court in Minnesota (the District Court). The Company requested the Eighth Circuit Court of Appeals (the Eighth Circuit) to review the District Court’s initial class certification orders and, in October 2005, the Eighth Circuit issued a decision reversing the District Court’s class certification rulings and directed the District Court to undertake further proceedings. 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 Company again requested the Eighth Circuit to review the District Court’s class certification orders and, in April 2008, the Eighth Circuit again issued a decision reversing the District Court’s October 2006 class certification rulings. The order by the Eighth Circuit returned the case to the District Court for continued proceedings. The plaintiffs requested the District Court to certify a new class, but in June 2009, the District Court issued an order striking any remaining claims seeking class action status. As a result, the former class representative had only an individual claim which has now been resolved.

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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 District Court. As a result, actions in federal court involving products with Silzone coating have been transferred to the District Court for coordinated or consolidated pretrial proceedings. There are two individual Silzone cases pending in federal court. The plaintiffs in these cases are requesting damages in excess of $75 thousand. The complaint in the case that was most recently transferred to the MDL court was served upon the Company in December 2008.

There are three individual state court suits concerning Silzone-coated products pending, involving three patients. These cases are venued in Minnesota 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 Canada, four class-action cases and one individual case were filed 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 began in February 2010. A second case seeking class action status in Ontario has been stayed pending resolution of the other Ontario class action. A case filed as a class action in British Columbia has been resolved. The terms of that resolution, including a 2.1 million Canadian Dollars settlement amount (the equivalent of $2.0 million at January 2, 2010), was approved by the court in December 2009 and the deadline for any appeal of that decision has expired. The British Columbia Provincial health insurer has a separate lawsuit seeking to recover the cost of insured services furnished or to be furnished to class members in the British Columbia class actions, and that lawsuit remains pending in the British Columbia court. Although a court in Quebec certified a class action, the parties have reached an agreement to resolve that class action. A hearing for the court to approve the terms of resolution, including a 5.7 million Canadian Dollars settlement amount (the equivalent of $5.5 million at January 2, 2010), is scheduled for April 1, 2010. The resolution agreed to by the parties also resolves the claim raised by the Quebec Provincial health insurer seeking to recover the cost of insured services furnished or to be furnished to class members in the Quebec class action. The complaints in the pending Canadian cases request damages up to 2.0 billion Canadian Dollars (the equivalent of $1.9 billion at January 2, 2010). Based on the Company’s historical experience, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed. The Company is not aware of any unasserted claims related to Silzone-coated products.

The Company has recorded an accrual for probable legal costs, settlements and judgments for Silzone related litigation. For all Silzone legal costs incurred, the Company records insurance receivables for the amounts that it expects to recover. 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 could be material to the Company’s consolidated earnings, financial position and cash flows.

The following table summarizes the Company’s Silzone legal accrual and related insurance receivable at January 2, 2010 and January 3, 2009 (in thousands):

	January 2, 2010		January 3, 2009
Silzone legal accrual	$	23,326	$	22,308
Silzone insurance receivable	$	42,538	$	25,583

The Company’s remaining product liability insurance for Silzone claims consists of two $50.0 million layers, each of which is covered by one or more insurance companies. The first $50.0 million layer of insurance 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 AIC has asserted. The insurance broker that assisted the Company in procuring the insurance with AIC has been added as a party to the case.

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 for which it would have otherwise been covered. While potential losses are possible, the Company has not accrued for any such losses as they are not probable or reasonably estimable at this time.

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Guidant 1996 Patent Litigation: In November 1996, Guidant Corporation (Guidant), which became a subsidiary of Boston Scientific Corporation 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 implantable cardioverter defibrillator systems (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. 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. In December 2008, the CAFC upheld the March 2006 rulings of the district court but also reversed the district court’s March 2007 ruling that the ‘288 patent was invalid. As such, based on that ruling, although the invalidity of the ‘288 patent was overturned, the damages in the case going forward are limited to those relatively few instances prior to the expiration of the patent in 2003 when the cardioversion therapy method described in the only remaining claim of the ‘288 patent was actually practiced.

The parties filed requests with the CAFC requesting that the entire CAFC re-hear some of the issues addressed in the December 2008 decision, and the CAFC issued a ruling in March 2009 vacating its December 2008 decision, denying Guidant’s request for re-hearing and granting part of the Company’s request for re-hearing. In August 2009, the CAFC issued a ruling further limiting any potential damages in the case and sending the case back to the district court for further proceedings. In September 2009, Guidant filed a motion with the CAFC seeking to halt the return of the case to the district court so that Guidant could first seek to have the U.S. Supreme Court review the issue addressed in the CAFC’s August 2009 ruling. In January 2010, the Supreme Court denied Guidant’s request for Supreme Court review, and the matter will return to the district court for further proceedings. The parties have agreed to conduct a mediation meeting in March 2010.

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. Based on this and the recent rulings in this case, the Company does not believe that any potential losses arising from any legal settlements or judgments in this case 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.

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 has received follow-up requests from the U.S. Department of Justice and the U.S. Attorney’s Office in Cleveland regarding this matter. The Company is cooperating with the investigation and is continuing to work with the OIG in 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 bradycardia pacemaker systems (pacemakers) to doctors or other persons constitutes 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 CRM 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. In December 2008, the U.S. Attorney’s Office in Boston delivered a third subpoena issued by the OIG requesting the production of documents relating to implantable cardiac rhythm device and pacemaker warranty claims. In August 2009, the U.S. Attorney’s Office in Boston delivered a fourth subpoena issued by the OIG requiring production of documents relating to four CRM post market studies. The Company is cooperating with these investigations. In connection with the first two subpoenas, in January 2010 the U.S. District Court for the District of Massachusetts unsealed a qui tam action (private individual bringing suit on behalf of the U.S. Government) filed by a former employee. The U.S. Department of Justice has decided not to intervene in the suit against the Company at this time, however continues its investigation. The Company intends to file a motion to dismiss the complaint. It is not possible to predict the outcome of this litigation at this time.

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U.S. Department of Justice Investigation: In October 2008, the Company received a letter from the Civil Division of the U.S. Department of Justice stating that it was investigating the Company for potential False Claims Act and common law violations relating to the sale of the Company’s Epicor^TM surgical ablation devices. The Department of Justice is investigating whether companies marketed surgical ablation devices for off-label treatment of atrial fibrillation. Other manufacturers of medical devices used in the treatment of atrial fibrillation have reported receiving similar letters. The letter requests that we provide documents from January 1, 2005 to present relating to U.S. Food and Drug Administration (FDA) approval and marketing of Epicor^TM ablation devices. The Company is cooperating with the investigation. In July 2009, the U.S. District Court in Houston, Texas unsealed a qui tam action against the Company. Similar suits were unsealed at the same time against other manufacturers of surgical ablation devices. The Department of Justice has decided not to intervene in the suit against the Company at this time.

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 sought unspecified damages and other relief, as well as attorneys’ fees, were consolidated. In June 2009, the district court granted summary judgment in favor of the Company on all claims. The plaintiffs agreed not to appeal this matter, paid the Company certain costs and fees and provided a full release of all claims asserted in the action or that could have been asserted against the Company and the individual defendants.

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 were based on substantially the same allegations as those underlying the Securities Class Action Litigation matter described above. The plaintiff’s counsel conducted an informal review of evidence from the class action and based on that review, informed the Company that it would enter into a joint stipulation dismissing the action. The Court approved the dismissal in December 2009, and the plaintiff’s complaint has been dismissed.

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

Regulatory Matters

The FDA inspected the Company’s manufacturing facility in Minnetonka, Minnesota at various times between December 8 and December 19, 2008. On December 19, 2008, the FDA issued a Form 483 identifying certain observed non-conformity with current Good Manufacturing Practice (cGMP) primarily related to the manufacture and assembly of the Safire^TM ablation catheter with a 4 mm or 5 mm non-irrigated tip. Following the receipt of the Form 483, the Company’s Atrial Fibrillation division provided written responses to the FDA detailing proposed corrective actions and immediately initiated efforts to address the FDA’s observations of non-conformity. The Company subsequently received a warning letter dated April 17, 2009 from the FDA relating to these non-conformities with respect to this facility.

The FDA inspected the Company’s Plano, Texas manufacturing facility at various times between March 5 and April 6, 2009. On April 6, 2009, the FDA issued a Form 483 identifying certain observed non-conformities with cGMP. Following the receipt of the Form 483, the Company’s Neuromodulation division provided written responses to the FDA detailing proposed corrective actions and immediately initiated efforts to address FDA’s observations of non-conformity. The Company subsequently received a warning letter dated June 26, 2009 from the FDA relating to these non-conformities with respect to its Neuromodulation division’s Plano, Texas and Hackettstown, New Jersey facilities.

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With respect to each of these warning letters, the FDA notes that it will not grant requests for exportation certificates to foreign governments or approve pre-market approval applications for Class III devices to which the quality system regulation deviations are reasonably related until the violations have been corrected.

Customer orders are not expected to be impacted while the Company works to resolve the FDA’s concerns. The Company is working diligently to respond timely and fully to the FDA’s requests. While the Company believes the issues raised by the FDA can be resolved without a material impact on the Company’s financial results, the FDA has recently been increasing its scrutiny of the medical device industry and raising the threshold for compliance and the government should be expected to continue to scrutinize the industry closely with inspections, and possibly enforcement actions, by the FDA or other agencies. The Company is regularly monitoring, assessing and improving its internal compliance systems and procedures so that its activities will be consistent with applicable laws, regulations and requirements, including those of the FDA.

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 2009, 2008 or 2007.

Share Repurchases: On October 22, 2009, the Company’s Board of Directors authorized a share repurchase program of up to $500.0 million of the Company’s outstanding common stock. The Company completed the repurchases under the program on December 11, 2009. In total, the Company repurchased 14.1 million shares for $500.0 million at an average repurchase price of $35.44 per share. On July 21, 2009, the Company’s Board of Directors authorized a share repurchase program of up to $500.0 million of the Company’s outstanding common stock. The Company completed the repurchases under the program on September 15, 2009. In total, the Company repurchased 13.0 million shares for $500.0 million at an average repurchase price of $38.32 per share. For fiscal year 2009, the Company repurchased a total of 27.1 million shares for $1.0 billion at an average repurchase price of $36.83 per share.

In February 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. In April 2008, the Company’s Board of Directors authorized an additional $50.0 million of share repurchases as part of this share repurchase program. The Company completed the repurchases under the program on May 1, 2008. In total, the Company repurchased 6.7 million shares for $300.0 million at an average repurchase price of $44.51 per share.

In January 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 completed the repurchases under the program on May 8, 2007. In total, the Company repurchased 23.6 million shares for $1.0 billion at an average repurchase price of $42.34 per share.

NOTE 7 – STOCK-BASED COMPENSATION

Stock Compensation Plans

The Company’s stock compensation plans provide for the issuance of stock-based awards, such as stock options or restricted stock, 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 January 2, 2010, the Company had 11.8 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 10.7 million stock options under these plans, the Company may grant up to 4.8 million restricted stock awards (for certain grants of restricted stock awards, the number of shares available are reduced by 2.25 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. At January 2, 2010, there was $143.2 million of total unrecognized stock-based compensation expense, adjusted for estimated forfeitures, which is expected to be recognized over a weighted average period of 3.0 years and will be adjusted for any future changes in estimated forfeitures.

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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. Employees purchased 0.8 million, 0.7 million and 0.7 million shares in 2009, 2008 and 2007, respectively. At January 2, 2010, 3.5 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 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 2009, 2008 and 2007 were $39.83, $40.52 and $41.42, respectively. The weighted average fair values of ESPP purchase rights granted to employees during fiscal years 2009, 2008 and 2007were $10.49, $13.12 and $12.07, respectively.

The following table provides the weighted average fair value of stock options granted to employees during fiscal years 2009, 2008 and 2007 and the related weighted average assumptions used in the Black-Scholes model:

	2009			2008			2007
Fair value of options granted	$	12.17		$	9.99		$	13.13
Assumptions:
Expected life (years)		4.7			4.2			4.2
Risk-free interest rate		2.3	%		1.8	%		3.6	%
Volatility		32.8	%		37.3	%		33.4	%
Dividend yield		0	%		0	%		0	%

Expected life: The Company analyzes historical employee exercise and termination data to estimate the expected life assumption. Annually, the Company updates these assumptions unless circumstances would indicate a more frequent update is necessary. The Company uses different expected lives for the general employee population compared to the officer and director population, as the Company’s expected life analysis continues to show that officers and directors hold their stock options for a longer period of time before exercising compared to the rest of the employee population. As a result, the Company continues to use two different populations for estimating its expected life assumptions in determining the fair value of its stock options.

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: Effective in the fourth quarter of 2008, the Company calculates its expected volatility assumption by blending the historical and implied volatility. The historical volatility is based on the daily closing prices of the Company’s common stock over a period equal to the expected term of the option. Market-based implied volatility is based on utilizing market data of actively traded options on the Company’s stock, from options at- or near-the-money, at a point in time as close to the grant date of the employee options as reasonably practical and with similar terms to the employee share option, or a remaining maturity of at least six months if no similar terms are available. The historical volatility of the Company’s common stock price over the expected term of the option is a strong indicator of the expected future volatility. In addition, implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. The Company does not believe that one estimate is more reliable than the other, and as a result, the Company uses an equal weighting of historical volatility and market-based implied volatility. Prior to the fourth quarter of 2008, the Company calculated the expected volatility assumption exclusively on market-based implied volatility. The impact of changing the method of determining expected volatility was not material to fiscal year 2008 or fiscal year 2009 stock compensation expense. The Company changed the method of determining expected volatility to take into consideration how future volatility experience over the expected life of the option may differ from short-term volatility experience and thus provide a better estimate of expected volatility over the expected life of employee stock options.

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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 during the fiscal year ended January 2, 2010:

	Options (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Instrinsic Value (in thousands)
Outstanding at January 3, 2009		37,321		$	32.76
Granted		6,579			38.39
Canceled		(1,633	)		38.49
Exercised		(5,539	)		18.12
Outstanding at January 2, 2010		36,728		$	35.73		5.0	$	135,032
Vested and expected to vest		34,078		$	35.71		4.8	$	129,042
Exercisable at January 2, 2010		21,443		$	35.60		3.5	$	99,953

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 2009, 2008 and 2007 was $106.6 million, $182.6 million and $335.5 million, respectively.

The following table summarizes restricted stock activity under all stock compensation plans during the fiscal year ended January 2, 2010:

	Restricted Stock (in thousands)			Weighted Average Grant Price
Unvested balance at January 3, 2009		67		$	46.61
Granted		11			39.83
Vested		(70	)		46.32
Canceled		—			—
Unvested balance at January 2, 2010		8		$	39.89

The total fair value of restricted stock vested during fiscal years 2009, 2008 and 2007 was $2.5 million, $3.1 million and $3.3 million, respectively.

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

IPR&D Charges

Fiscal Year 2009

During 2009, the Company recorded IPR&D charges of $5.8 million in conjunction with the purchase of intellectual property in its CV and NMD segments since the related technological feasibility had not yet been reached and such technology had no future alternative use.

Fiscal Year 2008

MediGuide, Inc.: In December 2008, the Company acquired privately-held MediGuide, a development-stage company that has been focused on developing its gMPS^TM technology for localization and tracking capability for interventional medical devices. The acquisition provides the Company with exclusive rights to use and develop the gMPS^TM technology. As MediGuide 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 excess purchase price was allocated to IPR&D, the principal asset acquired. At the date of acquisition, $306.2 million of the purchase price was expensed as IPR&D since technological feasibility of the underlying projects had not yet been reached and such technology had no future alternative use. Through January 2, 2010, the Company has incurred costs of approximately $10 million related to these projects. The Company expects to incur an additional $20 million to bring the technology to commercial viability on a worldwide basis within one to two years.

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Other: In December 2008, the Company also made an additional minority investment in a development-stage company and, in accordance with step-acquisition accounting treatment under the equity method of accounting, allocated the excess purchase price over the fair value of the investee’s net assets to IPR&D, the principal asset acquired. At the December 2008 investment date, $11.6 million of IPR&D was expensed since technological feasibility of the underlying projects had not yet been reached and such technology had no future alternative use. The Company also recognized $1.6 million of IPR&D charges in 2008 related to the purchase of intellectual property in its CRM and CV segments since the related technological feasibility had not yet been reached and such technology had no future alternative use.

Savacor, Inc.: In December 2005, the Company acquired privately-held Savacor, Inc. (Savacor) to complement the Company’s development efforts in heart failure diagnostic and therapy guidance products. Through January 2, 2010, the Company has incurred costs of approximately $19 million from the related Savacor IPR&D projects. The Company expects to incur an additional $32 million to bring the device to commercial viability on a worldwide basis within four years.

Special Charges

Fiscal Year 2009

Employee Termination Costs: The Company incurred charges totaling $107.7 million, of which $71.1 million related to severance and benefit costs for approximately 725 employees. These costs were recognized after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The terminations consisted of approximately 440 employees in the Company’s U.S. and International selling divisions in an effort to enhance the efficiency and effectiveness of the sales, marketing and customer service operations in these organizations and approximately 285 employees in the Company’s manufacturing divisions related to continuing efforts to streamline the Company’s production activities. Of the total $71.1 million charge, $6.6 million was recorded in cost of sales.

Inventory Charges: The Company recorded a $17.7 million 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 CRM and AF divisions that were redundant with other existing products lines.

Fixed Asset Charges: The Company recorded a $5.9 million charge in cost of sales associated with the accelerated depreciation of phasing out older model diagnostic equipment. The Company also recognized $6.1 million of asset write-offs related to the carrying value of assets that will no longer be utilized. Of the $6.1 million charge, $3.5 million was recorded in cost of sales.

Other Charges: The Company recorded charges of $1.8 million associated with contract terminations and $5.1 million of other unrelated costs.

A summary of the activity related to the 2009 special charge accrual is as follows (in thousands):

	Employee termination costs			Inventory charges			Fixed asset charges			Other			Total
Balance at January 3, 2009	$	—		$	—		$	—		$	—		$	—
Special charges		71,158			17,735			11,982			6,869			107,744
Non-cash charges used		—			(17,735	)		(11,982	)		—			(29,717	)
Cash payments		(22,560	)		—			—			(349	)		(22,909	)
Foreign exchange rate impact		(758	)		—			—			—			(758	)
Balance at January 2, 2010	$	47,840		$	—		$	—		$	6,520		$	54,360

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In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the 2009 special charges have not been recorded in the individual reportable segments.

Fiscal Year 2008

Impairment Charges: In 2008, the Company determined that a large portion of the technology under the license agreement covering certain CRM devices was no longer fully utilized in the Company’s products and that certain of the patents under the license were no longer valid based upon recent patent law developments. Based upon these developments and changes in circumstances, the Company recognized an impairment charge of $43.5 million to cost of sales to write its intangible asset for the technology license agreement down to its fair value.

Based upon unfavorable 2008 sales performance as well as termination of a clinical trial, the Company reduced the future revenue and cash flow projections relating to certain products lines acquired from Velocimed in 2005. Accordingly, the Company tested the related purchased technology intangible assets for impairment and recognized a $37.0 million impairment charge to write down the related intangible assets to their fair value. The Company also recognized other impairment charges of $5.8 million in 2008 primarily related to assets in the Cardiovascular division that will no longer be utilized.

In December 2008, the Company decided to discontinue the use of the ANS tradename. The Company had acquired ANS in November 2005 and used the related tradename through its discontinuance in December 2008. Accordingly, the Company wrote off the ANS tradename intangible assets and recognized a $1.7 million impairment charge.

Inventory Charges: The Company entered into purchase contracts in the normal course of business for certain raw material commodities that are used in the manufacture of its products. Favorable decreases in commodity prices resulted in the Company’s electing to terminate and exit the contracts, paying $10.7 million in termination costs, which was recorded as a special charge in cost of sales.

The Company also recognized inventory obsolescence charges related to inventory not expected to be sold due to the termination of a distribution agreement in Japan. When the Company elected to terminate the distribution agreement in December 2007, the Company recorded a $4.0 million special charge in 2007 related to inventory that it estimated would not be sold. The Company increased this estimate in 2008 and recorded an additional $3.0 million charge in cost of sales.

Other Charges: In 2008, the Company launched its Merlin^TM @home wireless patient monitoring system and committed to provide this system without charge to existing St. Jude Medical CRM patients. In connection with the completion of this roll-out in the fourth quarter of 2008, the Company recorded a $7.4 million special charge in cost of sales to accrue for the related costs. The Company also recognized $5.5 million of other unrelated costs.

In order to enhance segment comparability and reflect management’s focus on the ongoing operations of the Company, the 2008 special charges have not been recorded in the individual reportable segments.

Fiscal Year 2007

Patent Litigation: In June 2007, the Company settled a patent litigation matter with Guidant (a subsidiary of Boston Scientific) and Mirowski Family Ventures, L.L.C. and recorded a charge of $35.0 million.

Restructuring Activities: In December 2007, Company management initiated efforts to streamline its operations and implemented restructuring actions primarily focused at international locations. As a result, the Company recorded charges totaling $29.1 million in 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 benefit costs for approximately 200 individuals identified for employment termination. These costs were recognized after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. Other costs primarily represented contract termination costs. These restructuring activities and all related payments have been completed.

Impairment Charges: The Company recognized 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, effective in June 2008. As a result, the Company recognized 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 was terminated in June 2008.

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Additionally, in connection with the Company completing its United States roll-out of the Merlin™ programmer platform for its ICDs and pacemakers, the Company recorded an $11.8 million charge in cost of sales to write off the remaining carrying value of older model programmer diagnostic equipment. The Company also recognized $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.

Discontinued Inventory: The Company recorded a $14.1 million 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 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.

NOTE 9 – OTHER INCOME (EXPENSE), NET

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

(in thousands)	2009			2008			2007
Interest income	$	2,057		$	16,315		$	4,374
Interest expense		(45,603	)		(72,554	)		(72,258	)
Other		(12,107	)		(18,040	)		(15,343	)
Other income (expense), net	$	(55,653	)	$	(74,279	)	$	(83,227	)

The Company classifies investment impairment charges and realized gains or losses from the sale of investments as other income (expense). The Company recognized impairment charges of $8.3 million, $12.9 million and $25.1 million in 2009, 2008 and 2007, respectively (see Note 12). In 2007, the Company also recognized a realized gain of $7.9 million related to the sale of the Company’s Conor Medical, Inc. common stock investment.

NOTE 10 – INCOME TAXES

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

	2009		2008		2007
U.S.	$	559,868	$	530,843	$	516,493
International		497,525		49,925		193,783
Earnings before income taxes	$	1,057,393	$	580,768	$	710,276

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

	2009			2008			2007
Current:
U.S. federal	$	212,721		$	198,179		$	141,997
U.S. state and other		23,292			26,863			12,421
International		58,212			53,070			37,078
Total current		294,225			278,112			191,496
Deferred		(14,058	)		(50,362	)		(18,976	)
Income tax expense	$	280,167		$	227,750		$	172,520

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

	2009			2008
Deferred income tax assets:
Net operating loss carryforwards	$	22,057		$	26,411
Tax credit carryforwards		59,623			53,412
Inventories		115,247			106,055
Stock-based compensation		56,837			45,556
Accrued liabilities and other		148,607			119,052
Deferred income tax assets		402,371			350,486
Deferred income tax liabilities:
Unrealized gain on available-for-sale securities		(7,584	)		(2,792	)
Property, plant and equipment		(168,173	)		(132,470	)
Intangible assets		(194,268	)		(190,413	)
Deferred income tax liabilities		(370,025	)		(325,675	)
Net deferred income tax assets	$	32,346		$	24,811

The Company has not recorded any valuation allowance for its deferred tax assets as of January 2, 2010 or January 3, 2009 as the Company believes that its deferred tax assets, including the net operating and capital loss 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:

	2009			2008			2007
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in tax rate resulting from:
U.S. state income taxes, net of federal tax benefit		1.6			3.3			2.1
International taxes at lower rates		(6.4	)		(9.9	)		(8.3	)
Tax benefits from domestic manufacturer’s deduction		(0.9	)		(1.7	)		(0.8	)
Research and development credits		(2.9	)		(6.0	)		(3.9	)
Non-deductible IPR&D charges		—			19.2			—
Other		0.1			(0.7	)		0.2
Effective income tax rate		26.5	%		39.2	%		24.3	%

The Company’s 2008 effective tax rate was unfavorably impacted by 19.2 percentage points relating to non-deductible IPR&D charges. The Company’s effective income tax rate is favorably impacted by Puerto Rican tax exemption grants, which result in Puerto Rico earnings being partially tax exempt through the year 2023.

At January 2, 2010, the Company had $55.8 million of U.S. federal net operating and capital loss carryforwards and $0.6 million of U.S. tax credit carryforwards that will expire from 2012 through 2027 if not utilized. The Company also has state net operating loss carryforwards of $22.6 million that will expire from 2012 through 2015 and tax credit carryforwards of $90.9 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 $1,352.6 million of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely.

The Company records all income tax accruals in accordance with ASC Topic 740, Income Taxes. At January 2, 2010, the liability for unrecognized tax benefits was $120.5 million, and the accrual for interest and penalties was $28.3 million. At January 3, 2009, the liability for unrecognized tax benefits was $82.7 million, and the accrual for interest and penalties was $21.7 million. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company recognized interest and penalties, net of tax benefit, of $4.3 million and $2.8 million, during fiscal years 2009 and 2008, respectively. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

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

	2009			2008
Balance at beginning of year	$	82,692		$	95,260
Increases related to current year tax positions		36,327			5,136
Increases related to prior year tax positions		5,303			5,043
Reductions related to prior year tax positions		(586	)		(22,667	)
Reductions related to settlements / payments		(50	)		—
Expiration of the statute of limitations for the assessment of taxes		(3,169	)		(80	)
Balance at end of year	$	120,517		$	82,692

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. Additionally, substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999. The U.S. Internal Revenue Service (IRS) completed an audit of the Company’s 2002-2005 tax returns, and proposed adjustments in its audit report issued in November 2008. The Company intends to vigorously defend its positions and initiated defense of these adjustments at the IRS appellate level in January 2009. An unfavorable outcome could have a material negative impact on the Company’s effective income tax rate in future periods.

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 IRS limitations, with the Company matching a portion of the employees’ contributions. The Company also may contribute 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 $22.2 million, $63.2 million and $54.9 million in 2009, 2008 and 2007, respectively.

The Company also 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 $160 million and $108 million at January 2, 2010 and January 3, 2009, 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 $30.2 million and $25.5 million at January 2, 2010 and January 3, 2009, respectively, which approximated the actuarially calculated unfunded liability. The amount of funded plan assets and the amount of pension expense was not material.

NOTE 12 – FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

The fair value measurement accounting standard, codified in ASC Topic 820, provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available. The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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The categories within the valuation hierarchy are described as follows:

• Level 1 – Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.

• Level 2 – Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

• Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The fair value measurement standard applies to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). These financial assets and liabilities include money-market securities, trading marketable securities, available-for-sale marketable securities and derivative instruments. The Company had previously and will continue to record these items at fair value on a recurring basis; however, the fair value measurements are now applied using ASC Topic 820. The Company does not have any material nonfinancial assets and liabilities that are measured at fair value on a recurring basis. A summary of the valuation methodologies used for the respective financial assets and liabilities measured at fair value is as follows:

Money-market securities: The Company’s money-market securities include funds that are traded in active markets and are recorded at fair value based upon the quoted market prices. The Company classifies these securities as level 1.

Trading securities: The Company’s trading securities include publically-traded mutual funds that are traded in active markets and are recorded at fair value based upon the net asset values of shares. The Company classifies these securities as level 1.

Available-for-sale securities: The Company’s available-for-sale securities include publically-traded equity securities that are traded in active markets and are recorded at fair value based upon the closing stock prices. The Company classifies these securities as level 1.

Derivative instruments: The Company’s derivative instruments consist of foreign currency exchange contracts and interest rate swap contracts. The Company classifies these instruments as level 2 as inputs other than observable quoted market prices are used to determine fair value. These inputs include spot and forward foreign currency exchange rates and interest rates that the Company obtains from standard market data providers. The fair value of the Company’s foreign currency exchange contracts was not material at January 2, 2010 or January 3, 2009.

A summary of financial assets measured at fair value on a recurring basis at January 2, 2010 and January 3, 2009 is as follows (in thousands):

	January 2, 2010		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market securities	$	258,936	$	258,936	$	—	$	—
Trading marketable securities		160,285		160,285		—		—
Available-for-sale marketable securities		31,711		31,711		—		—
Total	$	450,932	$	450,932	$	—	$	—

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	January 3, 2009		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market securities	$	1,474	$	1,474	$	—	$	—
Trading marketable securities		107,913		107,913		—		—
Available-for-sale marketable securities		22,065		22,065		—		—
Total	$	131,452	$	131,452	$	—	$	—
Liabilities
Interest rate swap contracts		658		—		658		—
Total	$	658	$	—	$	658	$	—

The Company’s money market securities are also classified as cash equivalents as the funds are highly liquid investments readily convertible to cash. The Company also had $134.0 million and $134.9 million of cash equivalents invested in short-term time deposits and interest and non-interest bearing bank accounts at January 2, 2010 and January 3, 2009, respectively.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

At the beginning of fiscal year 2009, the fair value measurement standard also applies to certain nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis. For example, certain long-lived assets like intangible assets and property, plant and equipment are measured at fair value in connection with business combinations or when an impairment is recognized and the related assets are written down to fair value. The Company recognized $16.0 million of net identifiable tangible and intangible assets and liabilities recognized in connection with business combinations in fiscal year 2009. There was no material impairments of the Company’s long-lived assets recognized in fiscal year 2009.

The Company also holds investments in equity securities that are accounted for as cost method investments, which are classified as other current assets. The carrying value of these investments approximated $57 million at January 2, 2010 and $50 million at January 3, 2009. These cost method investments are measured at fair value on a nonrecurring basis. The fair value of the Company’s cost method investments is not estimated if there are no identified events or changes in circumstance that may have a significant adverse effect on the fair value of these investments. During 2009, the Company determined that the fair value of a cost method investment was below its carrying value and that the carrying value of the investment would not be recoverable within a reasonable period of time. As a result, the Company recognized an $8.3 million impairment charge in other expense (see Note 9), reducing the $13.5 million carrying value of the investment to $5.2 million. The fair value of this investment was measured using market participant valuations from recent and proposed equity offerings for this company (Level 3).

Prior to adopting the fair value measurement accounting guidance of ASC Topic 820, Company recorded other cost method investment impairment charges in 2008 and 2007 of $12.2 million and $25.1 million, respectively. The Company evaluated the fair values of the related investments and determined that the impairments were other-than-temporary based upon the magnitude and length of time that the investments’ fair values had declined.

Fair Value of Other Financial Instruments

The aggregate fair value of the Company’s 2014 Senior Notes and 2019 Senior Notes at January 2, 2010 (measured using quoted prices in active markets) was $1,216.8 million compared to the aggregate carrying value of $1,193.0 million. The fair value of the Company’s other debt obligations approximated their aggregate $729.4 million carrying value due to the variable interest rate and short-term nature of these instruments.

NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows the provisions of ASC Topic 815 in accounting for and disclosing derivative instruments and hedging activities. All derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recognized in net earnings or other comprehensive income depending on whether the derivative is designated as part of a qualifying hedging transaction. Derivative assets and derivative liabilities are classified as other current assets and other current liabilities, respectively.

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The Company hedges a portion of its foreign currency exchange rate risk through the use of forward exchange contracts. The Company uses forward exchange contracts to manage foreign currency exposures related to intercompany receivables and payables arising from intercompany purchases of manufactured products. These forward contracts are not designated as qualifying hedging relationships under ASC Topic 815. The Company measures its foreign currency exchange contracts at fair value on a recurring basis. The fair value of outstanding contracts was immaterial as of January 2, 2010. During fiscal years 2009 and 2008, the net amount of gains (losses) the Company recorded to other income (expense) for its forward currency exchange contracts not designated as hedging instruments under ASC Topic 815 was a net loss of $6.7 million and a net loss of $7.5 million, respectively. These net losses were almost entirely offset by corresponding net gains on the foreign currency exposures being managed. The Company does not enter into contracts for trading or speculative purposes. The Company’s policy is to enter into hedging contracts with major financial institutions that have at least an “A” (or equivalent) credit rating.

In November 2008, the Company entered into an interest rate swap contract to convert $400.0 million of variable-rate borrowings under the Credit Facility into fixed-rate borrowings (see Note 4). The Company designated this interest rate swap as a cash flow hedge under ASC Topic 815. This contract terminated in February 2009. The ineffective portion of the amount of gains (losses) recognized in net earnings was immaterial. The Company recorded the $0.4 million after-tax loss on the settlement of the interest rate swap contract to interest expense.

NOTE 14 – SEGMENT AND GEOGRAPHIC INFORMATION

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

The Company has aggregated the four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/NMD 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 customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by the Company’s selling and corporate functions, including all stock-based compensation expense, impairment charges, IPR&D charges and special charges 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 trade 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.

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

	CRM/NMD		CV/AF		Other			Total
Fiscal Year 2009
Net sales	$	3,099,800	$	1,581,473	$	—		$	4,681,273
Operating profit		1,931,929		829,966		(1,648,849	)		1,113,046
Depreciation and amortization expense		83,506		45,765		84,194			213,465
Total assets		2,124,534		1,294,009		3,007,268			6,425,811
Fiscal Year 2008
Net sales	$	2,955,603	$	1,407,648	$	—		$	4,363,251
Operating profit		1,824,023		736,979		(1,905,955	)		655,047
Depreciation and amortization expense		93,397		38,743		70,288			202,428
Total assets		2,018,478		1,267,290		2,436,736			5,722,504
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

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

Net Sales	2009		2008		2007
Cardiac rhythm management	$	2,769,034	$	2,701,463	$	2,368,081
Cardiovascular		953,620		862,136		790,630
Atrial fibrillation		627,853		545,512		410,672
Neuromodulation		330,766		254,140		209,894
	$	4,681,273	$	4,363,251	$	3,779,277

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	2009		2008		2007
United States	$	2,468,191	$	2,319,645	$	2,107,015
International
Europe		1,197,912		1,152,601		936,526
Japan		480,897		387,648		321,826
Asia Pacific		254,429		234,073		192,793
Other		279,844		269,284		221,117
		2,213,082		2,043,606		1,672,262
	$	4,681,273	$	4,363,251	$	3,779,277

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The amounts for long-lived assets by significant geographic market include net property, plant and equipment by physical location of the asset. Prior periods have been reclassified to conform to the current year presentation. Long-lived assets by significant geographic market were as follows (in thousands):

Long-Lived Assets	January 2, 2010		January 3, 2009		December 29, 2007
United States	$	876,462	$	775,205	$	602,352
International
Europe		77,790		84,266		84,892
Japan		18,756		16,001		1,774
Asia Pacific		39,946		17,087		7,183
Other		140,132		87,617		80,594
		276,624		204,971		174,443
	$	1,153,086	$	980,176	$	776,795

NOTE 15 – QUARTERLY FINANCIAL DATA (UNAUDITED)

(in thousands, except per share amounts)	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Fiscal Year 2009:
Net sales	$	1,133,793	$	1,184,412	$	1,159,606		$	1,203,462
Gross profit		839,298		878,868		853,875	(a)		855,847	(c)
Net earnings		201,271		219,370		166,935	(b)		189,650	(d)
Basic net earnings per share	$	0.58	$	0.63	$	0.49		$	0.57
Diluted net earnings per share	$	0.58	$	0.63	$	0.48		$	0.57
Fiscal Year 2008:
Net sales	$	1,010,738	$	1,135,760	$	1,084,136		$	1,132,617
Gross profit		750,251		848,069		810,210			784,180	(e)
Net earnings		176,569		192,912		184,696			(201,159	) (f)
Basic net earnings per share	$	0.51	$	0.57	$	0.54		$	(0.58	)
Diluted net earnings per share	$	0.50	$	0.55	$	0.53		$	(0.58	)

(a)	Includes pre-tax special charges of $6.1 million related to initiatives to streamline the Company’s production activities.
(b)	Includes after-tax special charges of $29.4 million related to initiatives to enhance the efficiency and effectiveness of the sales, marketing and customer service operations and to streamline the Company’s production activities; and $2.5 million associated with other unrelated costs. The Company also recorded an after-tax impairment charge of $5.2 million related to a cost method investment deemed to be other-than-temporarily impaired.
(c)	Includes pre-tax special charges of $0.5 million related to initiatives to streamline the Company’s production activities; $17.7 million of inventory obsolescence charges for discontinued products; and $9.4 million of accelerated depreciation charges and write-offs for assets that will no longer be utilized.
(d)	Includes after-tax special charges of $44.5 million, which consist of the following: $22.3 million related to initiatives to enhance the efficiency and effectiveness of the sales, marketing and customer service operations and to streamline the Company’s production activities; $11.3 million of inventory obsolescence charges for discontinued products; $8.7 million of accelerated depreciation charges and write-offs for assets that will no longer be utilized; and $2.2 million associated with contract terminations and other unrelated costs. The Company also recorded after-tax IPR&D charges of $3.7 million related to the Company’s purchase of certain pre-development technology assets.
(e)	Includes pre-tax special charges of $43.5 million associated with the impairment of a license agreement relating to technology no longer fully utilized in the Company’s products; $13.7 million of inventory charges related to the termination of a supply agreement and inventory obsolescence charges associated with a terminated distribution agreement; and $7.4 million related to the Company providing its remote patient monitoring system without charge to existing St. Jude Medical CRM patients.

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(f) Includes $319.4 million of IPR&D charges primarily associated with the acquisition of MediGuide; after-tax special charges of $72.7 million, which consist of the following: $59.3 million primarily associated with the impairment of a technology license agreement and the impairment of purchased technology intangible assets related to the Company’s 2005 Velocimed acquisition; $8.7 million of inventory-related charges; and $4.7 million related to the Company providing its remote patient monitoring system without charge to existing St. Jude Medical CRM patients. Additionally, the Company recorded $22.2 million of after-tax contribution expenses to non-profit organizations including the St. Jude Medical Foundation, and $8.0 million of after-tax investment impairment charges. Partially offsetting these charges to net earnings, the Company recorded an $18.1 million income tax benefit related to the federal research and development tax credit extended in the fourth quarter of 2008 retroactive to the beginning of the year.

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Five-Year Summary Financial Data
(in thousands, except per share amounts)

	2009 (a)			2008 (b)			2007 (c)			2006 (d)			2005 (e)
SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:
Net sales	$	4,681,273		$	4,363,251		$	3,779,277		$	3,302,447		$	2,915,280
Gross profit	$	3,427,888		$	3,192,710		$	2,737,683		$	2,388,934		$	2,118,519
Percent of net sales		73.2	%		73.2	%		72.4	%		72.3	%		72.7	%
Operating profit	$	1,113,046		$	655,047		$	793,503		$	743,083		$	612,730
Percent of net sales		23.8	%		15.0	%		21.0	%		22.5	%		21.0	%
Net earnings	$	777,226		$	353,018		$	537,756		$	539,042		$	393,362
Percent of net sales		16.6	%		8.1	%		14.2	%		16.3	%		13.5	%
Diluted net earnings per share	$	2.26		$	1.01		$	1.53		$	1.45		$	1.04
FINANCIAL POSITION AT YEAR END:
Cash and cash equivalents	$	392,927		$	136,443		$	389,094		$	79,888		$	534,568
Working capital (f)		1,492,893			1,051,539			278,954			1,013,958			406,759
Total assets		6,425,811			5,722,504			5,329,404			4,789,794			4,844,840
Total debt (g)		1,922,402			1,201,602			1,338,018			859,137			1,038,397
Shareholders’ equity	$	3,323,551		$	3,235,906		$	2,959,319		$	2,969,226		$	2,892,250
OTHER DATA:
Diluted weighted average shares outstanding		344,359			349,722			352,444			372,830			379,106

Fiscal year 2008 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 2005 through 2009.

(a)	Results for 2009 include after-tax special charges of $76.4 million, an after-tax investment impairment charge of $5.2 million and after-tax IPR&D charges of $3.7 million. The impact of these items on 2009 net earnings was $85.3 million, or $0.25 per diluted share. See Notes to the Consolidated Financial Statements in the Financial Report for further detail.
(b)	Results for 2008 include $319.4 million of IPR&D charges, after-tax special charges of $72.7 million and after-tax investment impairment charges of $8.0 million. The impact of these items on 2008 net earnings was $400.1 million, or $1.15 per diluted share. See Notes to the Consolidated Financial Statements in the Financial Report for further detail.
(c)	Results for 2007 include after-tax special charges of $77.2 million and an after-tax investment impairment charge of $15.7 million. The impact of these items on 2007 net earnings was $92.9 million, or $0.26 per diluted share. See Notes to the Consolidated Financial Statements in the Financial Report for further detail.
(d)	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.
(e)	Results for 2005 include after-tax IPR&D charges of $179.2 million, or $0.47 per diluted share.
(f)	Total current assets less total current liabilities. Working capital fluctuations can be significant based on the maturity dates of the Company’s debt obligations.
(g)	Total debt consists of current debt obligations and long-term debt.

54

Cumulative Total Shareholder Returns
(in dollars)

The graph compares the cumulative total shareholder returns for St. Jude Medical common stock for the last five fiscal years with the Standard & Poor’s 500 Health Care Equipment Index and the Standard & Poor’s 500 Index weighted by market value at each measurement point. The comparison assumes that $100 was invested on December 31, 2004, in St. Jude Medical common stock and in each of these Standard & Poor’s indexes and assumes the reinvestment of any dividends.

55

Stock 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:

Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
1.800.468.9716
wellsfargo.com/shareownerservices
Hearing Impaired #TDD: +1 651 450 4144

Annual Meeting of Shareholders
The annual meeting of shareholders will be held at 8:30 a.m. Central time on Friday, May 7, 2010, at the Minnesota History Center, 345 Kellogg Boulevard West, St. Paul, Minnesota, 55102.

Investor Contact
To obtain information about the Company, call +1 800 328 9634, visit St. Jude Medical’s Web site, sjm.com, or write to:

Investor Relations
St. Jude Medical, Inc.
One St. Jude Medical Drive
St. Paul, Minnesota 55117

The Investor Relations (IR) section on St. Jude Medical’s Web site includes all SEC filings, a list of analysts who cover the Company, webcasts and presentations, financial information and a calendar of upcoming earnings announcements and IR events.

Company Stock Splits
2:1 on 6/15/79, 3/12/80, 9/30/86, 3/15/89, 4/30/90, 6/28/02 and 11/22/04.
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 2009 and 2008 is set forth below. As of February 19, 2010, the Company had 2,363 shareholders of record.

	Fiscal Year
	2009				2008
Quarter	High		Low		High		Low
First	$	39.55	$	28.86	$	44.65	$	38.51
Second	$	41.96	$	32.57	$	45.77	$	39.58
Third	$	40.16	$	35.73	$	48.49	$	40.06
Fourth	$	38.82	$	31.66	$	44.04	$	24.98

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

EX-21

Exhibit 21

ST. JUDE MEDICAL, INC.
SUBSIDIARIES OF THE REGISTRANT
as of January 2, 2010

St. Jude Medical, Inc. Wholly Owned Subsidiaries:

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

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

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

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

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

- Beijing, Shanghai and Guangzhou representative offices

• 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)

- EP MedSystems France. (French corporation)

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

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

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

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

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

• SJ Medical Mexico, S. de R.L. de C.V. (Mexican corporation)

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

• Advanced Neuromodulation Systems, Inc. – Plano, Texas (Texas Corporation) (dba St. Jude Medical Neuromodulation Division)

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

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

- Tokyo, Japan branch

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

• SJM Delaware Holding, LLC - St. Paul, Minnesota (Delaware Limited Liability Company)

• St. Jude Medical Bermuda GP (Bermuda partnership) (SJM International, Inc. is the majority partner and SJM Delaware Holding LLC is the minority partner)

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

- U.S. Branch of St. Jude Medical Luxembourg Holding S.à r.l.

- MediGuide, LLC (Delaware limited liability company)

- MediGuide Ltd. (Israeli corporation)

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

- St. Jude Medical Puerto Rico LLC (Puerto Rican corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg Holding S.à r.l.)

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

- St. Jude Medical Systems AB (formerly Radi Medical Systems AB) (Swedish corporation)

- Radi Medical Systems Ltd. (United Kingdom corporation)

- Radi Medical Systems Pty. Ltd. (Australian corporation)

- Radi Medical Systems Co., Ltd. (Thai corporation)

- Radi Medical Systems Pte., Ltd. (Singaporean corporation)

- HB Betakonsult (Swedish partnership) (St. Jude Medical AB holds a 99% interest and St. Jude Medical Systems AB holds a 1% interest)

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

- Cardio Life Research S.A. (Belgian corporation)

- St. Jude Medical Operations (Malaysia) Sdn. Bhd. (Malaysian corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg Holding S.à r.l.)

- St. Jude Medical Costa Rica Limitada (Costa Rica corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg Holding S.à r.l.)

- St. Jude Medical Holdings B.V. (Netherlands corporation) (wholly owned subsidiary of St. Jude Medical Luxembourg Holding 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)

- 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 March 2, 2010, 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 2009 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 March 2, 2010, 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. 333-160726) and Form S-8 (Nos. 33-54435, 333-42945, 333-42668, 333-96697, 333-130180, 333-136398, 333-143090, 333-149440 and 333-150839) of St. Jude Medical, Inc. of our reports dated March 2, 2010, 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, Minnesota
March 2, 2010

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 January 2, 2010, 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 26^th day of February, 2010, by the following persons.

	/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/ WENDY L. YARNO
John W. Brown	Wendy L. Yarno
Director	Director
/s/ RICHARD R. DEVENUTI
Richard R. Devenuti
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: March 2, 2010

/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: March 2, 2010

/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 January 2, 2010 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

March 2, 2010

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 January 2, 2010 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

March 2, 2010