10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR

____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________.

Commission File No. 0-8672
______________________________

ST. JUDE MEDICAL, INC.
(Exact name of Registrant as specified in its charter)

Minnesota	41-1276891
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Lillehei Plaza
St. Paul, Minnesota 55117
(Address of principal executive offices)

(651) 483-2000
(Registrant's telephone number, including area code)
______________________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
______________________________

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months; and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes __X__ No _____

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $10.6 billion at June 27, 2003 (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 $58.57 per share.

The Registrant had 175,022,856 shares of its $0.10 par value Common Stock outstanding as of March 1, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, are incorporated by reference into Parts I and II. Portions of the Company's definitive proxy statement dated March 30, 2004, are incorporated by reference into Part III.

TABLE OF CONTENTS

ITEM	DESCRIPTION	PAGE
PART I
1.	Business	1
2.	Properties	11
3.	Legal Proceedings	12
4.	Submission of Matters to a Vote of Security Holders	16
4A.	Executive Officers of the Registrant	16
PART II
5.	Market for Registrant’s Common Equity and Related
	Stockholder Matters	18
6.	Selected Financial Data	18
7.	Management’s Discussion and Analysis of Financial Condition and     Results of Operations	18
7A.	Quantitative and Qualitative Disclosures About Market Risk	19
8.	Financial Statements and Supplementary Data	19
9.	Changes in and Disagreements with Accountants on Accounting     and Financial Disclosure	19
9A.	Controls and Procedures	19
PART III
10.	Directors and Executive Officers of the Registrant	20
11.	Executive Compensation	20
12.	Security Ownership of Certain Beneficial Owners and Management     and Related Stockholder Matters	20
13.	Certain Relationships and Related Transactions	20
14.	Principal Accountant Fees and Services	20
PART IV
15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	21
	Signatures	26

PART I

Item 1. BUSINESS

General

        St.Jude Medical, Inc., together with its subsidiaries (collectively St. Jude, St. Jude Medical or the Company) develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management (CRM), cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas. The Company’s principal products in each of these therapy areas are follows:

CRM

o bradycardia pacemaker systems (pacemakers),

o tachycardia implantable cardioverter defibrillator systems (ICDs), and

o electrophysiology (EP) catheters

CS

o mechanical and tissue heart valves, and

o valve repair products

C/VA

o vascular closure devices,

o angiography catheters,

o guidewires, and

o hemostasis introducers

        The Company markets and sells its products through both a direct sales force and independent distributors. The principal geographic markets for the Company’s products are the United States, Europe and Japan. St. Jude also sells its products in Canada, Latin America, Australia, New Zealand and the Asia-Pacific region.

        On April 1, 2003, the Company completed its acquisition of Getz Bros. Co., Ltd. (Getz Japan), a distributor of medical technology products in Japan and the Company’s largest volume distributor in Japan. The Company paid 26.9 billion Japanese Yen in cash to acquire 100% of the outstanding common stock of Getz Japan. Net consideration paid was $219.2 million, which includes closing costs less $12.0 million of cash acquired.

        On April 1, 2003, the Company also acquired the net assets of Getz Bros. & Co. (Aust) Pty. Limited and Medtel Pty. Limited related to the distribution of the Company’s products in Australia for $6.2 million in cash, including closing costs.

        In May 2003, the Company made a $15 million minority investment in Epicor Medical, Inc. (Epicor), a development stage company focused on developing products which use high intensity focused ultrasound (HIFU) to ablate cardiac tissue. In conjunction with this investment, the Company also agreed to acquire the remaining ownership of Epicor in 2004 for an additional $185 million in cash if Epicor receives approval from the U.S. Food and Drug Administration (FDA) by June 30, 2004 to begin marketing its device to ablate cardiac tissue and if Epicor achieves certain success criteria, as defined in the purchase agreement, in connection with its European clinical study. In addition, the Company has an option to purchase the remaining ownership of Epicor for $185 million even if FDA approval is not received and the success criteria are not achieved. This option to purchase Epicor expires on June 30, 2004.

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        The Company has two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery (CRM/CS) segment and the Daig segment, which focus on the development and manufacture of the Company’s products. The primary products produced by each segment are: CRM/CS — pacemaker and ICD systems, mechanical and tissue heart valves and other cardiac surgery products; Daig — electrophysiology catheters, vascular closure devices and other cardiology and vascular access products.

        The Company’s reportable segments include end customer revenues from the sale of products they each develop and manufacture. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end customers and operating expenses managed by each of the segments. Certain costs of goods sold and operating expenses managed by the Company’s selling and corporate functions are not included in segment operating profit. Consequently, segment operating profit presented below is not representative of the operating profit of the Company’s products in these segments.

        The following table presents certain financial information about the Company’s reportable segments (in thousands):

	CRM/CS		Daig		Other			Total
Fiscal Year Ended December 31, 2003
Net sales	$	1,499,425	$	366,433	$	66,656		$	1,932,514
Operating profit(a)		873,904		202,007		(619,966	)		455,945
Total assets		639,724		147,270		1,769,100			2,556,094
Fiscal Year Ended December 31, 2002
Net sales	$	1,305,750	$	284,179	$	–		$	1,589,929
Operating profit(a)		713,341		149,592		(492,978	)		369,955
Total assets		723,414		134,610		1,093,355			1,951,379
Fiscal Year Ended December 31, 2001(b)
Net sales	$	1,135,833	$	211,523	$	–		$	1,347,356
Operating profit(a)		583,030		105,947		(453,161	)		235,816

(a) Other operating profit includes certain costs of goods sold and operating expenses managed by the Company's selling and corporate functions. In fiscal year 2001, other also includes special charges and purchased in-process research and development charges.

(b) During 2001, the Company completed a reorganization of its global sales activities, which resulted in changes to its internal management and financial reporting structure. Due to this restructuring, information relating to 2001 total assets has not been compiled as it is impracticable to do so.

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        Net sales by class of similar products were as follows (in thousands):

Net Sales		2003		2002		2001
Cardiac rhythm management	$	1,365,212	$	1,147,489	$	965,968
Cardiac surgery		270,933		250,957		248,045
Cardiology and vascular access		296,369		191,483		133,343
	$	1,932,514	$	1,589,929	$	1,347,356

The following tables present certain geographical information (in thousands):

Net Sales (a)		2003		2002		2001
United States	$	1,129,055	$	1,042,766	$	880,086
International
Europe		465,369		347,936		294,852
Japan		207,431		95,813		83,361
Other(b)		130,659		103,414		89,057
Total International		803,459		547,163		467,270
	$	1,932,514	$	1,589,929	$	1,347,356

Long-Lived Assets (c)		2003		2002		2001
United States	$	744,445	$	674,119	$	626,140
International
Europe		96,520		88,194		76,542
Japan		152,772		267		46
Other		70,020		62,213		61,215
Total International		319,312		150,674		137,803
	$	1,063,757	$	824,793	$	763,943

(a) Net sales are attributed to geographies based on location of the customer.

(b) No one geographic market is greater than 2% of consolidated net sales.

(c) Long-lived assets exclude deferred income taxes.

    St Jude was incorporated in Minnesota in 1976.

Principal Products

        Cardiac Rhythm Management: The Company’s pacemaker systems treat patients with hearts that beat too slowly, a condition known as bradycardia. Typically implanted pectorally, just below the collarbone, pacemakers monitor the heart’s rate and, when necessary, deliver low-level electrical impulses that stimulate an appropriate heartbeat. The pacemaker is connected to the heart by one or two leads that carry the electrical impulses to the heart and information from the heart back to the pacemaker. An external programmer enables the physician to retrieve diagnostic information from the pacemaker and reprogram the pacemaker in accordance with the patient’s changing needs. Single-chamber pacemakers stimulate only one chamber of the heart (atrium or ventricle), while dual-chamber devices can sense and pace in both the upper and lower chambers.

        St. Jude Medical’s current pacing products include the new Team ADx™ pacemakers, a group comprised of the Identity® ADx, Integrity® ADx, and Verity™ ADx families of devices. The Identity® DR and Identity® XL DR devices were approved by the FDA in March 2003, with the rest of the Team

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ADx™ devices receiving FDA approval in May 2003. The Team ADx devices received European CE Marking in August 2003. The Identity® ADx family models maintain the therapeutic advancements of previous St. Jude Medical pacemakers, including the AF Suppression™ algorithm and the Beat-by-Beat™ AutoCapture™ Pacing System. This family offers new AT/AF arrhythmia diagnostics and dual-channel stored electrograms. The new Integrity® ADx devices also offer dual-channel stored electrograms. These features are designed to help physicians better manage pacemaker patients suffering from atrial fibrillation (AF)—the world’s most common cardiac arrhythmia.

        St. Jude Medical also offers the Identity^®and Identity^® µ (Micro) pacemakers with stored electrograms; and Integrity^®and Integrity^® µ (Micro) pacemaker models, which build on the Affinity^®platform with its Beat-by-Beat™ AutoCapture™ Pacing System. Other pacing products include the Affinity^®pacemakers; the Entity^®family of pacemakers, containing the Omnisense^® activity-based sensor; and the Tempo^®pacemaker family, which uses fifth-generation Minute Ventilation sensor technology. These pacemaker families contain many advanced features and diagnostic capabilities to optimize cardiac therapy. All are small and physiologic in shape to enhance patient comfort. The Microny^®II SR+ and Microny^® K, the world’s smallest pacemakers, are single-chamber pacemakers available in the United States. Other single-chamber pacemakers, the Microny^®SR+ and the Regency^®pacemaker families, are also available outside the United States.

        The Identity^® ADx, Integrity® ADx, Verity™ ADx, Identity^®, Integrity^®, Affinity^®, Entity^® and Regency^® families of pacemakers, as well as the Microny^® SR+ pacemaker, all 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), deliver a back-up pulse in the event of noncapture, continuously measure threshold, and make adjustments in energy output to match changing patient needs. In addition, the Identity^® ADx, Integrity® ADx, Identity^® and Integrity^® pacemakers include St. Jude Medical’s AF Suppression™ Algorithm, a therapy designed to suppress atrial fibrillation.

        Outside the United States, St. Jude Medical also markets low voltage device-based ventricular resynchronization systems designed for the treatment of HF and suppression of atrial fibrillation. These device systems include the Frontier™ 3x2 stimulation device, designed to enhance cardiac function by resynchronizing the contractions of the heart’s two ventricles, the Aescula™ and Quicksite™ LV pacing leads, and the Alliance™, Seal-Away™CS and Apeel™ Catheter Delivery Systems.

        St. Jude Medical’s current pacing leads include the Tendril® SDX (models 1688 and 1488), and Tendril® DX active-fixation lead families, and the IsoFlex™ S and Passive Plus DX passive-fixation lead families, all available worldwide. The Tendril® SDX model 1688T lead received European CE Marking and FDA approval in July 2003. The IsoFlex™ S lead received FDA approval in April 2003. All these lead families feature steroid elution, which helps suppress the body’s inflammatory response to a foreign object. The passive fixation Membrane® EX lead family is also currently available outside the United States.

        ICD systems treat patients with hearts that beat inappropriately fast, a condition known as tachycardia. ICDs monitor the heartbeat and deliver higher energy electrical impulses, or “shocks,” to terminate ventricular tachycardia (VT) and ventricular fibrillation (VF). In VT, the lower chambers of the heart contract at an abnormally rapid rate and typically deliver less blood to the body’s tissues and organs. VT can progress to VF, in which the heart beats so rapidly and erratically that it can no longer pump blood. Like pacemakers, ICDs are typically implanted pectorally, connected to the heart by leads, and programmed non-invasively.

        The Company’s full ICD product offering includes the Epic™+ VR/DR and Epic™ VR/DR ICDs, the Atlas®+ VR/DR and Atlas® VR/DR ICDs, Photon® µ (Micro) DR/VR ICD, Photon® DR ICD, and Contour® MD ICD. St. Jude Medical received FDA approval and European CE Marking of

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the Epic™+ VR/DR ICDs in April 2003, and FDA approval and European CE Marking of the Atlas®+ VR/DR ICDs in October 2003. The Epic™ ICD family devices are very small ICDs that deliver 30 joules of energy. The Atlas® ICD family devices offer high energy and small size without compromising charge times, longevity or feature set flexibility. The Epic™+ DR ICD and the Atlas®+ DR ICD both contain St. Jude Medical’s AF Suppression™ algorithm, which is clinically proven to reduce AF burden.

        The Company’s ICDs are used with the single- and dual-shock electrode Riata® defibrillation leads, dual-shock electrode SPL® leads, and single-shock electrode TVL® and TVL®-ADX (active fixation) transvenous leads. The Riata® single-shock electrode lead received European CE Marking in February 2003 and was FDA approved in March 2003. The Riata® leads are an advanced family of small-diameter, steroid-eluting, active or passive fixation defibrillation leads.

        In December 2003, St. Jude Medical announced that it filed with the FDA the final module in support of its pre-market approval (PMA) application for the following products: the Epic™ HF ICD, the Atlas®+ HF ICD, the Aescula™ 1055K left-heart lead and the QuickSite™ 1056K left-heart lead.  The Company currently anticipates FDA approval of these products during the second quarter of 2004. St. Jude received European CE Marking for the QuickSite™ left-ventricular lead in August 2003 and for its Atlas®+ HF ICD in October 2003. The Atlas®+ HF ICD offers 36 joules of delivered energy, and is designed to treat patients suffering from heart failure (HF) who are also at risk of dangerously fast heart rhythms. HF impairs the heart’s ability to pump blood efficiently, causing shortness of breath, fatigue, swelling and other debilitating symptoms.

        The Company’s pacemakers and ICDs interact with an external device referred to as a programmer. A programmer has two general functions. First, a programmer is used at the time of pacemaker and ICD implants to establish the initial therapeutic settings of these devices as determined by the physician. A programmer is also used for follow-up patient visits, which usually occur every three to 12 months, to download stored diagnostic information from the implanted devices and to verify appropriate therapeutic settings.

        Programmers are small and mobile, and are maintained predominantly by the Company's sales representatives at their homes and transported to the hospitals in their vehicles when either implants or follow-up visits are scheduled. In these cases, the Company's sales representatives are on site at the hospitals to assist the physicians and nurses or technicians in operating the programmers at the time of patient implants or follow-up visits. Programmers are alternatively stored at high-volume cardiac centers as a matter of convenience.

        Since the introduction of programmable pacemakers in about 1977, all pacemaker manufacturers, including the Company, have retained title to their programmers which are used by their field sales force or by physicians and nurses or technicians. Although the Company derives no direct revenue from the use of its programmers, new pacemakers and ICDs generally require the use of the Company’s programmer at the time of implant and follow-up.

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

        Electrophysiology is the study of the electrical activity of the heart, which controls the heart rhythm. EP catheters are placed into the human body percutaneously (through the skin) to aid in the diagnosis and treatment of cardiac arrhythmias (abnormal heart rhythms). Between two and five EP catheters are generally used in each electrophysiology procedure. St. Jude’s EP catheters are available in multiple configurations.

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        St. Jude’s Supreme^™ and Response^™ fixed-curve catheter product lines consist of mapping catheters for the diagnosis of various cardiac arrhythmias, including a line of 4 French Supreme™diagnostic catheters for standard mapping applications. St. Jude also offers Livewire^™ and Reflexion™ steerable catheters with deflectable tips that are used in a wide variety of diagnostic and therapeutic EP procedures, including AF procedures. Finally, St. Jude offers Livewire TC^™ ablation catheters used in therapeutic radio frequency (RF) ablation procedures.

        Cardiac Surgery: Heart valve replacement or repair may be necessary because the natural heart valve has deteriorated due to congenital defects or disease. Heart valves facilitate the one-way flow of blood in the heart and prevent significant backflow of blood into the heart and between the heart’s chambers. St. Jude offers both mechanical and tissue replacement heart valves and valve repair products. The St. Jude Medical^® mechanical heart valve has been implanted in over 1.4 million patients worldwide. The SJM Regent™ mechanical heart valve was approved for sale in Europe in December 1999 and received FDA approval for U.S. market release in March 2002. In the United States, the Company markets the Toronto SPV^® stentless tissue valve, which received FDA approval in 1997. Outside the United States, the Company markets the SJM Epic™ stented tissue heart valve, the SJM Biocor™ stented tissue valve, the Toronto SPV^® stentless tissue valve and the Toronto Root™ tissue valve. The Toronto Root™ tissue valve is a stentless aortic root bioprosthesis used when aortic root disease accompanies valve disease. The Toronto Root™ tissue valve is currently in U.S. and Canadian clinical studies. The SJM Epic™ and SJM Biocor™ stented tissue heart valves are also currently in U.S. clinical studies. St. Jude anticipates FDA approval of the SJM Biocor™ tissue valve by the end of 2004.

        The Company also offers a line of heart valve repair products including the semi-rigid SJM^® Séguin annuloplasty ring and the fully flexible SJM Tailor™ annuloplasty ring. Annuloplasty rings are prosthetic devices used to repair diseased or damaged mitral heart valves.

        In addition to prosthetic heart valves, St. Jude markets the Symmetry™ Bypass System Aortic Connector (the Aortic Connector), a suture-free device to facilitate coronary artery bypass graft aortic anastomoses. St. Jude began marketing this product in Western Europe in 2000, in the United States during May 2001, and in Japan during February 2002.

        Cardiology and Vascular Access: The Company produces specialized disposable cardiovascular devices, including vascular closure devices, angiography catheters, bipolar temporary pacing catheters, percutaneous catheter introducers and diagnostic guidewires.

        The Company’s vascular closure devices are used to close femoral artery puncture wounds following angioplasty, stenting and diagnostic procedures. St. Jude Medical’s newest vascular closure product, the Angio-Seal™ STS Plus, was launched globally in the third quarter of 2003. The Angio-Seal™ STS Plus model has incorporated improvements to the STS Platform device design to provide customers a device which provides optimal product performance, reliability and ease of use. The design changes include a newly designed arteriotomy locator that provides a smooth transition from locator to insertion sheath, newly positioned blood inlet holes that eliminate the insertion sheath tip from having to exit and re-enter the arteriotomy site and a new lock-in hub design. The design still incorporates many of the design features of the STS Platform, including the self-tightening suture, which eliminates the need for a post-placement spring, allowing for completion of the entire procedure in the catheterization lab. It also integrates the Secure-Cap™, which facilitates proper deployment through audible, tactile and visual confirmations during the closure process.

        Angiography catheters, such as St. Jude’s Spyglass™ angiography catheters, are used in coronary angiography procedures to obtain images of coronary arteries to identify structural cardiac diseases. St. Jude’s bipolar temporary pacing catheters are inserted percutaneously for temporary use (ranging from less than one hour to a maximum of one week) with external pacemakers to provide patient stabilization prior to implantation of a permanent pacemaker, following a heart attack, or during surgical procedures.

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The Company produces and markets several designs of bipolar temporary pacing catheters, including its Pacel™ biopolar pacing catheters, which are available in both torque control and flow-directed models with a broad range of curve choices and electrode spacing options.

        Percutaneous catheter introducers are used to create passageways for cardiovascular catheters from outside the human body through the skin into a vein, artery or other location inside the body. St. Jude’s percutaneous catheter introducer products consist primarily of peel-away and non peel-away sheaths, sheaths with and without hemostasis valves, dilators, guidewires, repositioning sleeves and needles. These products are offered in a variety of sizes and packaging configurations. The Ultimum^TM EV introducer, launched in the third quarter of 2003, is the latest introducer offered from St. Jude Medical. These introducers are intended for use during endovascular Abdominal Aortic Aneurysm (AAA) repair procedures in the deployment of stent-graft devices. Diagnostic guidewires, such as St. Jude’s GuideRight™ and HydroSteer™ guidewires, are used in conjunction with percutaneous catheter introducers to aid in the introduction of intravascular catheters. St. Jude’s diagnostic guidewires are available in multiple lengths and incorporate a surface finish for lasting lubricity.

Suppliers

        St. Jude purchases raw materials and other products from numerous suppliers. The Company’s manufacturing requirements comply with the rules and regulations of the FDA, which mandates extensive testing and validation of materials prior to use in the Company’s products. St. Jude maintains a one to three year supply for a small number of sole-sourced inventory items used in certain cardiac surgery products where it would be difficult to quickly establish additional or replacement vendors due to these requirements. St. Jude has been advised periodically by some suppliers that they may terminate sales of products to customers that manufacture implantable medical devices in an effort to reduce their potential product liability exposure. Some of these suppliers have modified their positions and have indicated a willingness to temporarily continue to provide product until an alternative vendor or product can be qualified, or to reconsider the supply relationship. While the Company believes that alternative sources of raw materials are available and that there is sufficient lead time in which to qualify other sources, any supply interruption could have a material adverse effect on the Company’s ability to manufacture its products.

Competition

        The medical technology industry is highly competitive and is characterized by rapid product development and technological change. Within the medical technology industry, competitors range from small start-up companies to companies with significant resources. The Company’s customers consider many factors when choosing supplier partners, including product reliability, clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer. St. Jude believes that it competes on the basis of all these factors. Market share can shift as a result of technological innovation, product recalls and product safety alerts and other business factors. As a result, the Company has a need to provide the highest quality products and services. St. Jude expects the competition to continue to increase with the use of tactics such as consigned inventory, bundled product sales and reduced pricing.

        St. Jude is one of the three principal manufacturers and suppliers in the global bradycardia pacemaker market, with strong bradycardia market share in all major developed geographies. The Company’s primary competitors in this market are Medtronic, Inc. and Guidant Corporation. St. Jude is also one of three principal manufacturers and suppliers in the highly competitive global ICD market. The Company’s other two competitors, Medtronic, Inc. and Guidant Corporation, account for more than 80% of the worldwide ICD sales. These two competitors are larger than St. Jude and have invested substantial amounts in ICD research and development.

        St. Jude is the world’s leading manufacturer and supplier in the mechanical heart valve market, which includes two other principal manufacturers and suppliers (Carbomedics (a Sorin Group company)

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and ATS Medical, Inc.) and several smaller manufacturers. The Company also competes against two principal tissue heart valve manufacturers (Edwards Lifesciences Corporation and Medtronic, Inc.) and many other smaller manufacturers.

        The global cardiology and vascular access therapy area is growing and has numerous competitors. Over 70% of the Company’s sales in this area are from vascular closure devices. St. Jude currently holds the number one market position in the highly competitive vascular closure device market. Other vascular closure device competitors include Abbott Laboratories, Datascope Corp. and Vascular Solutions, Inc. We anticipate other large companies will enter this market in the coming years, which will likely increase competition.

Marketing

        The Company’s products are sold in more than 120 countries throughout the world. No distributor organization or single customer accounted for more than 10% of 2003, 2002 or 2001 consolidated net sales.

        In the United States, St. Jude sells directly to hospitals primarily through a direct sales force. In Europe, the Company has direct sales organizations selling in 15 countries. In Japan, the Company sells directly to hospitals through a direct sales force due to its acquisition of Getz Japan on April 1, 2003, and also continues to use longstanding independent distributor relationships. Throughout the rest of the world the Company uses a combination of independent distributors and direct sales forces.

        Group purchasing organizations (GPOs) and independent delivery networks (IDNs) in the United States continue to consolidate purchasing decisions for some of the Company’s hospital customers. The Company has contracts in place with many of these organizations. In some circumstances, the inability of the Company to obtain a contract with a GPO or IDN could adversely affect the Company’s efforts to sell its products to that organization’s hospitals.

        Payment terms worldwide are consistent with local country practices. In some developed markets and in many emerging markets, payment terms are typically longer than those in the United States. Orders are shipped as they are received and, therefore, no material backlog exists.

Seasonality

        The Company’s quarterly net sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals, patient holiday schedules and other factors. Net sales in the third quarter are typically lower than the other quarters of the year as a result of patient tendencies to defer, if possible, cardiac procedures during the summer months and from the seasonality of the U.S. and European markets, where summer vacation schedules normally result in fewer surgical procedures. Independent distributors may also place large orders that can distort the net sales patterns.

Research and Development

        The Company is focused on the development of new products and on improvements to existing products. Research and development expense reflects the cost of these activities, as well as the costs to obtain regulatory approvals of certain new products and processes and to maintain the highest quality standards with respect to existing products. The Company’s research and development expenses were $241.1 million (12.5% of net sales) in 2003, $200.3 million (12.6% of net sales) in 2002 and $164.1 million (12.2% of net sales) in 2001. Research and development expense for 2001 excludes $10 million of purchased in-process research and development charges relating to the acquisition of Vascular Science, Inc. in September 1999.

Government Regulation

        The medical devices manufactured and marketed by the Company are subject to regulation by the FDA and foreign governmental authorities or their designated representatives. Under the U.S. Federal

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Food, Drug and Cosmetic Act (FFDCA) and associated regulations, manufacturers of medical devices must comply with certain policies and procedures that regulate the composition, labeling, testing, manufacturing, packaging and distribution of medical devices. Medical devices are subject to different levels of government approval requirements. The most comprehensive level requires the completion of an FDA-approved clinical evaluation program and submission and approval of a PMA application before a device may be commercially marketed. The Company’s mechanical and tissue heart valves, ICDs, certain pacemakers and leads, and certain electrophysiology catheter applications are subject to this level of approval or as a supplement to a PMA. Other pacemakers and leads, annuloplasty ring products and other electrophysiology and cardiology products are currently marketed under the less rigorous 510(k) pre-market notification procedure of the FFDCA.

        In addition, the FDA may require testing and surveillance programs to monitor the effects of approved products that have been commercialized, and it has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA also conducts inspections prior to approval of a PMA to determine compliance with the quality system regulations that cover manufacturing and design. At any time after approval of a PMA or granting of a 510(k), the FDA may conduct periodic inspections to determine compliance with both quality system regulations and/or current medical device reporting regulations. If the FDA were to conclude that St. Jude is not in compliance with applicable laws or regulations, it could institute proceedings to detain or seize products, issue a recall, impose operating restrictions, assess civil penalties and recommend criminal prosecution to the U.S. Department of Justice. Furthermore, the FDA could proceed to ban a device, or request recall, repair, replacement or refund of the cost of any device previously manufactured or distributed.

        The FDA also regulates recordkeeping for medical devices and reviews hospital and manufacturers’ required reports of adverse experiences to identify potential problems with FDA- authorized devices. Regulatory actions may be taken by the FDA due to adverse experience reports.

        Diagnostic-related groups (DRG) reimbursement schedules regulate the amount the U.S. government, through the Centers for Medicare and Medicaid Services, will reimburse hospitals and doctors for the inpatient care of persons covered by Medicare. In response to rising Medicare and Medicaid costs, several legislative proposals are under consideration that would restrict future funding increases for these programs. Changes in current DRG reimbursement levels could have an adverse effect on the Company’s domestic pricing flexibility.

        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, in December 2000, the U.S. Department of Health and Human Services published patient privacy rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule). This regulation was finalized in October 2002. The HIPAA privacy rule governs the use and disclosure of protected health information by “covered entities,” which are health care providers that submit electronic claims, health plans and health care clearinghouses. Other than to the extent the Company self-insures part of its employee health benefits plans, the HIPAA privacy rule affects the Company only indirectly. The Company’s policy is to maintain patients’ privacy and work with customers and business partners in their HIPAA compliance efforts.

        St. Jude’s international business is subject to medical device laws in individual countries outside the United States. These laws range from extensive device approval requirements in some countries for all or some of the Company’s products, to requests for data or certifications in other countries. Generally, international regulatory requirements are increasing. In the European Union, the regulatory systems have been consolidated, and approval to market in all European Union countries (represented by the CE Mark) can be obtained through one agency. In addition, initiatives to limit the growth of healthcare costs, including price regulation, are also underway in other countries in which we do business. Implementation

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of healthcare reforms in significant markets such as Japan, Germany and other countries may limit the price of, or the level at which reimbursement is provided for, our products.

        Some medical device regulatory agencies have begun considering whether to continue to permit the sale of medical devices that incorporate any bovine material because of concerns about Bovine Spongiform Encephalopathy (BSE), sometimes referred to as “mad cow disease.” It is believed that in some instances this disease has been transmitted to humans through the consumption of beef. There have been no reported cases of transmission of BSE through medical products. Some of the Company’s products (Angio-Seal™ and vascular grafts) use bovine collagen, which is derived from the bovine component scientifically rated as least likely to transmit the disease. Some of the Company’s tissue heart valves incorporate bovine pericardial material. The Company is cooperating with the regulatory agencies considering these issues.

Patents and Licenses

        The Company’s policy is to protect its intellectual property rights related to its medical devices. Where appropriate, St. Jude applies for U.S. and foreign patents. In those instances where the Company has acquired technology from third parties, it has sought to obtain rights of ownership to the technology through the acquisition of underlying patents or licenses.

        While the Company believes design, development, regulatory and marketing aspects of the medical device business represent the principal barriers to entry, it also recognizes that the Company’s patents and license rights may make it more difficult for competitors to market products similar to those produced by the Company. St. Jude can give no assurance that any of its patent rights, whether issued, subject to license, or in process, will not be circumvented or invalidated. Furthermore, there are numerous existing and pending patents on medical products and biomaterials. There can be no assurance that the Company’s existing or planned products do not or will not infringe such rights or that others will not claim such infringement. No assurance can be given that the Company will be able to prevent competitors from challenging the Company’s patents or entering markets currently served by the Company.

Insurance

        The Company operates in an industry that is susceptible to significant product liability claims. These claims may be brought by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class. In addition, product liability claims may be asserted against the Company in the future, relative to events that are not known to management at the present time. As a result of the catastrophic events of September 11, 2001, enormous losses were sustained by property and casualty insurers which substantially reduced their capacity and/or willingness to provide future insurance coverage. Consequently, since 2001 the Company’s product liability insurance premiums have increased over 450% and the total coverage has been reduced. The Company’s current product liability policy (for the period April 1, 2003 through March 31, 2004) provides $200 million of insurance coverage, with a $50 million deductible per occurrence. In light of the significant self-insured retention, St. Jude’s product liability insurance coverage is designed to help protect the Company against a catastrophic claim.

        California earthquake insurance is currently difficult to procure, extremely costly, and restrictive in terms of coverage. The Company’s earthquake and related business interruption insurance for its CRM operations located in Sylmar and Sunnyvale, California provides $25 million of insurance coverage, with a deductible equal to 5% of the total value of the facility and contents involved in the claim. Several factors preclude the Company from determining the effect an earthquake may have on its business. These factors include, but are not limited to, the severity and location of the earthquake, the extent of any damage to the Company’s manufacturing facilities, the impact of an earthquake on the Company’s California workforce and the infrastructure of the surrounding communities and the extent, if any, of damage to the Company’s inventory and work in process. While the Company’s exposure to significant losses from a California earthquake would be partially mitigated by its ability to manufacture some of its

10

CRM products at its Swedish manufacturing facility, the losses could have a material adverse effect on the Company for a period of time that cannot be predicted. The Company has expanded the manufacturing capabilities at its Swedish facility and has constructed a pacemaker component manufacturing facility in Arizona. In addition, the Company has moved significant finished goods inventory to locations outside California. These facilities and inventory transfers would further mitigate the adverse impact of a California earthquake.

Employees

        As of December 31, 2003, the Company had 7,391 full-time employees. St. Jude’s employees are not represented by any labor organizations, with the exception of the Company’s employees in Sweden and certain employees in France. St. Jude has never experienced a work stoppage as a result of labor disputes. The Company believes that its relationship with its employees is generally good.

International Operations

        The Company’s international business is subject to such special risks as currency exchange controls and fluctuations, the imposition or increase of import or export duties and surtaxes, and international credit, financial or political problems. Currency exchange rate fluctuations relative to the U.S. dollar can affect reported consolidated revenues and net earnings. The Company may hedge a portion of this exposure from time to time to reduce the effect of foreign currency rate fluctuations on net earnings. See the “Market Risk” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” incorporated herein by reference from the Financial Report included in the Company’s 2003 Annual Report to Shareholders. Operations outside the United States also present complex tax and cash management issues that necessitate sophisticated analysis and diligent monitoring to meet the Company’s financial objectives.

Availability of SEC Reports

        The Company makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practical after they are filed or furnished to the Securities and Exchange Commission. Such reports are available on the Company’s website (http://www.sjm.com) under the Investor Relations section or can be obtained by contacting the Company’s Investor Relations group at 1.800.552.7664 or at St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117. Information included on the Company’s website is not deemed to be incorporated into this Annual Report on Form 10-K.

Item 2. PROPERTIES

        St. Jude’s principal executive offices are located in St. Paul, Minnesota. These facilities are owned by the Company. Manufacturing facilities are located in California, Minnesota, Arizona, South Carolina, Canada, Brazil, Puerto Rico and Sweden. The Company owns approximately 54%, or 338,000 square feet, of its total manufacturing space. The remaining manufacturing space is leased.

        The Company also maintains sales and administrative offices in the United States at 18 locations in 10 states and outside the United States at 68 locations in 25 countries. With the exception of two locations, all of these locations are leased.

        In management’s opinion, all buildings, machinery and equipment are in good condition, suitable for their purposes and are maintained on a basis consistent with sound operations. The Company believes that it has sufficient space for its current operations and for foreseeable expansion in the next few years.

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Item 3. LEGAL PROCEEDINGS

        Silzone® Litigation: In July 1997, the Company began marketing mechanical heart valves which incorporated a Silzone® coating. The Company later began marketing heart valve repair products incorporating a Silzone® coating. The Silzone® coating was intended to reduce the risk of endocarditis, a bacterial infection affecting heart tissue, which is associated with replacement heart valves.

        In January 2000, the Company voluntarily recalled all field inventories of Silzone® devices after receiving information from a clinical study that patients with a Silzone® valve had a small, but statistically significant, increased incidence of explant due to paravalvular leak compared to patients in that clinical study with non-Silzone® heart valves.

        Subsequent to the Company’s voluntary recall, the Company has been sued in the United States, Canada, and United Kingdom by some patients who received a Silzone® device. Some of these claims allege bodily injuries as a result of an explant or other complications, which they attribute to the Silzone® devices. Others, who have not had their device explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all 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. Some of these cases have been settled, some have been dismissed and others are on-going. Some of these cases, both in the United States and Canada, are seeking class action status. A summary of the number of Silzone® cases by jurisdiction as of January 26, 2004 follows:

U.S. Cases

o Multi-District Litigation (“MDL”) and federal district court in Minnesota:

o Eight original class action complaints have been consolidated into one case seeking certification of two separate classes. The first complaint seeking class action status was served upon the Company on April 27, 2000 and all eight original complaints seeking class action status were consolidated into one case on October 22, 2001. One proposed class in the consolidated complaint seeks injunctive relief in the form of medical monitoring. A second class in the consolidated complaint seeks an unspecified amount of money damages.

o 39 individual cases have been filed. The first individual complaint that was transferred to the MDL court was served upon the Company on November 28, 2000, and the most recent individual complaint that was transferred to the MDL court was served upon the Company on June 27, 2003. The complaints in these cases each request damages ranging from an unspecified amount to $120.5 million.

o 25 individual state court suits involving 42 patients have been filed. Cases are venued in the following states: California, Florida, Illinois, Minnesota, Nevada, New York, South Carolina, Tennessee and Texas. The first individual state court complaint was served upon the Company on March 1, 2000 and the most recent individual state court complaint was served upon the Company on November 24, 2003. The complaints in these cases each request damages ranging from an unspecified amount to $70,000.

o Two cases involving 70 patients were dismissed in Texas by the trial court on April 25, 2002 and February 14, 2003, respectively; the plaintiffs in these two cases have appealed. The first of these cases were served on the Company on October 29, 2001, and the second case was served upon the Company on November 8, 2002. The complaints in these cases request damages in an unspecified amount.

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Non-U.S. Cases

Canada:

o  Four class action cases involving five named plaintiffs are pending (cases are venued in the provinces of British Columbia, Ontario and Quebec); in one case, class action status has been granted by the court. The first complaint in Canada was served upon the Company on August 18, 2000, and the most recent Canadian complaint was served upon the Company on December 12, 2002. The complaints in these cases each request damages ranging from 1.5 million to 500 million Canadian dollars.

UK:

o  One case involving one plaintiff has been filed. This complaint was filed on August 28, 2003, but has yet to be served upon the Company. The complaint in this case requests damages of an unspecified amount.

        The Silzone® litigation reserves established by the Company are not based on the amount of the claims because, based on our experience in these types of cases, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed by the plaintiffs and is often significantly less than the amount claimed by plaintiffs.

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

        Certain plaintiffs requested Judge Tunheim to allow some cases to proceed as class actions. Judge Tunheim issued a ruling on plaintiffs’ motions for class certification on March 27, 2003. In his ruling, Judge Tunheim certified one class of plaintiffs under the Minnesota consumer statutes.

        On January 5, 2004, Judge Tunheim ruled on two motions brought by the Company in the Silzone® class action litigation pending in federal district court in Minnesota. In one order, Judge Tunheim ruled on the ability of certain claims to proceed as class actions. He declined to grant class action status to personal injury claims. He also granted class action status to medical monitoring claims of patients from 13 states and the District of Columbia where the law permits a certain type of medical monitoring claim, and yet invited further briefing on exactly which states fall into this category and how a class involving such claims would proceed.

        Judge Tunheim also ruled against the Company in a separate order on the issue of preemption and held that the plaintiff’s causes of action were not preempted by the U.S. Food and Drug Act. The Company is reviewing its options for the appeal of this decision.

        In the meantime, the cases involving Silzone® products not seeking class action status which are consolidated before Judge Tunheim are proceeding in accordance with the scheduling orders he has rendered. There are also other actions involving products with Silzone® coating in various state courts that may or may not be coordinated with the matters presently before Judge Tunheim.

        On January 16, 2004, the court in Ontario, Canada certified a class of Silzone® patients in a class action suit against the Company.

        The Company is not aware of any unasserted claims related to Silzone® devices.

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        Company management believes that the final resolution of the Silzone® cases will take several years. At this time, management cannot reasonably estimate the time frame in which any potential settlements or judgments would be paid out. The Company accrues for contingent losses when it is probable that a loss has been incurred and the amount can be reasonably estimated. The Company has recorded an accrual for probable legal costs that it will incur to defend the various cases involving Silzone® devices, and the Company has recorded a receivable from its product liability insurance carriers for amounts expected to be recovered (see Note 7 to the Consolidated Financial Statements). The Company has not accrued for any amounts associated with probable settlements or judgments because management cannot reasonably estimate such amounts. However, management believes that no significant claims will ultimately be allowed to proceed as class actions in the United States and, therefore, that all settlements and judgments will be covered under the Company’s remaining product liability insurance coverage (approximately $170 million at December 31, 2003), subject to the insurance companies’ performance under the policies (see Note 7 to the Consolidated Financial Statements for further discussion on the Company’s insurance carriers). As such, management believes that any costs (the material components of which are settlements, judgments and legal fees) not covered by its product liability insurance policies or existing reserves will not have a material adverse effect on the Company’s statement of financial position or liquidity, although such costs may be material to the Company’s consolidated results of operations of a future period.

        Guidant 1996 Patent Litigation: In November 1996, Guidant Corporation (“Guidant”) sued St. Jude Medical 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 ICD products and alleging that the Company was infringing those patents. St. Jude Medical’s contention was that it had obtained a license from Guidant to the patents in issue when it acquired certain assets of Telectronics in November 1996. In July 2000, an arbitrator rejected St. Jude Medical’s position, and in May 2001, a federal district court judge also ruled that the Guidant patent license with Telectronics had not transferred to St. Jude Medical.

        Guidant’s suit originally alleged infringement of four patents by St. Jude Medical. Guidant later dismissed its claim on one patent and a court ruled that a second patent was invalid. This determination of invalidity was appealed by Guidant, and the Court of Appeals upheld the lower court’s invalidity determination. In a jury trial involving the two remaining patents (the ‘288 and ‘472 patents), the jury found that these patents were valid and that St. Jude Medical did not infringe the ‘288 patent. The jury also found that the Company did infringe the ‘472 patent, though such infringement was not willful. The jury awarded damages of $140 million to Guidant. In post-trial rulings, however, the judge overseeing the jury trial ruled that the ‘472 patent was invalid and also was not infringed by St. Jude Medical, thereby eliminating the $140 million verdict against the Company. The trial court also made other rulings as part of the post-trial order, including a ruling that the ‘288 patent was invalid on several grounds.

        In August 2002, Guidant commenced an appeal of certain of the trial judge’s post-trial decisions pertaining to the ‘288 patent. Guidant did not appeal the trial court’s finding of invalidity and non-infringement of the ‘472 patent. As part of its appeal, Guidant requested that the monetary damages awarded by the jury pertaining to the ‘472 patent ($140 million) be transferred to the ‘288 patent infringement claim. The Company maintains that such a request is not supported by the facts or law. After the briefing for this appeal was completed, oral argument before the Court of Appeals occurred on September 4, 2003. The Company expects that the Appellate Court will issue a decision concerning Guidant’s appeal sometime later in 2004. While it is not possible to predict the outcome of the appeal process, the Company believes the decision of the trial court in its post-trial rulings, which is publicly available, was correct.

        The ‘288 patent expired in December 2003. Accordingly, the final outcome of the appeal process cannot involve an injunction precluding the Company from selling ICD products in the future. Sales of the Company’s ICD products which Guidant asserts infringed the ‘288 patent were

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approximately 18%, 16% and 13% of the Company’s consolidated net sales during the fiscal years ended December 31, 2003, 2002 and 2001, respectively.

        The Company has not accrued any amounts for losses related to the Guidant 1996 patent litigation. Although the Company believes that the assertions and claims in these matters are without merit, potential losses arising from this litigation are possible, but not estimable, at this time. The range of such losses could be material to the operations, financial position and liquidity of the Company.

        Guidant 2004 Patent Litigation: In February 2004, Guidant sued the Company in federal district court in Delaware alleging that the Company’s Epic™ HF ICD, Atlas®+ HF ICD and Frontier™ device infringe U.S Patent No. RE 38,119E (the ‘119 patent). Guidant also sued the Company in February 2004 alleging that the Company’s QuickSite™ 1056K pacing lead infringes U.S. Patent No. 5,755,766 (the ‘766 patent). This second suit was initiated in federal district court in Minnesota. Guidant is seeking an injunction against the manufacture and sale of these devices by the Company in the United States and compensation for what it claims are infringing sales of these products up through the effective date of the injunction. Sales of the above St. Jude Medical devices in the United States were not material during fiscal years 2003, 2002 and 2001, although it is anticipated that once FDA approval is received, sales of these devices could become material in the future. The Company has not submitted a substantive response to Guidant's claims at this time. Another competitor of the Company, Medtronic, Inc., which has a license to the ‘119 patent, is contending in a separate lawsuit with Guidant that the ‘119 patent is invalid.

        The Company has not accrued any amounts for losses related to the Guidant 2004 patent litigation. Potential losses arising from this litigation are possible, but not estimable, at this time. The range of such losses could be material to the operations, financial position and liquidity of the Company.

         Symmetry™ Litigation: The Company has been sued in six cases in the United States alleging that its Symmetry™ Bypass System Aortic Connector (Symmetry™ device) caused bodily injury or might cause bodily injury. The first such suit as filed against the Company on August 5, 2003, in federal district court for the Western District of Tennessee, and the most recently initiated case was served upon the Company on January 28, 2004. The six cases are venued in state court in Minnesota, federal court for the District of Minnesota, federal court in the Western District of Tennessee and federal court for the Northern District of Illinois. Each of the complaints in these cases request damages ranging from an unspecified amount to $100,000. Three of the six cases are seeking class-action status. One of the cases seeking class-action status has been dismissed but the dismissal is being appealed by the plaintiff. The Company believes that those cases seeking class-action status will request damages for injuries and monitoring costs.

        The Company’s Symmetry™ device was cleared through a 510(K) submission to the FDA, and therefore, is not eligible for the defense under the doctrine of federal preemption that such suits are prohibited. Given the Company’s self-insured retention levels under its product liability insurance policies, the Company expects that it will be solely responsible for these lawsuits, including any costs of defense, settlements and judgments. Company management believes that class action status is not appropriate for the claims asserted based on existing facts and case law. Discovery is in the very early stages in these cases.

        The Company has not accrued any amounts for losses related to the Symmetry™ litigation. Potential losses arising from this litigation are possible, but not estimable, at this time. The range of such losses could be material to the operations, financial position and liquidity of the Company. At this time, Company management cannot reasonably estimate the time frame in which this litigation will be resolved, including when potential settlements or judgments would be paid out, if any.

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

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of security holders during the fourth quarter of 2003.

Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Name	Age	Position*
Terry L. Shepherd **	51	Chairman (2002) and Chief Executive Officer (1999)
Daniel J. Starks **	49	President and Chief Operating Officer (2001)
David W. Adinolfi	48	President, Daig (2001)
Michael J. Coyle	41	President, Cardiac Rhythm Management (2001)
Peter L. Gove	56	Vice President, Corporate Relations (1994)
John C. Heinmiller	49	Vice President, Finance, Chief Financial Officer and Treasurer (1998)
Jeri L. Lose	46	Vice President, Information Technology (1999) and Chief Information Officer (2000)
Joseph H. McCullough	54	President, International (2001)
Thomas R. Northenscold	46	Vice President, Administration (2003)
Kevin T. O'Malley	52	Vice President, General Counsel and Secretary (1994)
Michael T. Rousseau	48	President, U.S. Sales (2001)
Jane J. Song	41	President, Cardiac Surgery (2002)

_________________

*  Dates in parentheses indicate year during which each named executive officer began serving in such capacity.

**  Mr. Shepherd will retire as Chief Executive Officer of the Company and Chairman of the Board of Directors in May 2004. He will be succeeded by the Company’s President and Chief Operating Officer, Mr. Starks.

        Executive officers serve at the pleasure of the Board of Directors.

        Mr. Shepherd joined the Company in 1994 as President of Cardiac Surgery. In May 1999, he was appointed President and Chief Executive Officer of St. Jude, and since February 2001 he has been the Company’s Chief Executive Officer. Mr. Shepherd has also served on St. Jude’s Board of Directors since May 1999, and in May 2002 was elected Chairman of the Board of Directors.

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        Mr. Starks joined St. Jude in 1996 as a result of the Company’s acquisition of Daig Corporation, where he continued as Chief Executive Officer. In 1997, he was also appointed Chief Executive Officer of Cardiac Rhythm Management, and in April 1998 also became President of Cardiac Rhythm Management. He was appointed President and Chief Operating Officer of St. Jude in February 2001. Mr. Starks has also served on the Company’s Board of Directors since 1996. Mr. Starks serves on the Board of Directors of Urologix, Inc.

        Mr. Adinolfi joined St. Jude in 1994 as a result of the Company’s acquisition of Pacesetter, Inc. He served as Vice President, CRM Global Product Planning and Identification from June 1996 to March 1998. In April 1998, he became Senior Vice President, CRM Global Marketing, and in March 1999 became Senior Vice President of CRM Product Portfolio Management. In February 2001, Mr. Adinolfi was appointed President of Daig. Prior to joining Pacesetter in 1989 as Director of Marketing, Mr. Adinolfi worked for Cordis Corporation and Telectronics, Inc., both medical technology companies, in a variety of marketing, sales and management positions.

        Mr. Coyle joined St. Jude in 1994 as Director, Business Development. He served as President and Chief Operating Officer of Daig from 1997 to 2001 and was appointed President, Cardiac Rhythm Management in February 2001. Prior to joining St. Jude, he spent nine years with Eli Lilly & Company, a pharmaceutical products company, in a variety of technical and business management roles in both its Pharmaceutical and Medical Device Divisions.

        Mr. Gove joined the Company in 1994 as Vice President, Corporate Relations. Prior to joining the Company, Mr. Gove was Vice President, Marketing and Communications of Control Data Systems, Inc., a computer services company, from 1991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions with Control Data Corporation. From 1970 to 1981, Mr. Gove held various management positions with the State of Minnesota and the U.S. Government. Mr. Gove serves on the Board of Directors of QRS Diagnostic, LLC and Information for Public Affairs, Inc.

        Mr. Heinmiller joined the Company in May 1998 as Vice President of Corporate Business Development. In September 1998 he was appointed Vice President, Finance and Chief Financial Officer. Prior to joining the Company, Mr. Heinmiller was president of F3 Corporation, a privately held asset management company, from 1997 to 1998, and was Vice President of Finance and Administration for Daig Corporation from 1995 to 1997. Mr. Heinmiller is also a former audit partner in the Minneapolis office of Grant Thornton LLP, a national public accounting firm. Mr. Heinmiller serves on the Board of Directors of Lifecore Biomedical, Inc.

        Ms. Lose joined St. Jude in 1999 as Vice President, Information Technology, and was also appointed Chief Information Officer in 2000. Prior to joining the Company, Ms. Lose was Vice President of Systems Development at U.S. Bancorp, a multi-state financial services holding company, from 1993 to 1999. From 1990 to 1993, Ms. Lose was a Senior Manager in Information Technology Consulting with Ernst & Young LLP, an international public accounting firm. From 1979 to 1990, she held several positions in Accounting and then Information Technology with General Mills, Inc, a consumer food products company. Ms. Lose serves on the Board of Directors of Apria Healthcare, Inc.

        Mr. McCullough joined St. Jude in 1994 as a CRM Regional Sales Director. He became Director of CRM Marketing in 1996 and was named Vice President of CRM Marketing in January 1997. In December 1997, Mr. McCullough was appointed CRM Business Unit Director. He became Vice President, CRM Europe and Managing Director of the Company’s manufacturing operations in Veddesta, Sweden in January 1999, and Senior Vice President, CRM Europe in August 1999. He was named President, International in July 2001. Prior to joining the Company, Mr. McCullough worked for several medical technology companies for more than 20 years.

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        Mr. Northenscold joined St. Jude in 2001 as Vice President, Finance and Administration of Daig. On March 3, 2003, he was appointed Vice President, Administration. Prior to joining the Company, Mr. Northenscold worked at PPT Vision, Inc., an industrial technology and automation company, where he served as Chief Financial Officer from February 1995 to January 1999, and Division General Manager from January 1999 to September 2001. Prior to 1995, Mr. Northenscold worked for Cardiac Pacemakers, Inc., a medical technology company that is now part of Guidant Corporation, in various finance and operations positions.

        Mr. O’Malley joined the Company in 1994 as Vice President and General Counsel. Since December 1996, he has also served as the Company’s Corporate Secretary. Prior to joining St. Jude, Mr. O’Malley was employed by Eli Lilly & Company, a pharmaceutical products company, for 15 years in various positions, including General Counsel of the Medical Device and Diagnostics Division.

        Mr. Rousseau joined the Company in 1999 as Senior Vice President, CRM Global Marketing. In August 1999, CRM Marketing and Sales were combined under his leadership. In January 2001, he was named President, U.S. CRM Sales, and in July 2001 he was named President, U.S. Sales. Prior to joining St. Jude, Mr. Rousseau worked for Sulzer Intermedics, Inc., a medical device company, for 11 years. At Sulzer, he served as Vice President, Tachycardia, in 1997 and was appointed Vice President, U.S. Sales and Marketing in 1998.

        Ms. Song joined St. Jude in 1998 as Senior Vice President, CRM Operations. In May 2002 she was appointed President, Cardiac Surgery. Prior to joining the Company, Ms. Song was employed by Perkin Elmer (formerly EG&G, Inc.), a global technology company, from 1992 to 1998 where she held executive positions in global operations and business development. Prior to her tenure at Perkin Elmer, she was employed by Coopers & Lybrand LLP, an international public accounting firm, and Texas Instruments Inc., a global semiconductor company.

PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

        The information set forth under the captions “Dividends” and “Stock Exchange Listings” in the Financial Report included in the Company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

Item 6.  SELECTED FINANCIAL DATA

        The information set forth under the caption “Five-Year Summary Financial Data” in the Financial Report included in the Company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

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

        The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Financial Report included in the Company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information appearing under the caption “Market Risk” in the Financial Report included in the Company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The following Consolidated Financial Statements of the Company and Report of Independent Auditors set forth in the Financial Report included in the Company’s 2003 Annual Report to Shareholders are incorporated herein by reference:

Report of Independent Auditors

Consolidated Statements of Earnings – Fiscal Years ended December 31, 2003, 2002 and 2001

Consolidated Balance Sheets – December 31, 2003 and 2002

Consolidated Statements of Shareholders’ Equity – Fiscal Years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows – Fiscal Years ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements

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

      None.

Item 9A. CONTROLS AND PROCEDURES

        As of December 31, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2003 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

        During the fiscal quarter ended December 31, 2003, there were no changes in the Company’s internal controls 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, the Company’s internal controls over financial reporting.

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PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information set forth under the captions “Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Audit Committee Financial Experts” in the Company’s definitive proxy statement dated March 30, 2004, is incorporated herein by reference. Information on executive officers under Item 4A of this Form 10-K is incorporated herein by reference.

        The Company has adopted a Code of Business Conduct for its Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and all other employees. The Company has made its Code of Business Conduct available on its website (http://www.sjm.com) under the Company Information section “About Us.” The Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its Code of Business Conduct by posting such information on its website at the address and location specified above.

        The Company has also made available on its website its Principles of Corporate Governance and the charters for each Committee of its Board of Directors. Such materials are also available in print to any shareholder who submits a request to St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, MN 55117, Attention: Corporate Secretary.

        Information included on the Company’s website is not deemed to be incorporated into this Annual Report on Form 10-K.

Item 11.  EXECUTIVE COMPENSATION

        The information set forth under the caption “Executive Compensation” in the Company’s definitive proxy statement dated March 30, 2004, 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 caption “Share Ownership of Management and Directors and Certain Beneficial Owners” and “Equity Compensation Plan Information” in the Company’s definitive proxy statement dated March 30, 2004, is incorporated herein by reference.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information set forth under the caption “Related Party Transactions” in the Company’s definitive Proxy Statement dated March 30, 2004, 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 Auditors – Independent Accountant’s Fees” in the Company’s definitive proxy statement dated March 30, 2004, is incorporated herein by reference.

20

PART IV

Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                ON FORM 8-K

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

(1) Financial Statements

The following Consolidated Financial Statements of the Company and Report of Independent Auditors as set forth in the Financial Report included in the Company’s 2003 Annual Report to Shareholders are incorporated herein by reference from Exhibit 13 attached hereto:

Report of Independent Auditors

Consolidated Statements of Earnings – Fiscal Years ended December 31, 2003, 2002 and 2001

Consolidated Balance Sheets — December 31, 2003 and 2002

Consolidated Statements of Shareholders’ Equity – Fiscal Years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows – Fiscal Years ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

Schedule II, Valuation and Qualifying Accounts, is filed as part of this Annual Report on Form 10-K (see Item 15(d)).

The Report of Independent Auditors with respect to this financial statement schedule is incorporated herein by reference from Exhibit 23 attached hereto.

        All other financial statements and schedules not listed above have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable.

(3) Exhibits

Pursuant to Item 601(b)(4)(iiii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof, the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.

21

    Exhibit                                   Exhibit Index
- ----------------    -------------------------------------------------------------------
      2.1           Stock Purchase  Agreement  among St. Jude Medical,  Inc., St. Jude
                    Medical   Japan   K.K.,   Getz  Bros.   &  Co.   Zug  Inc.,   Getz
                    International,  Inc. and Muller & Phipps  (Japan) Ltd. dated as of
                    September 17, 2002 (USA). #

      2.2           Amendment,  dated as of  February  20,  2003,  to  Stock  Purchase
                    Agreement  among St. Jude  Medical,  Inc.,  St. Jude Medical Japan
                    K.K.,  Getz Bros.  & Co. Zug Inc.,  Getz  International,  Inc. and
                    Muller &  Phipps  (Japan)  Ltd.  dated as of  September  17,  2002
                    (USA). #

      3.1           Articles of  Incorporation  are  incorporated  by  reference  from
                    Exhibit  3(a) of the  Company's  Form 8 filed on August 20,  1987,
                    amending  the  Company's  Quarterly  Report  on Form  10-Q for the
                    quarter ended June 30, 1987.

      3.2           Articles of  Amendment  dated  September  5, 1996,  to Articles of
                    Incorporation  are  incorporated  by reference from Exhibit 3.2 of
                    the  Company's  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1996.

      3.3           Bylaws are  incorporated  by reference  from Exhibit  3(ii) of the
                    Company's  Quarterly  Report  on Form 10-Q for the  quarter  ended
                    September 30, 1997.

      4.1           Rights  Agreement  dated as of June 16, 1997,  between the Company
                    and American Stock  Transfer and Trust  Company,  as Rights Agent,
                    including the Certificate of  Designation,  Preferences and Rights
                    of Series B Junior  Preferred  Stock is  incorporated by reference
                    from Exhibit 4 of the Company's  Quarterly Report on Form 10-Q for
                    the quarter ended June 30, 1997.

      4.2           Amendment,  dated as of December  20, 2002,  to Rights  Agreement,
                    dated as of June 16,  1997,  is  incorporated  by  reference  from
                    Exhibit  1 of the  Company's  Current  Report on Form 8-K filed on
                    March 21, 2003.

      4.3           Multi-Year  $350,000,000  Credit Agreement,  dated as of September
                    11, 2003, among St. Jude Medical,  Inc., as the Borrower,  Bank of
                    America,  N.A., as  Administrative  Agent,  L/C Issuer and Lender,
                    the Bank of  Tokyo-Mitsubishi,  Ltd.  and ABN Amro Bank  N.V.,  as
                    Co-Syndication  Agents,  Bank  One,  N.A.  and Wells  Fargo  Bank,
                    National  Association,  as Co-Documentation  Agents, and the Other
                    Lenders  Party Hereto is  incorporated  by reference  from Exhibit
                    4.1 of the  Company's  Quarterly  Report  on  Form  10-Q  for  the
                    quarter ended September 30, 2003.

22

     10.1           Form of  Indemnification  Agreement  that the  Company has entered
                    into with  officers  and  directors is  incorporated  by reference
                    from Exhibit  10(d) of the  Company's  Annual  Report on Form 10-K
                    for the year ended December 31, 1986. *

     10.2           St. Jude Medical,  Inc. Management Incentive  Compensation Plan is
                    incorporated  by  reference  from  Exhibit  10.2 of the  Company's
                    Annual Report on Form 10-K for the year ended  December 31, 2001.*

     10.3           Management  Savings Plan dated  February 1, 1995, is  incorporated
                    by reference  from Exhibit 10.7 of the Company's  Annual Report on
                    Form 10-K for the year ended December 31, 1994. *

     10.4           Retirement Plan for members of the Board of Directors,  as amended
                    on March 15, 1995, is  incorporated by reference from Exhibit 10.6
                    of the  Company's  Annual  Report on Form 10-K for the year  ended
                    December 31, 1994. *

     10.5           St.  Jude  Medical,  Inc.  1991  Stock  Plan  is  incorporated  by
                    reference  from the Company's  Registration  Statement on Form S-8
                    filed June 28, 1991 (Commission File No. 33-41459). *

     10.6           St. Jude Medical,  Inc. 1994 Stock Option Plan is  incorporated by
                    reference   from  Exhibit  4(a)  of  the  Company's   Registration
                    Statement  on Form S-8  filed  July 1, 1994  (Commission  File No.
                    33-54435). *

     10.7           St. Jude Medical,  Inc. 1997 Stock Option Plan is  incorporated by
                    reference   from  Exhibit  4.1  of  the   Company's   Registration
                    Statement  on Form S-8 filed  December 22, 1997  (Commission  File
                    No. 333-42945). *

    10.8            St.  Jude  Medical,  Inc.  2000  Stock  Plan  is  incorporated  by
                    reference  from Exhibit  10.9 of the  Company's  Annual  Report on
                    Form 10-K for the year ended December 31, 2001. *

    10.9            St. Jude Medical,  Inc. 2000 Employee Stock Purchase  Savings Plan
                    is  incorporated  by reference from Exhibit 10.10 of the Company's
                    Annual Report on Form 10-K for the year ended  December 31, 2001.*

23

    10.10           Amended and Restated  Employment  Agreement  dated as of March 25,
                    2001,  between the Company and Daniel J. Starks is incorporated by
                    reference  from Exhibit  10.17 of the  Company's  Annual Report on
                    Form 10-K for the year ended December 31, 2000. *

   10.11            Form of  Severance  Agreement  that the Company  has entered  into
                    with officers  relating to severance  matters in connection with a
                    change in control is  incorporated by reference from Exhibit 10.18
                    of the  Company's  Annual  Report on Form 10-K for the year  ended
                    December 31, 2000. *

   10.12            Amended and Restated  Employment  Agreement  dated as of March 25,
                    2001,  between the Company and Terry L.  Shepherd is  incorporated
                    by reference from Exhibit 10.19 of the Company's  Annual Report on
                    Form 10-K for the year ended December 31, 2000. *

   10.13            St.  Jude  Medical,   Inc.   2002  Stock  Plan,  as  Amended,   is
                    incorporated  by  reference  from Exhibit  10.14 of the  Company's
                    Quarterly  Report  on Form  10-Q for the  quarter  ended  June 30,
                    2002. *

      13            Portions of the Company's 2003 Annual Report to Shareholders.  #

      21            Subsidiaries of the Registrant. #

      23            Consent of Independent Auditors. #

      24            Power of Attorney. #

     31.1           Certification  of Chief Executive  Officer Pursuant to Section 302
                    of the Sarbanes-Oxley Act of 2002. #

     31.2           Certification  of Chief Financial  Officer Pursuant to Section 302
                    of the Sarbanes-Oxley Act of 2002. #

     32.1           Certification  of Chief Executive  Officer Pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002. #

     32.2           Certification  of Chief Financial  Officer Pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002. #

_________________

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

24

(b) Reports on Form 8-K filed during the quarter ended December 31, 2003:

        The Company filed a Form 8-K on October 15, 2003 to furnish pursuant to Item 12 its press release issued on October 15, 2003 to report earnings for the third quarter of 2003.

        The Company also filed a Form 8-K on December 10, 2003 to announce that the Company’s Chief Executive Officer and Chairman of the Board of Directors, Terry L. Shepherd, will retire in May 2004. Daniel J. Starks, President and Chief Operating Officer, will succeed Mr. Shepherd as Chief Executive Officer and Chairman.

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

(d) Schedules:

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

COL. A	COL. B		COL. C				COL. D						COL. E
			Additions				Deductions
Description	Balance at Beginning of Year		Charged to Expense		Other (1)		Write-offs (2)			Other (1)			Balance at End of Year
Allowance for doubtful accounts
Fiscal Year Ended:
December 31, 2003	$	24,078	$	5,497	$	4,564	$	(2,234	)	$	–		$	31,905
December 31, 2002		17,210		9,188		1,752		(4,072	)		–			24,078
December 31, 2001		13,831		6,468		–		(2,738	)		(351	)		17,210

(1)  In 2003, $3,622 of this amount represents the balance recorded as part of our 2003 acquisition of Getz Japan, and the remainder represents the effects of changes in foreign currency translation. In 2002 and 2001, all amounts represent the effects of changes in foreign currency translation.

(2) Uncollectible accounts written off, net of recoveries.

25

SIGNATURES

        Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ST. JUDE MEDICAL, INC.
Date: March 12, 2004	By /s/ TERRY L. SHEPHERD
	Terry L. Shepherd
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
	By /s/ JOHN C. HEINMILLER
	John C. Heinmiller
	Vice President, Finance and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 12th day of March, 2004.

/s/ TERRY L. SHEPHERD	Director
Terry L. Shepherd
/s/ KEVIN T. O’MALLEY	Directors
Kevin T. O’Malley

as attorney-in-fact for:
Richard R. Devenuti,
Stuart M. Essig,
Thomas H. Garrett III,
Michael A. Rocca,
Daniel J. Starks,
David A. Thompson,
Stefan K. Widensohler,
Wendy L. Yarno, and
Frank C-P Yin

26

EX-2.1

                                                                     Exhibit 2.1

================================================================================



                            STOCK PURCHASE AGREEMENT

                                      AMONG

                             ST. JUDE MEDICAL, INC.,

                          ST. JUDE MEDICAL JAPAN K.K.,

                           GETZ BROS. & CO. ZUG INC.,

                            GETZ INTERNATIONAL, INC.

                                       AND

                          MULLER & PHIPPS (JAPAN) LTD.

                                   DATED AS OF

                            SEPTEMBER 17, 2002 (USA)


================================================================================



I.       PURCHASE AND SALE OF SHARES AND CLOSING.............................1

         1.1      The Tender Offer...........................................1
         1.2      Shareholder Meeting and Stock Transfer.....................2
         1.3      Purchase and Sale..........................................3
         1.4      Purchase Price.............................................3
         1.5      Purchase Price Adjustment..................................3
         1.6      The Closing................................................4
         1.7      Transfer by Getz Zug Following Tender Offer................5

II.      REPRESENTATIONS AND WARRANTIES OF SELLERS...........................5

         2.1      Title to Shares............................................5
         2.2      Incorporation; Power and Authority.........................5
         2.3      Valid and Binding Agreement................................6
         2.4      No Breach..................................................6
         2.5      Getz Intl Balance Sheet....................................6

III.     REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY................6

         3.1      Incorporation; Power and Authority.........................6
         3.2      No Breach..................................................6
         3.3      Capitalization.............................................7
         3.4      Subsidiaries...............................................7
         3.5      Financial Statements.......................................7
         3.6      Absence of Certain Developments............................7
         3.7      Property...................................................8
         3.8      Tax Matters................................................9
         3.9      Material Contracts.........................................9
         3.10     Litigation................................................10
         3.11     Insurance.................................................10
         3.12     Compliance with Laws; Governmental Authorizations.........10
         3.13     Environmental Matters.....................................11
         3.14     Warranties................................................12
         3.15     Employees.................................................13
         3.16     Employee Benefits.........................................13
         3.17     Suppliers.................................................13
         3.18     Brokerage.................................................13
         3.19     Securities Law Compliance.................................14

IV.      REPRESENTATIONS AND WARRANTIES OF BUYER AND ST. JUDE...............14

         4.1      Incorporation; Power and Authority........................14
         4.2      Valid and Binding Agreement...............................14
         4.3      No Breach.................................................14
         4.4      Brokerage.................................................14

V.       AGREEMENTS OF SELLERS..............................................14

         5.1      Conduct of the Business...................................14
         5.2      Access; Updating of Disclosure Schedule...................16
         5.3      Waivers; Payment of Indebtedness..........................16
         5.4      Conditions................................................17


                                       2



         5.5      Consents and Authorizations...............................17
         5.6      Nondisparagement..........................................17
         5.7      Non-Hire..................................................17
         5.8      Litigation Support........................................17
         5.9      Confidentiality...........................................18
         5.10     Transfer of Certain Trademark Rights......................18
         5.11     No Encumbrance of Shares..................................19
         5.12     Getz Intl Net Worth.......................................19

VI.      AGREEMENTS OF BUYER AND ST. JUDE...................................19

         6.1      Filings and Submissions...................................19
         6.2      Buyer Shareholders Meeting................................19
         6.3      Inspection................................................19
         6.4      Section 338 Election......................................19

VII.     CONDITIONS TO CLOSING..............................................20

         7.1       Conditions to Buyer's Obligations........................20
         7.2       Conditions to Sellers' Obligations.......................20

VIII.    TERMINATION........................................................21

         8.1      Termination...............................................21
         8.2      Contract Extension........................................21
         8.3      Effect of Termination.....................................22

IX.      INDEMNIFICATION....................................................22

         9.1      Indemnification by Sellers................................22
         9.2      Third Party Actions.......................................23
         9.3      Tax Adjustment............................................24
         9.4      Sellers' Representative...................................24

X.       ARBITRATION........................................................25

         10.1     Disputes..................................................25
         10.2     Arbitration...............................................25
         10.3     Remedies..................................................26

XI.      DEFINITIONS........................................................26

XII.     GENERAL............................................................29

         12.1     Press Releases and Announcements..........................29
         12.2     Expenses..................................................29
         12.3     Further Assurances........................................29
         12.4     Cooperation...............................................29
         12.5     Notices...................................................29
         12.6     Assignment................................................31
         12.7     No Third Party Beneficiaries..............................31
         12.8     Severability..............................................31
         12.9     Complete Agreement........................................31
         12.10    English Language..........................................31
         12.11    Signatures; Counterparts..................................31
         12.12    Governing Law.............................................31


                                       3


         12.13    Amendment and Waiver......................................32
         12.14    Construction..............................................32

XIII.    GUARANTY BY ST. JUDE...............................................32






                            STOCK PURCHASE AGREEMENT

         This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of
September 17, 2002, in the United States of America by and among St. Jude
Medical Japan K.K., a company organized under the laws of Japan ("BUYER"), St.
Jude Medical, Inc., a Minnesota corporation ("ST. JUDE"), Getz Bros. & Co. Zug
Inc., a company organized under the laws of Switzerland ("GETZ ZUG"), Getz
International, Inc., a Delaware corporation ("GETZ INTL"), and Muller & Phipps
(Japan) Ltd., a company organized under the laws of Japan ("M&P", and together
with Getz Zug and Getz Intl., "SELLERS"). Certain capitalized terms used but not
defined when first used herein are defined in Article XI.

                                    RECITALS

         WHEREAS, Getz Zug, a wholly owned subsidiary of Getz Intl, owns 72.18%
of the outstanding capital stock of Getz Bros. Co., Ltd., a company organized
under the laws of Japan (the "COMPANY").

         WHEREAS, the remaining 27.82% of the Company's outstanding capital
stock is publicly held and registered with the Japan Securities Dealers
Association (the "JASDA").

         WHEREAS, Sellers desire to sell, and Buyer desires to buy, 100% of the
outstanding capital stock of the Company (the "SHARES") on the terms and subject
to the conditions set forth in this Agreement (the "ACQUISITION").

         WHEREAS, as a first step in the Acquisition, M&P, a wholly owned
subsidiary of Getz Intl, will initiate a cash tender offer for the issued and
outstanding Shares not owned by Getz Zug (the "TENDER OFFER").

         WHEREAS, to complete the Acquisition, Sellers will cause the Company,
by exercising their voting rights at a general shareholders meeting of the
Company, to create a newly formed holding company of the Company organized under
the laws of Japan ("NEWCO") by means of a stock transfer (KABUSHIKI ITEN) (the
"STOCK TRANSFER"), whereby, subject to shareholder approval and compliance with
applicable legal procedures, all issued and outstanding Shares, including Shares
not tendered to and purchased by M&P pursuant to the Tender Offer, will also be
exchanged for shares of Newco, following which Sellers will use their reasonable
efforts to cause Newco to sell the Shares to Buyer pursuant to the terms and
conditions of this Agreement.

         NOW, THEREFORE, the following agreement is made:

                   I. PURCHASE AND SALE OF SHARES AND CLOSING

         1.1 The Tender Offer.

         (a) M&P, as promptly as practicable, shall commence the Tender Offer
whereby M&P will offer to purchase for cash all of the Shares not otherwise held
by Sellers. M&P expressly reserves the right to increase the price per share
payable in the Tender Offer and to make any




other change or changes in the terms or conditions of the Tender Offer,
including without limitation extending the expiration date.

         (b) M&P shall, on the terms of the Tender Offer, accept for payment
Shares validly tendered as soon as practicable, and pay for accepted Shares as
promptly thereafter as reasonably practicable.

         (c) On the date of commencement of the Tender Offer, M&P shall file
with the Kanto Local Financial Bureau a registration statement for the Tender
Offer (KOUKAI KAITSUKE TODOKEDESHO) and all other disclosure documents and
related public notices as are required to be filed by M&P with the Kanto Local
Financial Bureau in connection with the Tender Offer in accordance with
applicable securities Laws (collectively, the "TENDER OFFER Documents"). Sellers
will take all steps necessary to ensure that the Tender Offer Documents comply
in all material respects with the provisions of applicable Japanese Laws from
the date filed with the Kanto Local Financial Bureau until the completion of the
Tender Offer. Buyer shall provide M&P with such information on Buyer and its
parent company to the extent required by applicable Japanese Laws for inclusion
in the Tender Offer Documents and shall take all steps necessary to ensure that
all information provided by Buyer for inclusion in the Tender Offer Documents is
accurate.

         (d) Sellers will use all reasonable efforts to cause the Board of
Directors of the Company to issue an opinion supporting the Tender Offer and to
take all steps necessary to file all documents required to be filed with the
Kanto Local Financial Bureau and the JASDA in connection with the Tender Offer
in accordance with applicable securities Laws.

         1.2 Shareholder Meeting and Stock Transfer. Sellers shall cause the
Company to, as promptly as practicable following the acceptance for payment and
purchase of Shares by M&P pursuant to the Tender Offer:

         (a) use all reasonable efforts to duly call, give notice of, convene
and hold a general shareholders meeting (the "SHAREHOLDERS MEETING"), to be held
as soon as practicable after the completion of the Tender Offer for the purpose
of considering and taking action upon the Stock Transfer;

         (b) use all reasonable efforts to cause the Board of Directors of the
Company to recommend to the shareholders of the Company that they vote in favor
of the Stock Transfer; and

         (c) use all reasonable efforts to promptly obtain the necessary
approvals by its shareholders of the Stock Transfer.

At such meeting, Sellers will vote all Shares owned by them in favor of approval
of the Stock Transfer. As promptly as practicable following the Shareholders
Meeting, Sellers shall, and shall cause the Company to, take all action
necessary to consummate the Stock Transfer, including without limitation the
filing of an extraordinary report (RINJI HOUKOKUSHO) with the Kanto Local
Financial Bureau, notification with the JASDA and the purchase of any Shares
held by a shareholder who notifies the Company of its objection to the Stock
Transfer prior to the Shareholders Meeting and requests the purchase of such
Shares in accordance with applicable Law. Buyer and St. Jude agree that when the
Stock Transfer takes effect the registration of the

                                       2



Shares with the JASDA shall be revoked and the Company will become a private
company. As promptly as practicable after the Stock Transfer takes effect,
Sellers shall use all reasonable efforts to (i) cause the Company to apply for
an exemption from its continuous disclosure obligations to the Prime Minister of
Japan pursuant to applicable securities Laws and (ii) cause the Board of
Directors of Newco to approve and adopt this Agreement, at which time Newco and
the parties hereto will execute an amendment to this Agreement whereby Newco
will become a party to this Agreement and be included within the definition of
"SELLERS".

         1.3 Purchase and Sale. Promptly following (i) the Tender Offer; (ii)
the Stock Transfer; (iii) revocation of registration of the Shares with the
JASDA; and (iv) the grant to the Company of an exemption from its continuous
disclosure obligations, Sellers shall use all reasonable efforts to cause Newco
to, and Newco shall, convene a general shareholders meeting to approve the
Acquisition on the terms and subject to the conditions set forth in this
Agreement. At such meeting, Sellers will vote all shares of Newco owned by them
in favor of approval of the Acquisition. Subject to the approval of the
shareholders of Newco, Newco shall sell to Buyer, and Buyer agrees to purchase
from Newco for the Purchase Price, all of the issued and outstanding Shares.
Each Seller waives any co-sale rights, rights of first refusal or similar rights
that such Seller may have relating to Buyer's purchase of the Shares, whether
conferred by the Company's Organizational Documents, by Contract or otherwise.

         1.4 Purchase Price.

         (a) The aggregate purchase price (the "PURCHASE PRICE") for the Shares
is U.S.$220,000,000 payable on the Closing Date in Japanese yen at an exchange
rate equal to 122.2480 Japanese yen to one (1) U.S. dollar.

         (b) If the Inspector (as defined in Section 6.3) submits an opinion to
the Buyer shareholders meeting to be held in accordance with Section 6.2 that
the Acquisition is unfair to Buyer but would be fair to Buyer at a purchase
price that is less than the Purchase Price set forth in Section 1.4(a) (the
"REDUCED BUYER PRICE"), or if the Inspector is unable to complete the inspection
and to submit an opinion to the Buyer shareholders meeting prior to the Closing
Date, then at the Closing (i) Buyer shall pay to Newco the Reduced Buyer Price
or, if the Inspector's opinion shall not have been issued to the Buyer
shareholders meeting, 499,999 Japanese yen and (ii) St. Jude and Buyer shall
cause St. Jude Medical Puerto Rico Holding B.V. to pay to Newco the deficiency
amount such that, at the Closing, Newco will receive the full Purchase Price set
forth in Section 1.4(a) and the Acquisition will not be voidable under Japanese
law as a result of the Inspector's opinion or lack of the Inspector's opinion.
All such payments will be made in accordance with Section 1.6(a)(ii)(A).

         1.5 Purchase Price Adjustment. Except to the extent caused by or in any
way arising out of any act of Buyer or St. Jude, or any affiliate of either of
them (whether under the Distribution Agreement (as defined in Section 8.2) or
otherwise), if, between the date of this Agreement and the date of Closing
(inclusive), there is a change, effect, event or condition, which is not in the
Ordinary Course of Business and which results or is reasonably likely to result
in either (i) a material loss or decrease in the value of the Company or the
business of the Company or (ii) a material gain or increase in the value of the
Company or the business of the Company, Buyer and Sellers shall negotiate in
good faith an appropriate decrease or increase, as applicable, in the

                                       3



Purchase Price for the Shares. If all of the conditions set forth in Article VII
have been fulfilled or waived in accordance with this Agreement but the parties
cannot agree on such appropriate decrease or increase before Closing in
accordance with Section 1.6, the Closing shall proceed and the Purchase Price
shall be paid at the Closing, subject to the appropriate decrease or increase to
be subsequently determined by arbitration conducted pursuant to provisions of
Article X.

         1.6 The Closing. If all of the conditions set forth in Article VII have
been fulfilled or waived in accordance with this Agreement, the closing of the
purchase and sale of the Shares from Newco to Buyer contemplated by this
Agreement (the "Closing") will take place at the offices of Mori Sogo on the
later of (i) the first business day following the later of (A) the date on which
the shareholders of Newco agree at a general meeting of Newco shareholders to
sell all of the Shares to Buyer or (B) the date on which the shareholders of
Buyer approve the acquisition of the Shares from Newco, or (ii) March 31, 2003,
or at such other place and on such other date as may be mutually agreed by Buyer
and Sellers' Representative (as defined in Section 9.4(a)). The date on which
the Closing occurs is referred to herein as the "Closing Date." On the Closing
Date:

         (a) Subject to the conditions set forth in this Agreement:

                  (i) Sellers will deliver or cause to be delivered to Buyer:

                           (A) certificates representing all of the issued and
                  outstanding Shares, free and clear of all Encumbrances, duly
                  endorsed, in accordance with applicable Japanese Laws;

                           (B) a certificate of Sellers dated the Closing Date
                  stating that the conditions set forth in Section 7.1(a) have
                  been satisfied;

                           (C) a copy of the text of the resolutions adopted by
                  the Board of Directors (or similar body) of each Seller
                  authorizing the execution, delivery and performance of this
                  Agreement, certified by an appropriate officer of such Seller;

                           (D) the minute books, stock or equity records,
                  corporate seal and other materials related to the corporate
                  administration of the Company or any Subsidiary;

                           (E) resignations in writing (effective as of the
                  Closing Date) from such of the officers and directors of each
                  of the Company and the Subsidiaries as Buyer may have
                  requested prior to the Closing Date; and

                           (F) any instruments and documents necessary to effect
                  the Trademark Assignment (as defined in Section 5.10).

                  (ii) Buyer will deliver or cause to be delivered to Sellers or
         Newco, as appropriate:



                                       4


                           (A) the Purchase Price by wire transfer of
                  immediately available funds to accounts that shall be
                  designated by Sellers to Buyer no later than three (3)
                  business days prior to the Closing Date;

                           (B) a certificate of Buyer dated the Closing Date
                  stating that the conditions set forth in Section 7.2(b) have
                  been satisfied; and

                           (C) a copy of the text of the resolutions adopted by
                  the Board of Directors of Buyer and St. Jude authorizing the
                  execution, delivery and performance of this Agreement,
                  certified by an appropriate officer of Buyer or St. Jude, as
                  appropriate.

         (b) All items delivered by the parties at the Closing will be deemed to
have been delivered simultaneously, and no items will be deemed delivered or
waived until all have been delivered.

         (c) Notwithstanding any investigation made by or on behalf of any of
the parties to this Agreement or the results of any such investigation, and
notwithstanding the fact of, or the participation of any of the parties to this
Agreement in, the Closing, the representations, warranties and agreements in
this Agreement will survive the Closing.

         (d) The Confidentiality Agreement will terminate effective as of the
Closing Date.

         (e) All actions to be taken by Buyer or Sellers in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated by this Agreement will be in form and substance
reasonably satisfactory to the other.

         1.7 Transfer by Getz Zug Following Tender Offer. Buyer acknowledges
that after completion of the Tender Offer Getz Zug may transfer its Shares or,
after the Stock Transfer, its shares in Newco, to Getz Intl. Such transfer shall
not be deemed a breach of any provision of this Agreement.

                 II. REPRESENTATIONS AND WARRANTIES OF SELLERS

         Each Seller represents and warrants to Buyer as of the date of this
Agreement and as of the Closing Date that, as to such Seller, except as
described in the corresponding section of the Disclosure Schedule:

         2.1 Title to Shares. As of the date hereof and subject to Section 1.7,
such Seller owns, of record and beneficially, the number of Shares listed
opposite such Seller's name on SCHEDULE 2.1, free and clear of any Encumbrance.
At the Closing, Buyer will obtain good and valid title to all Shares owned, of
record and beneficially, by such Seller as of the date hereof, free and clear of
any Encumbrance.

         2.2 Incorporation; Power and Authority. Such Seller is duly organized,
validly existing and, if applicable, in good standing under the laws of the
jurisdiction of its organization. Such Seller has all necessary power and
authority to execute, deliver and perform this Agreement, and,

                                       5



to the extent applicable, to perform the Tender Offer and to perform its
obligations under this Agreement in relation to the Stock Transfer.

         2.3 Valid and Binding Agreement. The execution, delivery and
performance of this Agreement, and, to the extent applicable, the performance of
the Tender Offer and the performance of its obligations under this Agreement in
relation to the Stock Transfer, by such Seller has been duly and validly
authorized by all necessary corporate or equivalent action. This Agreement has
been duly executed and delivered by such Seller and constitutes the valid and
binding obligation of such Seller, enforceable against it in accordance with its
terms, subject to the Remedies Exception.

         2.4 No Breach. The execution, delivery and performance of this
Agreement and, to the extent applicable, the performance of the Tender Offer and
the performance of its obligations under this Agreement in relation to the Stock
Transfer, by such Seller will not (a) contravene any provision of the
Organizational Documents of such Seller; (b) violate or conflict with any Law,
Governmental Order or Governmental Authorization; (c) result in the creation of
any Encumbrance upon the Shares held by such Seller; or (d) require any
Governmental Authorization other than the filing of the Tender Offer Documents
with the Kanto Local Financial Bureau, except, with respect to clauses (a) and
(b), where such contravention, violation or conflict would not, individually or
in the aggregate, prevent such Seller from performing its obligations under this
Agreement.

         2.5 Getz Intl Balance Sheet. Getz Intl has furnished Buyer with a true
and correct copy of its unaudited consolidated balance sheets as of December 31,
2001 and 2000, which balance sheets are accurate in all material respects.

           III. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY

         Sellers, jointly and severally, represent and warrant to Buyer as of
the date of this Agreement and as of the Closing Date that, except as described
in the corresponding section of the Disclosure Schedule:

         3.1 Incorporation; Power and Authority.

         (a) Each of the Company and the Subsidiaries is a legal entity duly
organized, validly existing and, if applicable, in good standing under the laws
of the jurisdiction of its organization, and has all necessary power and
authority necessary to own, lease and operate its assets and to carry on its
business as now conducted and presently proposed to be conducted.

         (b) Each of the Company and the Subsidiaries is in material compliance
with all provisions of its Organizational Documents.

         3.2 No Breach. The performance of the Stock Transfer will not (a)
contravene any provision of the Organizational Documents of the Company or any
Subsidiary; (b) violate or conflict with any Law, Governmental Order or
Governmental Authorization; (c) result in the creation of any material
Encumbrance upon the Company or any Subsidiary or any of the assets of the
Company or any Subsidiary; or (d) require any Governmental Authorization,
except, with respect to clauses (a) and (b), where such contravention, violation
or conflict would not,

                                       6


individually or in the aggregate, prevent Sellers from performing their
obligations under this Agreement.

         3.3 Capitalization. The authorized capital stock of the Company
consists solely of 148,962,000 shares of common stock ("Company Common Stock"),
of which, as of June 30, 2002, 38,202,500 shares are issued and outstanding, 560
shares of which are held in treasury. All issued and outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
non-assessable, free of preemptive rights or any other third-party rights and in
certificated form, and have been offered, sold and issued by the Company in
compliance with applicable securities and corporate Laws. There is no option,
warrant, call, subscription, convertible security, right (including preemptive
right) or Contracts of any character to which the Company is a party or by which
it is bound obligating the Company to issue, exchange, transfer, sell,
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of or
enter into any such option, warrant, call, subscription, convertible security,
right or Contract.

         3.4 Subsidiaries. Except as listed on SCHEDULE 3.4, neither the Company
nor any Subsidiary owns any Subsidiary. For each of the Company's Subsidiaries,
SCHEDULE 3.4 shows the equity interests owned by the Company or any Subsidiary,
the names of the Persons owning such equity interests and the percentage of the
outstanding equity interests so owned. All issued and outstanding equity
interests of each Subsidiary of the Company are duly authorized, validly issued,
fully paid and non-assessable, free of preemptive rights or any other
third-party right except for those statutory preemptive rights arising, granted
or existing pursuant to the Japanese Commercial Code, free and clear of all
Encumbrances, and in certificated form and have been issued by such Subsidiary
in compliance with applicable securities and corporate Laws. There is no option,
warrant, call, subscription, convertible security, right (including preemptive
right except for statutory preemptive rights) or Contracts of any character to
which the Company or any Subsidiary is a party or by which it is bound
obligating any Subsidiary of the Company to issue, exchange, transfer, sell,
repurchase, redeem or otherwise acquire any equity interest of such Subsidiary
or obligating the Company or such Subsidiary to grant, extend, accelerate the
vesting of or enter into any such option, warrant, call, subscription,
convertible security, right or Contract.

         3.5 Financial Statements. The Company has furnished Buyer with true and
correct copies of the unaudited balance sheets as of June 30, 2002 of each of
the Company, Medtechnica Co., Ltd., Vital Link Co., Ltd. and TechnoMed Co. Ltd.
(the "Latest Balance Sheets") and unaudited statements of earnings of each of
the Company, Medtechnica Co., Ltd., Vital Link Co., Ltd. and TechnoMed Co. Ltd.
for the six-month period then ended and unaudited shareholders' equity and cash
flows of the Company for the six-month period then ended (such statements and
the Latest Balance Sheets, the "Latest Financial Statements") and the
consolidated English-language balance sheets of the Company translated from the
audited consolidated Japanese-language balance sheets of the Company, as of
December 31, 2001 and December 31, 2000 (collectively, the "Annual Balance
Sheets"). The Latest Financial Statements and the Annual Balance Sheets are
accurate in all material respects. TechnoMed Co. Ltd. has no material
liabilities.

         3.6 Absence of Certain Developments. Since December 31, 2001:

                                       7


         (a) neither the Company nor any Subsidiary has sold, leased,
transferred or assigned any of its assets, tangible or intangible, involving
more than (Y)50,000,000 other than for a fair consideration in the Ordinary
Course of Business;

         (b) neither the Company nor any Subsidiary has entered into any
Contract (or series of related Contracts) involving more than (Y)50,000,000
other than in the Ordinary Course of Business;

         (c) no party (including the Company or any Subsidiary) has accelerated,
suspended, terminated, modified or canceled any Contract (or series of related
Contracts) involving more than (Y)50,000,000, to which the Company or any
Subsidiary is a party or by which any of them is bound other than in the
Ordinary Course of Business;

         (d) neither the Company nor any Subsidiary has declared, set aside or
paid any dividend or made any distribution with respect to its capital stock or
equity interests, whether in cash or in kind (other than routine interim or
annual dividends to all shareholders of the Company consistent with past
practices and dividends or distributions from a Subsidiary to the Company or
another Subsidiary) or, except as listed on SCHEDULE 3.6 or as may be required
in connection with the Stock Transfer, redeemed, purchased or otherwise acquired
any of its capital stock or split, combined or reclassified any outstanding
shares of its capital stock;

         (e) the Company has not loaned any funds, paid any money or transferred
any assets to any affiliate (other than among the Company and the Subsidiaries),
except for (i) payments of dividends or distributions permitted under Section
3.6(d), (ii) payments to affiliates for goods or services purchased or obtained
in the Ordinary Course of Business in arms' length transactions, and (iii)
payments required under the Contracts listed on SCHEDULE 3.6(E); and

         (f) the Company has not made any material change in accounting
principles or practices from those utilized in the preparation of the Annual
Financial Statements.

         3.7 Property.

         (a) The real properties owned by the Company or any Subsidiary or
demised by the leases listed on SCHEDULE 3.7 constitute all of the real property
owned, leased (whether or not occupied and including any leases assigned or
leased premises sublet for which the Company remains liable), used or occupied
by the Company or any Subsidiary.

         (b) The leases of real property listed on SCHEDULE 3.7 as being leased
by the Company or any Subsidiary (the "Leased Real Property") are in full force
and effect, and the Company has used the Leased Real Property undisturbed.

         (c) The Company and, to Sellers' Knowledge, each Subsidiary owns good
and marketable title to each parcel of real property identified on SCHEDULE 3.7
as being owned by the Company or a Subsidiary (the "Owned Real Property" and,
together with the Leased Real Property, the "Real Property").

                                       8


         (d) Neither the Company nor any Subsidiary has received any written
notice of any violation of any applicable zoning ordinance or other Law relating
to the Real Property, which violation has or reasonably could be expected to
have a Material Adverse Effect.

         (e) Sellers have no Knowledge of material improvements made or
contemplated to be made by any Governmental Entity, the costs of which are to be
assessed as special Taxes or charges against any of the Real Property, and there
are no present assessments.

         (f) Each of the Company and the Subsidiaries has good and marketable
title to, or a valid leasehold interest in, the buildings, machinery, equipment
and other tangible assets and properties shown in the Latest Balance Sheets or
acquired after the date thereof, free and clear of all Encumbrances, except for
Encumbrances listed on SCHEDULE 3.7 or disclosed in the Latest Financial
Statements and properties and assets disposed of in the Ordinary Course of
Business since the date of the Latest Balance Sheets.

         3.8 Tax Matters.

         (a) Each of the Company and any Tax Affiliate has (i) timely filed all
Returns required to be filed by it in respect of any Taxes, all which were
correct and complete in all material respects; (ii) timely paid all Taxes shown
to be due and payable on such Returns; (iii) established on the Latest Balance
Sheets reserves that are adequate for the payment of any Taxes accrued but not
yet due and payable through the date thereof; and (iv) complied with all Laws
relating to the withholding of Taxes and the payment thereof.

         (b) SCHEDULE 3.8 lists all national, prefectural, provincial, state,
local and foreign income Returns filed with respect to the Company or any Tax
Affiliate for taxable periods ended on or after December 31, 2000, indicates
those Returns that have been audited and indicates those Returns that currently
are the subject of audit.

         (c) No deficiency for any Taxes has been proposed, asserted or assessed
against the Company or any Tax Affiliate that has not been resolved and paid in
full.

         3.9 Material Contracts.

         (a) SCHEDULE 3.9 lists the following written Contracts to which the
Company or any Subsidiary is a party or by which it is bound (the "Material
Contracts"):

                  (i) all employment, agency or consulting Contracts;

                  (ii) all stock purchase, stock option and stock incentive
         plans (other than Plans listed on SCHEDULE 3.16(A));

                  (iii) all distributor, reseller, dealer, manufacturer's
         representative, sales agency or advertising agency and finder's
         Contracts;

                  (iv) all franchise agreements;

                                       9


                  (v) all leases of real or personal property (excluding any
         lease with aggregate annual payments of (Y)50,000,000 or less);

                  (vi) any Contract for the sale of any capital assets valued in
         excess of (Y)50,000,000;

                  (vii) any Contract for the sale of any minority equity
         investments;

                  (viii) any Contract for capital expenditures in excess of
         (Y)50,000,000;

                  (ix) all Contracts relating to the borrowing of money or to
         mortgaging, pledging or otherwise placing an Encumbrance on any of the
         assets of the Company or any Subsidiary;

                  (x) each warranty, guaranty or other similar undertaking with
         respect to contractual performance extended by the Company or any
         Subsidiary other than in the Ordinary Course of Business;

                  (xi) all Contracts relating to any surety bond or letter of
         credit required to be maintained by the Company or any Subsidiary;

                  (xii) all license agreements, transfer or joint-use agreements
         or other agreements related to Intellectual Property;

                  (xiii) any Contract for a partnership or joint venture;

                  (xiv) any and all other Contracts of the Company or any
         Subsidiary that both were not entered into in the Ordinary Course of
         Business and are material to the business, financial condition, results
         of operations or prospects of the Company and the Subsidiaries taken as
         a whole; and

                  (xv) any Contracts not listed above that contain
         non-competition or non-solicitation provisions or that would otherwise
         prohibit the Company or any Subsidiary from freely engaging in business
         anywhere in the world or prohibiting the solicitation of the employees
         or contractors of any other entity.

         3.10 Litigation. SCHEDULE 3.10 lists all Litigation pending or, to the
Knowledge of any Seller, threatened against the Company or any Subsidiary and
each material Governmental Order to which the Company or any Subsidiary is
presently subject.

         3.11 Insurance. SCHEDULE 3.11 lists all policies of insurance carried
by each of the Company and the Subsidiaries.

         3.12 Compliance with Laws; Governmental Authorizations.

         (a) To Sellers' Knowledge, each of the Company and the Subsidiaries
has:

                                       10


                  (i) complied in all material respects with all material Laws
         and Governmental Orders, and

                  (ii) neither the Company nor any Subsidiary is relying on any
         exemption from or deferral of any Law, Governmental Order or
         Governmental Authorization that would not be available to it after the
         Closing.

         (b) To Sellers' Knowledge, each of the Company and the Subsidiaries has
in full force and effect all material Governmental Authorizations necessary to
conduct its business and own and operate its properties (including, but not
limited to, SHONIN issued by the Japan Ministry of Health for each product
distributed by the Company or any Subsidiary). To Sellers' Knowledge, each of
the Company and the Subsidiaries has complied in all material respects with all
Governmental Authorizations applicable to it.

         (c) To Sellers' Knowledge, since the date one (1) year prior to the
date of this Agreement, neither the Company nor any Subsidiary has, in violation
of any applicable Law, offered, authorized, promised, made or agreed to make
gifts of money, other property or similar benefits (other than incidental gifts
of articles of nominal value) to any actual or potential customer, supplier,
governmental employee, political party, political party official or candidate,
official of a public international organization or any other Person in a
position to assist or hinder the Company or any Subsidiary in connection with
any actual or proposed transaction.

         3.13 Environmental Matters.

         (a) As used in this Section 3.13, the following terms have the
following meanings:

                  (i) "ENVIRONMENTAL COSTS" means any and all reasonable costs
         and expenditures, including but not limited to any fees and expenses of
         attorneys and of environmental consultants or engineers incurred in
         connection with investigating, defending, remediating or otherwise
         responding to any Release of Hazardous Materials, any violation or
         alleged violation of Environmental Laws, any fees, fines, penalties or
         charges associated with any Governmental Authorization, or any actions
         necessary to comply with any Environmental Laws.

                  (ii) "ENVIRONMENTAL LAWS" means any Law, Governmental
         Authorization or Governmental Order relating to pollution,
         contamination, Hazardous Materials or protection of the environment in
         effect at the time of execution of the Agreement.

                  (iii) "HAZARDOUS MATERIALS" means any dangerous, toxic or
         hazardous pollutant, contaminant, chemical, waste, material or
         substance as defined in or governed by any Law relating to such
         substance or otherwise relating to the environment or human health or
         safety, including without limitation any waste, material, substance,
         pollutant or contaminant that subjects the owner or operator of the
         Property to any Environmental Costs or liability under any
         Environmental Law in effect at the time of execution of this Agreement.

                  (iv) "PROPERTY" means real property now owned, leased,
         controlled or occupied by the Company or any Subsidiary.

                                       11


                  (v) "REGULATORY ACTIONS" means any Litigation with respect to
         the Company or any Subsidiary brought or instigated by any Governmental
         Entity in connection with any Environmental Costs, Release of Hazardous
         Materials or any Environmental Law.

                  (vi) "RELEASE" means the spilling, leaking, disposing,
         discharging, emitting, depositing, ejecting, leaching, escaping or any
         other release or threatened release, however defined, whether
         intentional or unintentional, of any Hazardous Material.

                  (vii) "THIRD-PARTY ENVIRONMENTAL CLAIMS" means any Litigation
         (other than a Regulatory Action) based on negligence, trespass, strict
         liability, nuisance, toxic tort or any other cause of action or theory
         relating to any Environmental Costs, Release of Hazardous Materials or
         any violation of Environmental Law.

         (b) No Third-Party Environmental Claims or Regulatory Actions are
pending against the Company or any Subsidiary, and, to the Knowledge of Sellers,
no Third-Party Environmental Claims or Regulatory Actions are threatened against
the Company or any Subsidiary.

         (c) Since the date two (2) years prior to the date of this Agreement,
to Sellers' Knowledge, the transfer, transportation or disposal of Hazardous
Materials by the Company or any Subsidiary to properties not owned, leased or
operated by the Company or any Subsidiary has been in compliance with applicable
Environmental Laws at the time of such transfer, transport or disposal.

         (d) To Sellers' Knowledge, the Property is used and operated in
material compliance with all material Environmental Laws applicable to it.

         (e) Each of the Company and the Subsidiaries has obtained all material
Governmental Authorizations relating to the Environmental Laws, to Sellers'
Knowledge, necessary for operation of the Company, each of which is listed on
SCHEDULE 3.13(E).

         (f) The Company has delivered to Buyer all environmental reports and
investigations, if any, that any Sellers, the Company or any Subsidiary has
obtained or ordered with respect to the Company or any Subsidiary, or the
Property.

         (g) No Encumbrance has been attached or filed against the Company or
any Subsidiary in favor of any Person for (i) any liability under or violation
of any applicable Environmental Law, (ii) any Release of Hazardous Materials or
(iii) any imposition of Environmental Costs.

         3.14 Warranties. SCHEDULE 3.14 lists all material claims pending or, to
the Knowledge of any Sellers, threatened for breach of any warranty relating to
any products sold or services performed by the Company or any Subsidiary prior
to the date of this Agreement. Except as listed on SCHEDULE 3.14, none of the
products sold, leased or delivered by the Company or any Subsidiary has been the
subject of any product recall or return (whether voluntary or involuntary)
during the past five (5) years.

                                       12


         3.15 Employees.

         (a) To Sellers' Knowledge, each of the Company and the Subsidiaries has
complied at all times in all material respects with all applicable Laws relating
to employment and employment practices.

         (b) Except as set forth in SCHEDULE 3.15(B), none of the employees of
the Company or any Subsidiary is covered by any collective bargaining agreement,
no collective bargaining agreement is currently being negotiated and, to
Sellers' Knowledge, no attempt is currently being made or threatened or during
the past five (5) years has been made to organize any employees of the Company
or any Subsidiary to form or enter into any labor union, employee association or
similar organization. There are no strikes or work stoppages pending or, to the
Knowledge of any Seller, threatened against or otherwise affecting the employees
or facilities of the Company or any Subsidiary. None of the Company or any
Subsidiary has experienced any labor strike or work stoppage involving its
employees within the past two (2) years.

         (c) Each of the Company and the Subsidiaries has paid in full to all
employees all wages, salaries, bonuses and commissions due and payable to such
employees and have fully reserved on the Latest Financial Statements all amounts
for wages, salaries, bonuses and commissions due but not yet payable to such
employees as of the date thereof.

         3.16 Employee Benefits.

         (a) Except as set forth in SCHEDULE 3.16(A), with respect to all
employees and former employees of the Company or its Subsidiaries and all
dependents and beneficiaries of such employees and former employees, neither the
Company nor any Subsidiary maintains or contributes to any plan, fund, contract
program or arrangement (written or verbal) intended to provide: (i) medical,
surgical, health care, hospitalization, dental, vision, workers compensation,
life insurance, death, disability, legal services, severance, sickness or
accident benefits; (ii) pension, profit sharing, retirement, supplemental
retirement or deferred compensation benefits; (iii) bonus, incentive
compensation, stock option, stock appreciation rights, phantom stock or stock
purchase benefits or change in control benefits; or (iv) salary continuation,
unemployment, supplemental unemployment, termination pay, vacation or holiday
benefits (each a "PLAN").

         (b) For the last two (2) years, neither the Company nor any Subsidiary
has incurred any liability for any Tax or civil penalty or any disqualification
of any employee benefit plan imposed by the Law of any jurisdiction in which the
Company or any Subsidiary does business.

         3.17 Suppliers. SCHEDULE 3.17 lists the eight largest suppliers (other
than St. Jude Medical, Inc. and its affiliates) of the Company and the
Subsidiaries on a consolidated basis for each of the last two (2) fiscal years
and for the interim period ended on the date of the Latest Balance Sheets and
sets forth opposite the name of each such supplier the amount of purchases by
the Company and the Subsidiaries attributable to such supplier for each such
period.

         3.18 Brokerage. Except for Goldman, Sachs & Co., the Tender Offer agent
and KPMG Corporate Finance K.K., no Person will be entitled to receive any
brokerage commission, finder's fee, fee for financial advisory services or
similar compensation in connection with the


                                       13


transactions contemplated by this Agreement based on any Contract made by or on
behalf of the Company for which Buyer or the Company is or could become liable
or obligated.

         3.19 Securities Law Compliance. Since January 1, 2000 and through the
Closing Date, the Company has filed or will file, with the appropriate Japanese
regulatory authorities, including the Financial Services Agency, the Kanto Local
Financial Bureau, the Japan Securities Dealers Association and any other
applicable stock exchange, the forms and documents required to be filed by it
under Japanese securities Laws. These filings, including any financial
statements or schedules included therein, have complied or will comply in all
material respects with the applicable requirements of Japanese securities Laws.

            IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND ST. JUDE

         Each of Buyer and St. Jude represents and warrants to Sellers as of the
date hereof and as of the Closing Date that:

         4.1 Incorporation; Power and Authority. Each of Buyer and St. Jude is a
legal entity duly organized, validly existing and, if applicable, in good
standing under the laws of its jurisdiction of organization, with all necessary
power and authority to execute, deliver and perform this Agreement.

         4.2 Valid and Binding Agreement. The execution, delivery and
performance of this Agreement by Buyer and St. Jude have been duly and validly
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by Buyer and St. Jude and constitutes the valid and
binding obligation of Buyer and St. Jude, enforceable against each in accordance
with its terms, subject to the Remedies Exception.

         4.3 No Breach. The execution, delivery and performance of this
Agreement by Buyer and St. Jude will not (a) contravene any provision of the
Organizational Documents of Buyer or St. Jude; (b) violate or conflict with any
Law, Governmental Order or Governmental Authorization; or (c) require any
Governmental Authorization, except, with respect to clauses (a) and (b), where
such contravention, violation or conflict would not, individually or in the
aggregate, prevent Buyer or St. Jude, respectively, from performing its
obligations under this Agreement.

         4.4 Brokerage. Except for Goldman, Sachs & Co., no Person will be
entitled to receive any brokerage commission, finder's fee, fee for financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any Contract made by or on behalf of
Buyer for which any Sellers is or could become liable or obligated.

                            V. AGREEMENTS OF SELLERS

         Sellers, jointly and severally, agree with Buyer that:

         5.1 Conduct of the Business. Unless otherwise consented to by Buyer in
writing, Sellers will cause the Company (which, for purposes of this Section
5.1, shall mean the Company and


                                       14


the Subsidiaries taken as a whole) to observe the following provisions from the
date of this Agreement to and including the Closing Date:

                  (a) The Company will conduct its business in all material
         respects in the Ordinary Course of Business and in accordance with
         applicable Law;

                  (b) The Company will (i) use reasonable efforts to preserve
         its business organization and goodwill, keep available the services of
         its officers, employees and consultants and maintain satisfactory
         relationships with vendors, customers and others having business
         relationships with it, and (ii) confer on a regular and frequent basis
         with representatives of Buyer to report operational matters and the
         general status of ongoing operations as requested by Buyer;

                  (c) The Company will not materially change any of its methods
         of accounting in effect on the date of the Latest Balance Sheets, other
         than changes required by GAAP;

                  (d) The Company will provide Buyer with its monthly
         controller's reports promptly following the distribution of each such
         report to the Company's management;

                  (e) The Company will not cancel or terminate its current
         insurance policies or allow any of the coverage thereunder to lapse,
         unless simultaneously with such termination, cancellation or lapse
         replacement policies providing coverage equal to or greater than the
         coverage under the canceled, terminated or lapsed policies for
         substantially similar premiums are in full force and effect;

                  (f) The Company will file (or cause to be filed) at its own
         expense, on or prior to the due date, all Returns for all Tax periods
         ending on or before the Closing Date where the due date for such
         Returns (taking into account valid extensions of the respective due
         dates) falls on or before the Closing Date, prepared on a basis
         consistent with the Returns of the Company prepared for prior Tax
         periods, and will provide Buyer with copies of each income Tax Return
         or election of the Company at least ten (10) days before filing such
         Return or election; provided, however, that the Company will not file
         any Return, election, claim for refund or information statement or
         consent to any adjustment or otherwise compromise or settle any matters
         with respect to Taxes to which Buyer reasonably objects;

                  (g) The Company will not (i) make or rescind any express or
         deemed election or take any other discretionary position relating to
         Taxes, (ii) amend any Return, (iii) settle or compromise any Litigation
         relating to Taxes or (iv) change any of its methods of reporting income
         or deductions for income Tax purposes from those employed in the
         preparation of the last filed income Tax Returns unless there is a
         change in applicable Laws;

                  (h) The Company will not declare, set aside or pay any
         dividend or make any distribution with respect to its capital stock or
         equity interests, whether in cash or in kind (other than routine
         interim or annual dividends to all shareholders of the Company
         consistent with past practices and dividends or distributions from a
         Subsidiary to the Company or another Subsidiary); and

                                       15


                  (i) The Company will not loan any funds, pay any money or
         transfer any assets to any affiliate (other than among the Company and
         the Subsidiaries), except for (i) payments of dividends or
         distributions permitted under Section 5.1(h), (ii) payments to
         affiliates for goods or services purchased or obtained in the Ordinary
         Course of Business in arms' length transactions, and (iii) payments
         required under the Contracts listed on SCHEDULE 5.1(I).

         5.2 Access; Updating of Disclosure Schedule.

         (a) From the date of this Agreement through the Closing Date, Sellers
will cause the Company (which, for purposes of this Section 5.2, shall mean the
Company and the Subsidiaries taken as a whole) to afford to Buyer and its
authorized representatives coordinated access at all reasonable times and upon
reasonable notice to the facilities, offices, properties, technology, processes,
books, business and financial records, officers, employees, business plans,
budget and projections, customers, suppliers and other information of each of
the Company and the Subsidiaries, and the work papers of Ernst & Young LLP, the
Company's independent accountants, to provide for an orderly transition
following the Closing; provided, however, that prior to the Closing Date Buyer
and its authorized representatives will not have access to information relating
to products distributed or proposed to be distributed by the Company other than
products distributed under the Distribution Agreement. In addition, Sellers will
cause each of the Company and the Subsidiaries, and their officers and
employees, to cooperate as appropriate (including providing introductions where
necessary) with Buyer to enable Buyer to contact third parties, including
suppliers, customers and prospective customers of the Company. The
Confidentiality Agreement, dated May 21, 2002 (the "CONFIDENTIALITY AGREEMENT"),
between an affiliate of the Company and St. Jude will apply with respect to
information obtained by Buyer under this Section 5.2. To implement this
Subsection 5.2(a), Sellers and Buyer will each appoint a due diligence
coordinator (the "COORDINATORS"). The initial Coordinators shall be Joe
McCullough for Buyer and Ray Simkins for Sellers. Each party may change its
Coordinator from time to time at its discretion by providing notice to the other
party. Any access will be arranged through the Coordinators as they may mutually
determine.

         (b) After the Closing Date, Sellers will afford to Buyer, its
accountants and counsel, during normal business hours, upon reasonable request,
full access to the books and records of Sellers pertaining to each of the
Company and the Subsidiaries.

         (c) No later than three (3) business days before the Closing, Sellers
may deliver to Buyer an updated Disclosure Schedule reflecting items arising or
changes occurring in connection with the operation of the business of the
Company and the Subsidiaries between the date of this Agreement and the Closing
Date (the "UPDATED DISCLOSURE SCHEDULE"). No additional disclosure made in the
Updated Disclosure Schedule shall be deemed to be a breach of any representation
or warranty of Sellers contained in this Agreement unless the item disclosed
results from conduct in violation of Section 5.1; PROVIDED, HOWEVER, that no
disclosure set forth in the Updated Disclosure Schedule will be deemed to cure
any inaccuracy or misrepresentation in the Disclosure Schedule that existed as
of the date of this Agreement.

         5.3 Waivers; Payment of Indebtedness. To assure that Buyer obtains the
full benefit of this Agreement, effective as of the Closing Date, each Seller
will waive any claim it might have


                                       16


against the Company or any Subsidiary, whether arising out of this Agreement or
otherwise, and irrevocably offers to terminate any Contract between such Seller
and the Company or any Subsidiary at no cost to the Company or any Subsidiary.
Sellers will cause each Seller and any Person controlled by any Seller to repay,
in full, prior to the Closing, all indebtedness owed to the Company or any
Subsidiary by such Person.

         5.4 Conditions. Sellers will use their reasonable efforts to cause the
conditions set forth in Section 7.1 to be satisfied and to consummate the
transactions contemplated by this Agreement, including without limitation the
Tender Offer and Stock Transfer, as soon as reasonably possible and in any event
prior to the Closing Date. Such efforts may include taking action as required to
change the Company's fiscal year end in order to permit the revocation of the
registration of the Shares with the JASDA. Any such action shall not be deemed a
breach of any provision of this Agreement.

         5.5 Consents and Authorizations. Sellers will cooperate with Buyer to
enable Buyer to obtain all Consents and Governmental Authorizations required for
the consummation of the transactions contemplated by this Agreement or which
could, if not obtained, adversely affect the conduct of the business of the
Company or any Subsidiary as it is presently conducted. Without limiting the
foregoing, Sellers will make or cause to be made all filings and submissions
required by them or the Company under any Law applicable to Sellers or the
Company required for the consummation of the transactions contemplated by this
Agreement.

         5.6 Nondisparagement. No Seller will take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier or other business associate of the Company or any Subsidiary from
maintaining the same business relationships with each of the Company and the
Subsidiaries after the Closing as it maintained with each of the Company and the
Subsidiaries prior to the Closing. Each Seller will refer all customer inquiries
relating to the businesses of the Company or any Subsidiary to the Buyer from
and after the Closing.

         5.7 Non-Hire.

         (a) During the period that commences on the Closing Date and ends on
the second anniversary of the Closing Date, no Seller will knowingly employ (or
attempt to employ or interfere with any employment relationship with) any
employee of the Company or any Subsidiary.

         (b) Except as otherwise permitted under the Distribution Agreement,
from and after the date of this Agreement until the later of (i) two years from
the Closing Date or (ii) two years from the date this Agreement is terminated,
neither St. Jude nor Buyer or any Subsidiary of either of them will knowingly
employ (or attempt to employ or interfere with any employment relationship with)
any employee of Sellers or any Subsidiary of Sellers (excluding any employee of
the Company or the Subsidiaries after the Closing Date).

         5.8 Litigation Support. In the event and for so long as Buyer, the
Company or any Subsidiary is actively contesting or defending against any
Litigation in connection with any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,

                                       17


action, failure to act or transaction existing or occurring on or prior to the
Closing Date involving the Company or any Subsidiary, each Seller will cooperate
in the contest or defense, make available its personnel and provide such
testimony and access to its books and records as may be necessary in connection
with the contest or defense, all at the sole cost and expense of Buyer (unless
and to the extent Buyer is entitled to indemnification therefor under Article
IX).

         5.9 Confidentiality.

         (a) From and after the Closing, Sellers will keep confidential and
protect, and will not disclose to any third party, (i) Intellectual Property
Rights, including product specifications, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current and planned research and development, current and planned
manufacturing and distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, software, database technologies, systems, structures, architectures and
data (and related processes, formulae, compositions, improvements, devices,
know-how, inventions, discoveries, concepts, ideas, designs, methods and
information), (ii) any and all information concerning the business and affairs
(including historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training and techniques and
materials, however documented), and (iii) any and all notes, analyses,
compilations, studies, summaries and other material containing or based, in
whole or in part, on any information included in the foregoing ("Confidential
Information") of the Company or any Subsidiary. Sellers acknowledge that such
Confidential Information constitutes a unique and valuable asset of the Company
or a Subsidiary and represents a substantial investment of time and expense by
the Company or a Subsidiary, and that any disclosure of such Confidential
Information other than for the sole benefit of the Company or a Subsidiary would
be wrongful and could cause irreparable harm to the Company or a Subsidiary. The
foregoing obligations of confidentiality will not apply to any Confidential
Information that (i) is now or subsequently becomes generally publicly known,
other than as a direct or indirect result of the breach of this Agreement by
Sellers; (ii) is or becomes known to Sellers or their affiliates as a result of
contracts or business relationships between Sellers or their affiliates (other
than the Company and the Subsidiaries) and third parties; or (iii) is
independently developed by Sellers or their affiliates (other than the Company
and the Subsidiaries) without using Confidential Information of the Company or
the Subsidiaries.

         (b) In the event that any Seller is requested or required (by Law, oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand or similar process) to
disclose any Confidential Information, that Seller will notify Buyer promptly of
the request or requirement so that Buyer may seek an appropriate protective
order or waive compliance with the provisions of this Section 5.9. If, in the
absence of a protective order or the receipt of a waiver hereunder, any Seller
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal.

         5.10 Transfer of Certain Trademark Rights. Concurrently with the
Closing, Sellers shall cause to be transferred to the Company or Buyer, as Buyer
shall designate, all of their rights

                                       18



to use the trademarks, trade names and logos identified on SCHEDULE 5.10 solely
in connection with the sale of medical products in Japan (the "TRADEMARK
ASSIGNMENT").

         5.11 No Encumbrance of Shares. Sellers shall not take any action to
encumber any Shares acquired by M&P in the Tender Offer or acquired by Newco in
the Stock Transfer.

         5.12 Getz Intl Net Worth. Getz Intl agrees not to take any action to
cause its net worth to be less than $50,000,000 for a period of one (1) year
after the Closing Date and, thereafter, such amount as is reasonably necessary
to satisfy any indemnification claims that have been properly asserted by Buyer
under Article IX but remain unresolved at the end of such one year period until
the same are finally resolved.

                      VI. AGREEMENTS OF BUYER AND ST. JUDE

         6.1 Filings and Submissions. Buyer agrees with Sellers that Buyer will
make or cause to be made all filings and submissions required by it under any
Law applicable to Buyer required for the consummation of the transactions
contemplated by this Agreement; PROVIDED, that neither Buyer nor St. Jude will
be required to dispose of, hold separately or make any change in, any portion of
its business or assets (or the business or assets of the Company or any
Subsidiary).

         6.2 Buyer Shareholders Meeting. Buyer shall use all reasonable efforts
to convene a general shareholders meeting to approve the Acquisition on the
terms and subject to the conditions set forth in this Agreement on or prior to
the date of the Newco shareholders meeting set forth in Section 1.3 but in any
event no later than April 30, 2003. At such meeting, St. Jude shall cause the
parent entity of Buyer to vote all shares of Buyer owned by it in favor of
approval of the Acquisition.

         6.3 Inspection. Promptly following the incorporation of Newco, Buyer
shall apply to the court for appointment of an inspector to undertake an
inspection of the Acquisition pursuant to Article 246 of the Commercial Code of
Japan (the "INSPECTOR"). Buyer shall use all reasonable efforts to cause the
Inspector to submit the final opinion that the Acquisition is not unfair for the
purposes of Article 246 of the Commercial Code of Japan to the Buyer
shareholders meeting set forth in Section 6.2.

         6.4 Section 338 Election.

         (a) Buyer agrees that no election will be made under Section 338(g) of
the Code or any comparable provision of prefectural, provincial, state, local or
foreign Law (A "SECTION 338 ELECTION"), with respect to Buyer's acquisition of
the Shares unless and until Buyer has first obtained the written consent of
Sellers to such election; PROVIDED, HOWEVER, that Sellers agree to consent to a
Section 338 Election proposed by Buyer if Sellers determine, in their sole
discretion and based upon Buyer's proposed allocation of the Purchase Price and
assumed liabilities among the assets of the Company and the Subsidiaries (the
"ALLOCATION"), that such Section 338 Election will not have any adverse effect
upon Sellers. If Sellers grant their advance written consent with respect to a
request by Buyer to make a Section 338 Election, and Buyer thereafter makes the
Section 338 Election, Buyer (and its affiliates, including St. Jude) and Sellers
(and their affiliates) will file their Tax Returns in a manner consistent with
the Allocation.

                                       19


         (b) In the event that the Stock Transfer does not occur on or prior to
December 31, 2002, and no Section 338 (g) Election is made for United States
income tax purposes, then from the Closing Date through and including the last
day of the taxable year of the Company within which the Closing occurs (as
determined for purposes of the Code), the Company shall not, without the prior
written consent of Sellers (which consent will be granted unless Sellers
determine in their sole discretion, that such action will have an adverse effect
on Sellers), (i) distribute as a dividend any cash or other property, or (ii)
undertake any transaction that would cause the Company to be deemed to hold
"United States property" as of the close of any quarter of such taxable year
(within the meaning of Section 956 of the Code).

                           VII. CONDITIONS TO CLOSING

         7.1 Conditions to Buyer's Obligations. The obligation of Buyer to take
the actions required to be taken by it at the Closing is subject to the
satisfaction or waiver, in whole or in part, in Buyer's sole discretion (but no
such waiver will waive any right or remedy otherwise available under this
Agreement), of each of the following conditions at or prior to the Closing:

         (a) Newco shall have acquired all of the issued and outstanding Shares,
the register of the Shares with the JASDA shall have been revoked, an exemption
from its continuous disclosure obligations shall have been granted to the
Company by the Prime Minister of Japan, and the sale of the Shares pursuant to
this Agreement shall have been duly approved by the shareholders of Newco in
accordance with applicable Law;

         (b) The acquisition of the Shares pursuant to this Agreement shall have
been duly approved by the shareholders of Buyer in accordance with applicable
Law, PROVIDED that Buyer shall not be entitled to invoke this condition if, in
breach of their obligations contained in this Agreement, Buyer or St. Jude shall
have been the cause of the failure of this condition;

         (c) No Law or Governmental Order shall have been enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity that prohibits the
Closing; and

         (d) There shall have been no substantial impairment of the business of
the Company, except to the extent caused by or in any way arising out of any act
of Buyer or St. Jude, or any affiliate of either of them, whether pursuant to
the Distribution Agreement or otherwise.

         7.2 Conditions to Sellers' Obligations. The obligation of Sellers to
take the actions required to be taken by them at the Closing is subject to the
satisfaction or waiver, in whole or in part, in Sellers' sole discretion (but no
such waiver will waive any rights or remedy otherwise available under this
Agreement), of each of the following conditions at or prior to the Closing:

         (a) Newco shall have acquired all of the issued and outstanding Shares,
the register of the Shares with the JASDA shall have been revoked, the exemption
from its continuous disclosure obligations shall have been granted to the
Company by the Prime Minister of Japan, and the sale of the Shares pursuant to
this Agreement shall have been duly approved by the shareholders of Newco in
accordance with applicable Law, PROVIDED that Sellers shall not be entitled to
invoke this condition if, in breach of their obligations contained in this
Agreement, they shall have been the cause of the failure of this condition;

                                       20


         (b) The acquisition of the Shares pursuant to this Agreement shall have
been duly approved by the shareholders of Buyer in accordance with applicable
Law; and

         (c) No Law or Governmental Order shall have been enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity that prohibits the
Closing.

                               VIII. TERMINATION

         8.1 Termination. This Agreement may be terminated prior to the Closing:

         (a) by the mutual written consent of Buyer and Sellers' Representative;

         (b) by Sellers' Representative, if

                  (i) any of the conditions set forth in Section 7.2 have become
         impossible to satisfy through no fault of Sellers; or

                  (ii) the transactions contemplated by this Agreement have not
         been consummated on or before June 30, 2003; PROVIDED that Sellers'
         Representative will not be entitled to terminate this Agreement
         pursuant to this Section 8.1(b)(ii) if Sellers' failure to comply fully
         with their obligations under this Agreement has prevented the
         consummation of the transactions contemplated by this Agreement.

         (c) by Buyer, if

                  (i) the Tender Offer shall have terminated or expired in
         accordance with its terms without M&P having accepted for payment in
         accordance with the terms of the Tender Offer any Shares properly
         tendered;

                  (ii) the Stock Transfer shall not have been approved and
         adopted at the Shareholders Meeting;

                  (iii) the Acquisition shall not have been approved and adopted
         at the Newco general shareholder meeting;

                  (iv) the transactions contemplated by this Agreement have not
         been consummated on or before June 30, 2003; PROVIDED that Buyer will
         not be entitled to terminate this Agreement pursuant to this Section
         8.1(c)(iv) if Buyer's failure to comply fully with its obligations
         under this Agreement has prevented the consummation of the transactions
         contemplated by this Agreement; or

                  (v) any of the conditions set forth in Section 7.1 have become
         impossible to satisfy through no fault of Buyer.

         8.2 Contract Extension. On January 7, 2001, the Company and St. Jude
entered into an International Sales Agreement--Japan ("Distribution Agreement")
for the distribution of heart valves and cardiac pacing products by the Company
in Japan. The Distribution Agreement


                                       21


currently expires on December 31, 2009, and St. Jude has the right, at its
option, to terminate the Distribution Agreement, in whole or in part, as early
as June 30, 2004. Given the importance of the distribution of heart valves and
cardiac pacing products to the Company, if not for these negotiations for an
Acquisition of the Shares by Buyer, the Company would be taking steps to seek
potential replacements for the St. Jude lines of products covered by the
Distribution Agreement and to otherwise provide for a transition at the
conclusion of the Distribution Agreement. Because of these negotiations for an
Acquisition, Sellers and the Company have delayed taking steps to seek potential
replacement product lines or provide for a transition at the conclusion of the
Distribution Agreement. If this Agreement is terminated for any reason and the
Acquisition does not occur, St. Jude acknowledges that Sellers and the Company
could suffer a material financial loss because of their forbearance in taking
action to find other product lines or provide for a transition. Therefore, if
this Agreement is terminated for any reason without the completion of the
Acquisition, St. Jude agrees that each of the dates in the definition of "Term"
in Section 1, Sections 19.1 and 21.1, and Schedule B of the Distribution
Agreement will be extended for a period equal to the number of days between June
13, 2002, and the date this Agreement is terminated.

         8.3 Effect of Termination. The right of termination under Section 8.1
is in addition to any other rights Buyer or Sellers may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies and will not preclude an action for breach of this
Agreement. If this Agreement is terminated pursuant to Section 8.1, and provided
Buyer is not otherwise in material breach of this Agreement, Buyer, upon written
notice to Sellers given within thirty (30) days after Sellers' Representative,
on the one hand, or Buyer, on the other hand, notifies the other of its
intention to terminate this Agreement, shall have the right to purchase from
Sellers, and Sellers shall be obligated to sell to Buyer, all of the Shares
owned beneficially or of record by Sellers for a prorated Purchase Price
determined by multiplying the Purchase Price by a fraction, the numerator of
which is the number of Shares purchased by Buyer and the denominator of which is
the total number of Shares. The sale and purchase of such Shares shall take
place as soon as practically possible and shall be consummated subject to the
applicable Law. If this Agreement is terminated, all continuing obligations of
the parties under this Agreement will terminate except that Article X, this
Section 8.3 and Sections 12.1 (press releases), 12.2 (expenses), 12.12
(governing law), and the Confidentiality Agreement will survive indefinitely
unless sooner terminated or modified by the parties in writing.

                              IX. INDEMNIFICATION

         9.1 Indemnification by Sellers.

         (a) Sellers agree, jointly and severally, to indemnify in full Buyer,
St. Jude, and each of the Company and the Subsidiaries (collectively, for
purposes of this Article IX only, "BUYER") and hold it harmless against any Loss
arising from, relating to or constituting (i) any breach or inaccuracy in any of
the representations and warranties of Sellers contained in this Agreement as the
same may be brought down to the Closing Date, or (ii) any breach of any of the
agreements of any Sellers contained in this Agreement (collectively, "BUYER
LOSSES"). In calculating the dollar amount attributable to any Buyer Loss, any
materiality qualifications included in the representations and warranties in
this Agreement shall be disregarded.

                                       22


         (b) Sellers will be liable to Buyer for Buyer Losses only if the
aggregate amount of all Buyer Losses exceeds U.S.$2,500,000 (the "BASKET
AMOUNT"), in which case Sellers will be liable for the Buyer Losses that exceed
the Basket Amount; PROVIDED, HOWEVER, that Buyer Losses attributable to any
misrepresentation or inaccuracy in Section 2.1 or any intentional breach of any
of the agreements of any Sellers contained in this Agreement shall not be
subject to the Basket Amount but shall be indemnified in full, subject to
Section 9.1(c).

         (c) Sellers will not be required to pay Buyer for aggregate Buyer
Losses in excess of U.S.$50,000,000 (the "CAP"); PROVIDED, HOWEVER, that Buyer
Losses attributable to any misrepresentation or inaccuracy in Section 2.1 or any
intentional breach of any of the agreements of any Sellers contained in this
Agreement shall not be subject to the Cap but shall be indemnified in full.

         (d) If Buyer has a claim for indemnification under this Section 9.1,
Buyer will deliver to Sellers' Representative one or more written notices of
Buyer Losses prior to the first anniversary of the Closing Date, except for
Buyer Losses arising from a breach or inaccuracy in the representations and
warranties made in Section 3.8 for which Buyer will deliver written notice of
Buyer Losses prior to three months after the expiration of the applicable
statute of limitations. Sellers will have no liability under this Section 9.1
unless the written notices required by the preceding sentence are given in a
timely manner. Any written notice will state in reasonable detail the basis for
such Buyer Losses to the extent then known by Buyer and the nature of the Buyer
Loss for which indemnification is sought, and it may state the amount of the
Buyer Loss claimed. Sellers' Representative will notify Buyer whether it
disputes a claim within ninety (90) days after receipt of Buyer's written
notice. If Sellers' Representative does not timely dispute the claim, Sellers
will pay the amount of the Buyer Loss specified in Buyer's notice within ten
(10) days thereafter or, if the amount thereof is not specified in Buyer's
notice, within ten (10) days after the amount thereof is determined. If Sellers'
Representative has timely disputed the liability of Sellers with respect to such
claim, Sellers' Representative and Buyer will proceed in good faith to negotiate
a resolution of such dispute. If a written notice does not state the amount of
the Buyer Loss claimed, such omission will not preclude Buyer from recovering
from Sellers the amount of the Buyer Loss with respect to the claim described in
such notice if any such amount is promptly provided after it is determined. In
order to assert its right to indemnification under this Article IX, Buyer will
not be required to provide any notice except as provided in this Section 9.1(d).

         (e) Sellers will pay the amount of any Buyer Loss to Buyer within ten
(10) days following the determination of Sellers' liability for and the amount
of a Buyer Loss (whether such determination is made pursuant to the procedures
set forth in this Section 9.1, by agreement between Buyer and Sellers'
Representative or by arbitration award).

         9.2 Third Party Actions. Buyer shall promptly notify Sellers'
Representative of the assertion or institution by a third party, including a
Governmental Entity, of any claim, action, arbitration, mediation, hearing,
investigation, proceeding or suit that may give rise to Buyer Losses for which
Buyer could be entitled to indemnification hereunder (a "THIRD PARTY ACTION").
Sellers' Representative shall be entitled to defend such Third Party Action on
behalf of Buyer, at the sole cost and expense of Sellers, by giving notice of
the intention to so defend to Buyer within 20 business days after Buyer notifies
Sellers' Representative of such Third Party Action.


                                       23


Such defense will be conducted by reputable attorneys retained by Sellers'
Representative. Buyer will be entitled at any time, at its own cost and expense,
to participate in such defense and to be represented by attorneys of its own
choosing, provided that if Buyer elects to so participate, Buyer will cooperate
with Sellers in the conduct of such defense. Whether or not Buyer participates
in such defense, Buyer will cooperate with Sellers to the extent reasonably
requested by Sellers in the defense of such Third Party Action, including
providing reasonable access (upon reasonable notice) to the books, records and
employees of the Buyer if relevant to the defense of such Third Party Action;
provided that such cooperation will not unduly disrupt the operations of the
business of Buyer or cause Buyer to waive any statutory or common law
privileges, breach any confidentiality obligations owed to third parties or
otherwise cause any Confidential Information of Buyer to become public. If at
any time Buyer reasonably determines that Sellers' Representative is not
adequately representing or, because of a conflict of interest, may not
adequately represent any interests of Buyer, Buyer will be entitled to conduct
its own defense and to be represented by attorneys of its own choosing. Neither
Buyer nor Sellers may concede, settle or compromise any Third Party Action
without the consent of the other party, which consent will not be unreasonably
withheld. Notwithstanding the foregoing, if (i) the subject matter of a Third
Party Action relates to the ongoing business of Buyer, which Third Party Action,
if decided against Buyer, would materially adversely affect the ongoing business
or reputation of Buyer and (ii) Buyer is unwilling to consent to a settlement of
such Third Party Action negotiated by Sellers that provides for a complete
release of Buyer, then Buyer shall immediately assume the defense of such Third
Party Action and Sellers thereafter will have no responsibility to indemnify
Buyer for any Buyer Losses arising from such Third Party Action.

         9.3 Tax Adjustment. Any payment to Buyer under this Article IX will be,
for Tax purposes, to the extent permitted by Law, an adjustment to the Purchase
Price.

         9.4 Sellers' Representative.

         (a) Sellers appoint Henry J. West (or any person appointed as a
successor Sellers' Representative pursuant to Section 9.4(b)) as their
representative and agent under this Agreement ("SELLERS' REPRESENTATIVE").

         (b) Until all obligations under this Agreement have been discharged
(including all indemnification obligations under this Article IX), Getz Intl
may, from time to time upon written notice to Sellers' Representative and Buyer,
remove Sellers' Representative or appoint a new Sellers' Representative upon the
death, incapacity, resignation or removal of Sellers' Representative. If, after
the death, incapacity, resignation or removal of Sellers' Representative, a
successor Sellers' Representative has not been appointed by Sellers within
fifteen (15) business days after a request by Buyer, Buyer will have the right
to appoint a Sellers' Representative to fill any vacancy so created by written
notice of such appointment to Sellers.

         (c) Sellers authorize Sellers' Representative to take any action and to
make and deliver any certificate, notice, consent or instrument required or
permitted to be made or delivered under this Agreement or under the documents
referred to in this Agreement, to waive any requirements of this Agreement or to
enter into one or more amendments or supplements to this Agreement that Sellers'
Representative determines in Sellers' Representative's sole and absolute
discretion to be necessary, appropriate or advisable, which authority includes
the authority to collect and


                                       24


pay funds and dispute, settle, compromise and make all claims. The authority of
Sellers' Representative includes the right to hire or retain, at the sole
expense of Sellers, such counsel, investment bankers, accountants,
representatives and other professional advisors as Sellers' Representative
determines in Sellers' Representative's sole and absolute discretion to be
necessary, appropriate or advisable in order to perform this Agreement. Any
party will have the right to rely upon any action taken by Sellers'
Representative, and to act in accordance with such action without independent
investigation.

         (d) Buyer will have no liability to any Seller or otherwise arising out
of the acts or omissions of Sellers' Representative or any disputes among
Sellers or with Sellers' Representative. Buyer may rely entirely on its dealings
with, and notices to and from, Sellers' Representative to satisfy any
obligations it might have under this Agreement or any other agreement referred
to in this Agreement or otherwise to Sellers.

                                 X. ARBITRATION

         10.1 Disputes. The parties agree to use their reasonable efforts to
resolve any controversy, claim or dispute of whatever nature arising between the
parties under this Agreement or in connection with the transactions contemplated
hereunder, including those arising out of or relating to the breach,
termination, enforceability, scope or validity hereof, whether such claim
existed prior to or arises on or after the Closing Date (a "DISPUTE"), through
negotiation or, upon failure of such negotiations, through such alternative
dispute resolution ("ADR") techniques as they may deem appropriate; PROVIDED,
HOWEVER, that any claim or request for interim, temporary or injunctive relief
may be immediately submitted to arbitration in accordance with Section 10.2. Any
Dispute that is not resolved by negotiation or through ADR within ninety (90)
days from the day the Dispute Notice (as hereafter defined) is given shall be
finally resolved by binding arbitration in accordance with Section 10.2. The
agreement to arbitrate contained in this Article X shall continue in full force
and effect despite the expiration, rescission or termination of this Agreement.
No party shall commence an arbitration proceeding pursuant to the provisions set
forth below unless such party shall first give a written notice (a "DISPUTE
NOTICE") to the other parties setting forth the nature of the Dispute and,
except as provided above, attempted to resolve the Dispute by negotiation and
ADR as provided herein.

         10.2 Arbitration.

         (a) Binding arbitration shall be conducted in accordance with such
rules as may be agreed upon by the parties, or failing agreement within thirty
(30) days after arbitration is demanded (the "ARBITRATION DEMAND"), in
accordance with the CPR Rules for Non-Administered Arbitration of the CPR
Institute for Dispute Resolution ("CPR") in effect on the date on which the
Arbitration Demand is sent, subject to any modifications contained in this
Agreement. The site of arbitration shall be (i) Chicago, Illinois if the
Arbitration Demand was given by Buyer, or (ii) Minneapolis, Minnesota, if the
Arbitration Demand was given by any Seller. The Dispute shall be resolved by one
arbitrator, who will be selected by the parties from the CPR Panels of
Distinguished Neutrals and who shall have experience in international
transactions. The arbitrator shall base the award on the applicable Law and
judicial precedent that would apply in accordance with Section 12.12 if the
Dispute were decided by a United States District Judge, and the arbitrator shall
have no authority to render an award that is inconsistent therewith; PROVIDED,

                                       25


HOWEVER, that the foregoing shall not expand the statutory grounds to vacate the
award. The arbitrator shall have the right to appoint an independent expert
(including an independent accounting firm) and the costs and expenses of such
expert, together with the costs and expenses of the arbitrator, shall be borne
one-half by Sellers and one-half by Buyer. The award shall be in writing and
include the findings of fact and conclusions of Law upon which it is based.
Unless the parties agree otherwise, discovery will be limited to an exchange of
relevant documents. Depositions will not be taken except as needed in lieu of a
live appearance or upon mutual agreement of the parties. The arbitrator shall
resolve any discovery disputes. The arbitrator and counsel of record will have
the power of subpoena process as provided by the Federal Arbitration Act.

         (b) Except as otherwise required by Law, the parties and the arbitrator
agree to keep confidential and not disclose to third parties any information or
documents obtained in connection with the arbitration process, including the
resolution of the Dispute. If a party fails to proceed with arbitration as
provided in this Agreement, or unsuccessfully seeks to stay the arbitration, or
fails to comply with the arbitration award, or is unsuccessful in vacating or
modifying the award pursuant to a petition or application for judicial review,
the other party or parties, as applicable, shall be entitled to be awarded
costs, including reasonable attorneys' fees, paid or incurred in successfully
compelling such arbitration or defending against the attempt to stay, vacate or
modify such arbitration award and/or successfully defending or enforcing the
award.

         (c) Sellers submit to the exclusive jurisdiction of any state or
federal court sitting in Minneapolis, Minnesota, and Buyer submits to the
exclusive jurisdiction of any state or federal court sitting in Chicago,
Illinois, to compel arbitration or enforce or vacate any award entered in the
arbitration which such party(ies) respectively initiated, and all such claims
shall be heard and determined in such respective courts. Each of the parties
waives any defense of inconvenient forum to the maintenance of any such action
or proceeding.

         10.3 Remedies. Each party hereby waives any and all rights it may have
to receive exemplary or punitive damages under this Agreement in the arbitration
proceedings with respect to any claim it may have against the other party, it
being agreed that no party shall be entitled to receive money damages in excess
of its actual compensatory damages, notwithstanding any contrary provision
contained in this Agreement or otherwise. The parties knowingly and voluntarily
waive their rights to have any Dispute tried and adjudicated by a judge or a
jury. Any claim or request for interim, temporary or injunctive relief shall be
exclusively submitted to arbitration.

                                XI. DEFINITIONS

         "CODE" means the United States Internal Revenue Code of 1986, as
amended.

         "CONSENT" means any authorization, consent, approval, filing, waiver,
exemption or other action by or notice to any Person.

         "CONTRACT" means a contract, agreement, commitment or binding
understanding that is in effect as of the date of this Agreement or any time
after the date of this Agreement.

                                       26


         "DISCLOSURE SCHEDULE" means the schedule delivered by Sellers to Buyer
on or prior to the date of this Agreement that contains exceptions and
disclosures to the representations and warranties set forth in Article III of
this Agreement.

         "ENCUMBRANCE" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.

         "GAAP" means Japanese generally accepted accounting principles, as in
effect from time to time.

         "GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,
permit, waiver, registration or other authorization issued, granted, given, made
available or otherwise required by any Governmental Entity or pursuant to Law.

         "GOVERNMENTAL ENTITY" means any national, prefectural, provincial,
state, local, foreign, international or multinational entity or authority
exercising executive, legislative, judicial, regulatory, administrative or
taxing functions of or pertaining to government.

         "GOVERNMENTAL ORDER" means any judgment, injunction, writ, order,
ruling, award or decree by any Governmental Entity or arbitrator.

         "INTELLECTUAL PROPERTY" means all rights in patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, software, mask works, trade secrets, know-how and other intellectual
property rights.

         "INTELLECTUAL PROPERTY RIGHTS" means (i) rights in patents, patent
applications and patentable subject matter, whether or not the subject of an
application, (ii) rights in trademarks, service marks, trade names, trade dress
and other designators of origin, registered or unregistered, (iii) rights in
copyrightable subject matter or protectable designs, registered or unregistered,
(iv) trade secrets, (v) rights in Internet domain names, uniform resource
locators and e-mail addresses, (vi) rights in semiconductor topographies (mask
works), registered or unregistered, (vii) know-how and (viii) all other
intellectual and industrial property rights of every kind and nature and however
designated, whether arising by operation of Law, Contract, license or otherwise.

         "KNOWLEDGE," when used with respect to Sellers, means the actual
knowledge of any director or executive officer of Sellers, the Company or the
Subsidiaries.

         "LAW" means any constitution, law, ordinance, principle of common law,
regulation, statute or treaty of any Governmental Entity.

         "LITIGATION" means any claim, action, arbitration, mediation, audit,
hearing, investigation, proceeding, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Entity or
arbitrator or mediator.

                                       27


         "LOSS" means any Litigation, damage, deficiency, penalty, fine, cost,
amount paid in settlement, liability, obligation, Tax, Encumbrance, loss,
expense or fee, including court costs and reasonable attorney's fees and
expenses.

         "MATERIAL ADVERSE EFFECT" means any change, effect, event or condition,
individually or in the aggregate, that has had, or, with the passage of time,
would have, a material adverse effect on the business, assets, properties,
condition (financial or otherwise), results of operations, prospects or
customer, supplier or employee relationships of the Company and its
Subsidiaries, taken as a whole.

         "ORDINARY COURSE OF BUSINESS" means the ordinary course of business of
the Company and the Subsidiaries consistent with past custom and practice
(including with respect to quantity and frequency).

         "ORGANIZATIONAL DOCUMENTS" means (i) the articles or certificate of
incorporation and the bylaws of a corporation, (ii) the partnership agreement
and any statement of partnership of a general partnership, (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (iv) the limited liability company agreement and articles or
certificate of formation of a limited liability company, (v) any charter,
regulations or similar document adopted or filed in connection with the
creation, formation or organization of a Person and (vi) any amendment to any of
the foregoing.

         "PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Entity or other entity.

         "REMEDIES EXCEPTION," when used with respect to any Person, means
performance of such Person's obligations except to the extent enforceability may
be limited by applicable bankruptcy, insolvency, corporate reorganization, civil
rehabilitation, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general equitable principles.

         "RETURNS" means all returns, declarations, reports, estimates,
information returns and statements pertaining to any Taxes.

         "SUBSIDIARY" means any Person in which 50% or more of the ownership
interests is owned, directly or indirectly, by another Person. When used without
reference to a particular entity, "Subsidiary" means a Subsidiary of the
Company.

         "TAX AFFILIATE" means each of the Company and the Subsidiaries.

         "TAXES" means all taxes, charges, fees, levies or other assessments,
including all net income, gross income, gross receipts, sales, use, consumption,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, social security, unemployment, excise, estimated,
severance, stamp, occupation, property or other taxes, customs duties, fees,
assessments or charges of any kind whatsoever, including all interest and
penalties thereon, and additions to tax or additional amounts imposed by any
Governmental Entity upon the Company or any Tax Affiliate.

                                       28


                                  XII. GENERAL

         12.1 Press Releases and Announcements. Any public announcement,
including any announcement to employees, customers or suppliers and others
having dealings with the Company, or similar publicity with respect to this
Agreement or the transactions contemplated by this Agreement, will be issued at
such time and in such manner as the parties may mutually determine and approve,
unless such announcement is required to carry out the transactions contemplated
under this Agreement; provided that in the event such announcement is necessary,
either party will notify the other in advance of such announcement.
Notwithstanding the foregoing, nothing contained herein will prevent Buyer, St.
Jude, Sellers, Company or its Subsidiaries from making disclosures to their
attorneys, accountants, bankers, investment bankers or advisors, or other
persons that are necessary or appropriate to carry out the transactions
contemplated in this Agreement.

         12.2 Expenses. Except as agreed by the parties with respect to the fees
identified in a letter agreement, dated September 17, 2002, between St. Jude and
Getz Intl (the "FEE LETTER"), Sellers, on the one hand, and Buyer, on the other
hand, will each pay all expenses incurred by each of them (and, in the case of
Sellers, the expenses incurred by the Company and Sellers' Representative) in
connection with the Tender Offer, the Stock Transfer and the other transactions
contemplated by this Agreement, including legal, accounting, investment banking
and consulting fees and expenses incurred in negotiating, executing and
delivering this Agreement and the other agreements, exhibits, documents and
instruments contemplated by this Agreement. Sellers agree that neither the
Company nor any Subsidiary has or will bear any of Sellers' expenses in
connection with the Tender Offer, the Stock Transfer and the other transactions
contemplated by this Agreement if the contemplated transactions are concluded.

         12.3 Further Assurances. On and after the Closing Date, Sellers and
Buyer will take all appropriate action and execute any documents, instruments or
conveyances of any kind that may be reasonably requested by the other party to
carry out any of the provisions of this Agreement.

         12.4 Cooperation. After the Closing Date, Buyer and Sellers will make
available to the other, as reasonably requested, all information, records or
documents relating to Tax liabilities or potential Tax liabilities of the
Company with respect to (i) Tax periods ending on or prior to the Closing Date
and (ii) Tax periods beginning before the Closing Date and ending after the
Closing Date, but only with respect to the portion of such period up to and
including the Closing Date. Buyer and Sellers will preserve all such
information, records and documents until the expiration of any applicable
statute of limitations thereof. Buyer will prepare and provide to Sellers any
information or documents reasonably requested by Sellers for Sellers' use in
preparing or reviewing the Returns. Notwithstanding any other provision hereof,
each party will bear its own expenses in complying with the foregoing
provisions.

         12.5 Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given (i) when delivered if personally
delivered by hand (with written confirmation of receipt), (ii) when received if
sent by an internationally recognized overnight courier service (receipt
requested), (iii) ten business days after being mailed, if sent by first class
mail, return


                                       29


receipt requested, or (iv) when receipt is acknowledged by an affirmative act of
the party receiving notice, if sent by facsimile, telecopy or other electronic
transmission device (provided that such an acknowledgement does not include an
acknowledgment generated automatically by a facsimile or telecopy machine or
other electronic transmission device). Notices, demands and communications to
Buyer and Sellers' Representative will, unless another address is specified in
writing, be sent to the address indicated below:

         If to Buyer or St. Jude:

                  St. Jude Medical, Inc.
                  One Lillehei Plaza
                  St. Paul, MN 55117 USA
                  Attn:  Kevin T. O'Malley, Esq.
                  Facsimile No. +1 (651) 481-7690

         With a copy to:

                  Dorsey & Whitney LLP
                  Shiroyama MT Building, 9F
                  4-1-17 Toranomon, Minato-ku
                  Tokyo 105-0001, Japan
                  Attn: Christopher E. O'Brien
                  Facsimile No. +81 (3) 5473 5199

         and an additional copy to:

                  Dorsey & Whitney LLP
                  50 South Sixth Street
                  Minneapolis, MN 55401 USA
                  Attn:  Robert A. Kuhns, Esq.
                  Facsimile No. +1 (612) 340-8738

         If to Sellers or Sellers' Representative:

                  Getz International, Inc.
                  c/o The Marmon Group, Inc.
                  225 W. Washington Street, 19th Floor
                  Chicago, Illinois  60606
                  Attn:  Robert W. Webb, Esq.
                  Facsimile No. +1 (312) 845-8769

           With a copy to:

                  Neal, Gerber & Eisenberg
                  Two North LaSalle St., Suite 2200
                  Chicago, Illinois  60602
                  Attn:  Miranda K. Mandel, Esq.
                  Facsimile No. +1 (312) 269-1747


                                       30


            and an additional copy to:

                  Mori Sogo
                  NKK Building
                  1-1-2 Marunouchi, Chiyoda-ku
                  Tokyo 100-0005, Japan
                  Attn:  Kanako Muraoka, Esq.
                  Facsimile No. +81 (3) 5223 7665

         12.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any party to this
Agreement without the prior written consent of the other parties to this
Agreement, except that Buyer may assign any of its rights under this Agreement
to an affiliate of Buyer, so long as Buyer remains responsible for the
performance of all of its obligations under this Agreement. Subject to the
foregoing, this Agreement and all of the provisions of this Agreement will be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns.

         12.7 No Third Party Beneficiaries. Nothing expressed or referred to in
this Agreement confers any rights or remedies upon any Person that is not a
party or permitted assign of a party to this Agreement.

         12.8 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
Law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable Law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

         12.9 Complete Agreement. This Agreement (including the Disclosure
Schedule and any Updated Disclosure Schedule), the Confidentiality Agreement and
the Fee Letter contain the complete agreement between the parties and supersede
any prior understandings, agreements or representations by or between the
parties, written or oral.

         12.10 English Language. This Agreement has been drafted, negotiated,
and executed in the English language. If Sellers have this Agreement translated
into Japanese, such translation shall be at the Sellers' own expense and with
the understanding that the original English version of this Agreement shall
govern. All notices, including Dispute Notices, shall be in English and all
arbitration proceedings shall be conducted in English.

         12.11 Signatures; Counterparts. This Agreement may be executed in one
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one and
the same instrument. A facsimile signature will be considered an original
signature.

         12.12 Governing Law. THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES, OF THE STATE OF MINNESOTA WILL GOVERN


                                       31


ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT AND THE PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT,
EXCEPT TO THE EXTENT THAT PROCEDURAL MATTERS RELATING TO THE TENDER OFFER, THE
STOCK TRANSFER, THE ACQUISITION OR THE ORGANIZATION OF, OR ACTIONS TO BE TAKEN
BY, A JAPANESE ENTITY ARE GOVERNED BY OR REQUIRED TO BE TAKEN IN ACCORDANCE WITH
JAPANESE LAW.

         12.13 Amendment and Waiver. This Agreement may not be amended, nor may
any provision of this Agreement or any default, misrepresentation, or breach of
warranty or agreement under this Agreement be waived, except in writing executed
by all of the parties hereto. Notwithstanding the foregoing, any amendment or
waiver executed by Sellers' Representative shall be deemed to have been executed
by each of the Sellers except as otherwise provided in Section 9.4.

         12.14 Construction. The parties and their respective counsel have
participated jointly in the negotiation and drafting of this Agreement. In
addition, each of the parties acknowledges that it is sophisticated and has been
advised by experienced counsel and, to the extent it deemed necessary, other
advisors in connection with the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties and no
presumption or burden of proof will arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The
headings preceding the text of articles and sections included in this Agreement
and the headings to the schedules and exhibits are for convenience only and are
not be deemed part of this Agreement or given effect in interpreting this
Agreement. The word "including" means "including without limitation." The use of
the masculine, feminine or neuter gender or the singular or plural form of words
will not limit any provisions of this Agreement. A statement in this Agreement
that a copy of an item has been delivered means a true and correct copy of the
writing has been delivered.

                           XIII. GUARANTY BY ST. JUDE

         As an inducement to and in consideration of Sellers entering into this
Agreement, St. Jude, being the ultimate parent of Buyer, hereby expressly,
unconditionally, and irrevocably guarantees Buyer's performance of all of its
duties, obligations, and agreements under the Agreement, including (without
limitation) payment of all of Buyer's obligations under the Agreement. St. Jude
agrees that Sellers shall not be required to take any action whatsoever against
Buyer before St. Jude's liability attaches hereunder and that the liability of
St. Jude hereunder shall immediately attach and accrue upon default or breach of
Buyer with respect to any of its duties, obligations, and agreements under the
Agreement.








                                       32


         IN WITNESS WHEREOF, Buyer, St. Jude and Sellers have executed this
Stock Purchase Agreement as of the date first above written.


BUYER:                                   SELLERS:

ST. JUDE MEDICAL JAPAN K.K.              GETZ BROS. AND CO. ZUG INC.


By:    /s/ Kevin T. O'Malley            By:    /s/ R. C. Gluth
       -----------------------------           --------------------------------
Name:  Kevin T. O'Malley                Name:  R. C. Gluth
       -----------------------------           --------------------------------
Title: Director                         Title: Director, Vice President and
       -----------------------------           Treasurer
                                               --------------------------------

ST. JUDE MEDICAL, INC.                   GETZ INTERNATIONAL, INC.


By:    /s/ Daniel J. Starks              By:    /s/ Robert K. Lorch
       --------------------                     -------------------------------
Title: President and COO                 Name:  Robert K. Lorch
       -----------------------------            -------------------------------
                                         Title: Vice President, Chief Financial
                                                Officer
                                                -------------------------------

                                         MULLER & PHIPPS (JAPAN) LTD.


                                         By:    /s/ Raymond Sipkins
                                                -------------------------------
                                         Name:  Raymond Sipkins
                                                -------------------------------
                                         Title: Director
                                                -------------------------------





















                                       33


               DISCLOSURE SCHEDULE TO THE STOCK PURCHASE AGREEMENT

Schedule 2.1   Good Title to Shares
Schedule 3.1   Incorporation
Schedule 3.4   Subsidiaries
Schedule 3.5   Statements
Schedule 3.6   Absence of Certain Developments
Schedule 3.7   Real Property
Schedule 3.8   Taxes
Schedule 3.9   Material Contracts
Schedule 3.10  Litigation
Schedule 3.11  Insurance
Schedule 3.14  Warranties
Schedule 3.16  Employee Benefits
Schedule 3.17  Suppliers
Schedule 5.1   Conduct of the Business
Schedule 5.10  Trademarks

St. Jude Medical, Inc. agrees to furnish supplementally copies of these
schedules to the Securities and Exchange Commission upon request.

EX-2.2

                                                                     Exhibit 2.2

                                    AMENDMENT

         This AMENDMENT, dated as of February 20, 2003, by and among Getz Japan
Holding KK, a company organized under the laws of Japan ("NEWCO"), St. Jude
Medical Japan K.K., a company organized under the laws of Japan ("BUYER"), St.
Jude Medical, Inc., a Minnesota corporation ("ST. JUDE"), Getz Bros. & Co. Zug
Inc., a company organized under the laws of Switzerland ("GETZ ZUG"), Getz
International, Inc., a Delaware corporation ("GETZ Intl"), and Muller & Phipps
(Japan) Ltd., a company organized under the laws of Japan ("M&P", and together
with Getz Zug and Getz Intl., "SELLERS"), is attached to and made a part of that
certain Stock Purchase Agreement (the "AGREEMENT"), dated as of September 17,
2002 (USA), by and among Buyer, St. Jude and Sellers. Capitalized and undefined
terms used in this Amendment shall have the same meanings ascribed to them in
the Agreement.

         WHEREAS, Section 1.2 of the Agreement provides that the parties will
execute an amendment to the Agreement whereby Newco will become a party to the
Agreement and be included within the definition of "SELLERS".

         THEREFORE, in accordance with Section 1.2 of the Agreement, Newco
agrees to (1) be included within the definition of "Sellers" in the Agreement,
(2) execute such documents and to take such actions as may reasonably be
necessary or appropriate to implement fully the transactions described in the
Agreement, and (3) be bound by the covenants, obligations and undertakings
applicable to Newco under the Agreement. Notwithstanding the foregoing, the
parties acknowledge and agree that because Newco will be liquidated as soon as
practicable after the Closing, Newco will be relieved of all of its obligations
under the Agreement following the Closing except those arising under Sections
5.6 (Nondisparagement) and 5.9 (Confidentiality), and Buyer and St. Jude will
look solely to the other Sellers with respect to any obligations of Sellers
arising after the Closing. Buyer and St. Jude further agree not submit any
objection as a creditor to the liquidation of Newco.

         Except as expressly modified by the terms of this Amendment, the terms
and conditions of the Agreement and its respective schedules and exhibits shall
remain in full force and effect.

         IN WITNESS WHEREOF, each of the undersigned has executed this Amendment
as of the date first above written.

GETZ JAPAN HOLDING KK                     GETZ BROS. & CO. ZUG INC.

By:    /s/ Ray Sipkins                    By:    /s/ Ray Sipkins
       ------------------------------            ------------------------------
Name:  Ray Sipkins                        Name:  Ray Sipkins
       ------------------------------            ------------------------------
Title: Representative Liquidator          Title: Director
       ------------------------------            ------------------------------

ST. JUDE MEDICAL JAPAN K.K.               GETZ INTERNATIONAL, INC.

By:    /s/ Kevin T. O'Malley              By:    /s/ Ray Sipkins
       ------------------------------            ------------------------------
Name:  Kevin T. O'Malley                  Name:  Ray Sipkins
       ------------------------------            ------------------------------
Title: Director                           Title: President
       ------------------------------            ------------------------------

ST. JUDE MEDICAL, INC.                    MULLER & PHIPPS (JAPAN) LTD.

By:    /s/ Kevin T. O'Malley              By:    /s/ Ray Sipkins
       ------------------------------            ------------------------------
Name:  Kevin T. O'Malley                  Name:  Ray Sipkins
       ------------------------------            ------------------------------
Title: Vice President and General         Title: President
       Counsel                                   ------------------------------
       ------------------------------

EX-13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF                               EXHIBIT 13
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

Our business is focused on the development, manufacturing and distribution of
cardiovascular medical devices for the global cardiac rhythm management (CRM),
cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.
Our principal products in each of these therapy areas are as follows:

CRM
      o   bradycardia pacemaker systems (pacemakers),
      o   tachycardia implantable cardioverter defibrillator systems (ICDs), and
      o   electrophysiology (EP) catheters

CS
      o   mechanical and tissue heart valves, and
      o   valve repair products

C/VA
      o   vascular closure devices,
      o   angiography catheters,
      o   guidewires, and
      o   hemostasis introducers

Our products are sold in more than 120 countries around the world. Our largest
geographic markets are the United States, Europe and Japan.

We compete on the basis of providing reliable products with advanced features.
Our industry has undergone significant consolidation in the last decade and is
very competitive. Our strategy requires significant investments in research and
development in order to introduce new products, particularly in the cardiac
rhythm management and the cardiology and vascular access therapy areas. We have
also sought to improve our operating margins through a variety of techniques,
including maintaining our average selling prices while improving the efficiency
of our manufacturing operations. Our products are generally not affected by
economic cycles. However, we expect cost containment pressure on healthcare
systems to continue to place downward pressure on prices for our products,
particularly in international markets such as Germany and Japan. The industry in
which we operate is characterized by frequent patent litigation and product
liability litigation, which are issues that we must manage.

Pacemakers and ICDs accounted for 43% and 21% of our total 2003 net sales,
respectively. In addition, the pacemaker and ICD markets are the largest markets
we participate in, and our strategy is to increase our sales and market share in
those markets. In 2002, our primary CRM competitors began selling pacemaker and
ICD systems that are capable of pacing the heart from both ventricles, providing
cardiac resynchronization therapy (CRT). By pacing the heart from both
ventricles, many physicians believe that pacemakers and ICDs with CRT provide a
therapeutic advantage over traditional devices for certain patients. In
addition, CRT devices have a higher average selling price over traditional
devices. Currently, we do not have a pacemaker or ICD system with CRT approved
for sale in the



                                       1


United States, which is the largest geographic market for these products.
However, we are conducting clinical trials and anticipate introducing pacemakers
and ICDs with CRT in the United States in the second quarter of 2004. We
estimate that approximately 35% of the worldwide market for pacemakers and ICDs
in 2003 was made up of sales of CRT devices.


RESULTS OF OPERATIONS

FINANCIAL SUMMARY
Net sales in 2003 increased approximately 22% over 2002 driven primarily by
growth in our ICD and vascular closure devices, incremental revenue as a result
of our acquisition of Getz Bros. Co., Ltd. in Japan (Getz Japan), and the
positive impact of foreign currency translation as the U.S. dollar weakened
against most currencies during 2003 as compared with 2002. Our ICD net sales
grew approximately 37% to $414 million during 2003. Our vascular closure net
sales increased approximately 40% to $218 million in 2003, strengthening our
leadership position in the vascular closure market.

During 2003, we completed our acquisition of Getz Japan and Getz's related
distribution operations in Australia. The addition of these operations further
strengthened our presence in Japan and Australia.

Net earnings and diluted net earnings per share for 2003 increased approximately
23% and 21%, respectively, over 2002 due primarily to incremental profits
resulting from higher sales.

We ended the year with $461 million of cash and equivalents and $352 million of
long-term debt. We have strong short-term credit ratings, with an A2 rating from
Standard & Poor's and a P2 rating from Moody's. Our cash flows from operations
remained strong during 2003, helping to further strengthen our balance sheet and
provide cash to repay a portion of the funds borrowed in 2003 to finance the
Getz Japan acquisition and the repurchase of 9.25 million shares in August 2003.
We expect to use our future cash flows to fund internal development
opportunities, reduce our debt and potentially purchase the remaining ownership
of Epicor Medical, Inc. (Epicor). See ACQUISTIONS & INVESTMENTS for a discussion
of Epicor.

We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31,
but for simplicity of presentation, describe all periods as if the year end is
December 31. Fiscal year 2003 consisted of 53 weeks, adding three additional
selling days as compared with 2002. The additional selling days occurred between
the Christmas and New Year's Day holidays, which typically are lower volume
selling days due to the elective nature of many hospitals' procedures. These
additional selling days did not have a material impact on our net sales or
results of operations for 2003. Fiscal years 2002 and 2001 each consisted of 52
weeks.

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 accounts receivable allowance for doubtful accounts; estimated useful
lives of property, plant and equipment; income taxes; Silzone(R) special charge
accruals; and legal reserves. We base our estimates on historical experience and
various other assumptions that are believed to be reasonable under the
circumstances,



                                       2


and the results form the basis for making judgments about the reported values of
assets, liabilities, revenues and expenses. Actual results may differ from these
estimates.

We believe that the following represent our most critical accounting estimates:

ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS: We grant credit to
customers in the normal course of business, and generally do not require
collateral or any other security to support our accounts receivable. We maintain
an allowance for doubtful accounts for potential credit losses, which primarily
consists of reserves for specific customer balances that we believe may not be
collectible. We determine the adequacy of this allowance by regularly reviewing
the accounts receivable agings, customer financial conditions and credit
histories, and current economic conditions. In some developed markets and in
many emerging markets, payments 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 $31.9 million at December 31, 2003 and
$24.1 million at December 31, 2002.

ESTIMATED USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT: Diagnostic equipment is
recorded at cost and is depreciated using the straight-line method over its
estimated useful life of five to eight years. Diagnostic equipment primarily
consists of programmers that are used by physicians and healthcare professionals
to program and analyze data from pacemaker and ICD devices. The estimated useful
life of this equipment is determined based on our estimates of its usage by the
physicians and healthcare professionals, factoring in new technology platforms
and rollouts. To the extent that we experience changes in the usage of this
equipment or there are introductions of new technologies to the market, the
estimated useful lives of this equipment may change in a future period.
Diagnostic equipment had a net carrying value of $68.7 million and $81.0 million
at December 31, 2003 and 2002, respectively. If we had used an estimated useful
life on diagnostic equipment that was one year less than our current estimate,
our 2003 depreciation expense would have been approximately $5 million higher.

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 accounting purposes. These timing
differences result in deferred tax assets and liabilities, which are included in
our consolidated balance sheet. We must then 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 must
be established. At December 31, 2003, we had approximately $94 million of gross
deferred tax assets, including net operating loss and tax credit carryforwards
that will expire from 2004 to 2019 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, because 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



                                       3


portion of these earnings to one of our U.S. subsidiaries, including cash
maintained by these non-U.S. subsidiaries (see Liquidity and Capital Resources),
additional U.S. tax liabilities would be incurred.

We operate within multiple taxing jurisdictions and are subject to audit in
these jurisdictions. These audits can involve complex issues, including
challenges regarding the timing and amount of deductions and the allocation of
income among various tax jurisdictions. Our U.S. federal tax filings prior to
1998 have been examined by the Internal Revenue Service (IRS), and we have
settled all differences arising out of those examinations. The U.S. federal tax
authorities have designated us as a "coordinated industry case," more commonly
known as a "large case," which is an IRS designation used for large companies
that means, among other things, that the IRS will audit essentially all of our
federal income tax return filings. The IRS is currently in the process of
examining our U.S. federal tax returns for the calendar years 1998, 1999 and
2000.

We record our income tax provisions based on our knowledge of all relevant facts
and circumstances, including the existing tax laws, our experience with previous
settlement agreements, the status of current IRS examinations and our
understanding of how the tax authorities view certain relevant industry and
commercial matters. Although we have recorded all probable income tax accruals
in accordance with Statement of Financial Accounting Standards (SFAS) No. 5,
"ACCOUNTING FOR CONTINGENCIES" and SFAS No. 109. "ACCOUNTING FOR 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. We believe that any potential tax assessments from the
various tax authorities that are not covered by our income tax provision will
not have a material adverse impact on our consolidated financial position or
liquidity. However, they may be material to our consolidated results of
operations of a future period.

SILZONE(R) SPECIAL CHARGE ACCRUALS: In January 2000, we initiated a worldwide
voluntary recall of all field inventory of heart valve replacement and repair
products incorporating Silzone(R) coating on the sewing cuff fabric. We
concluded that we would no longer utilize Silzone(R) coating and recorded a
special charge totaling $26.1 million during the first quarter of 2000 to cover
various asset write-downs and anticipated costs associated with these matters.
In the second quarter of 2002, we increased our Silzone(R) reserves by $11
million to cover additional anticipated costs. We have recorded an accrual for
probable legal costs that we will incur to defend the various cases involving
Silzone(R) devices, and we have recorded a receivable from our product liability
insurance carriers for amounts expected to be recovered. We have not accrued for
any amounts associated with probable legal settlements or judgments because we
cannot reasonably estimate such amounts. However, we believe that no significant
claims will ultimately be allowed to proceed as class actions in the United
States, and, therefore, that all settlements and judgments will be covered under
our remaining product liability insurance coverage (approximately $170 million
at December 31, 2003), subject to the insurance companies' performance under the
policies. As such, we believe that any costs (the material components of which
are settlements, judgments and legal fees) not covered by our product liability
insurance policies or existing reserves will not have a material adverse effect
on our statement of financial position or liquidity, although such costs may be
material to our consolidated results of operations of a future period.

Our remaining product liability insurance for Silzone(R) claims consists of a
number of layers, each of which is covered by one or more insurance companies.
Our next layer of insurance, which is a $30 million layer that would be reached
after the present $35 million layer is exhausted, is covered by Lumberman's
Mutual Casualty Insurance, a unit of the Kemper Insurance Companies
(collectively referred to as Kemper). Kemper's credit rating by A.M. Best has
been downgraded to a "D" (poor). Kemper is currently in "run off," which means
that it is not issuing new policies and is, therefore, not



                                       4


generating any new revenue that could be used to cover claims made under
previously-issued policies. In the event Silzone(R) claims were to reach the
Kemper layer and Kemper was unable to pay part or all of such claims, we believe
the other insurance carriers in our program will take the position that we will
be directly liable for any claims and costs that Kemper is unable to pay, and
that insurance carriers at policy layers following Kemper's layer will not
provide coverage for Kemper's layer. Kemper also provides part of the coverage
for Silzone(R) claims in our final layer of insurance ($20 million of the final
$50 million layer).

It is possible that Silzone(R) costs and expenses will reach the Kemper layers
of insurance coverage, and it is possible that Kemper will be unable to meet its
obligations to us. If this were to happen, we could incur a loss of up to $50
million. We have not accrued for any such losses.

LEGAL RESERVES: We operate in an industry that is susceptible to significant
product liability and intellectual property claims. 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 relative to events that are not known to us at the present
time. Our product liability insurance coverage during most of 2003 was $200
million, with a $50 million deductible per claim. In light of our significant
self-insured retention, our product liability insurance coverage is designed to
help protect against a catastrophic claim. We record a liability in our
consolidated financial statements for any claims where we have assessed that a
loss is probable and an amount can be reasonably estimated.

A substantial amount of intellectual property litigation occurs in our industry.
In November 1996, one of our competitors, Guidant Corporation (Guidant),
initiated a lawsuit against us alleging that we did not have a license to
certain patents which they controlled and as such, we were infringing on those
patents. A jury found against us in July 2000; however, the judge overseeing the
trial issued post-trial rulings in February 2001 which essentially set aside the
jury's $140 million damage assessment. Guidant is appealing certain aspects of
the judge's ruling. While it is not possible to predict the outcome of the
appeal process, we believe that the decision of the trial court in its
post-trial rulings was correct. In February 2004, Guidant initiated another
lawsuit against us alleging that a number of our CRT products infringe two of
its patents. We have not submitted a substantive response to Guidant's February
2004 claims at this time. To date, we have not recorded any liability for any
losses related to these litigation matters. Potential losses arising from the
ultimate resolution of these litigation matters are possible, but not estimable
at this time. The range of such a loss could be material to our consolidated
financial position, liquidity and results of operations.

ACQUISITIONS & INVESTMENTS
Acquisitions can have an impact on the comparison of our operating results and
financial condition from year to year.

On April 1, 2003, we completed the acquisition of Getz Japan, a distributor of
medical technology products in Japan and our largest volume distributor in
Japan. We paid 26.9 billion Japanese Yen in cash to acquire 100% of the
outstanding common stock of Getz Japan. Net consideration paid was $219.2
million, which includes closing costs less $12.0 million of cash acquired.

On April 1, 2003, we also acquired the net assets of Getz Bros. & Co. (Aust.)
Pty. Limited and Medtel Pty. Limited (collectively referred to as Getz
Australia) related to the distribution of our products in Australia for $6.2
million in cash, including closing costs.



                                       5


The results of operations of the Getz Japan and Getz Australia (collectively
referred to as Getz) acquisitions have been included in our consolidated results
of operations since April 1, 2003. Pro forma results of operations have not been
presented for the Getz acquisitions since the effects of these acquisitions were
not material to our consolidated financial statements either individually or in
aggregate. Net sales for 2003 included approximately $106 million related to the
Getz Japan and Getz Australia acquisitions. The additional revenue from Getz was
generated from the sale of non-St. Jude Medical manufactured products sold by
Getz and the incremental revenue on the sale of St. Jude Medical manufactured
products. Prior to April 1, 2003, we recognized revenue from the sale of our
products to Getz as our distributor.

In May 2003, we made a $15 million minority investment in Epicor, a development
stage company focused on developing products which use high intensity focused
ultrasound (HIFU) to ablate cardiac tissue. In conjunction with this investment,
we also agreed to acquire the remaining ownership of Epicor in 2004 for an
additional $185 million in cash if Epicor achieves specific clinical and
regulatory milestones by June 30, 2004.

SEGMENT REVIEW
We have two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery
(CRM/CS) segment and the Daig segment, which focus on the development and
manufacture of our products. The primary products produced by each segment are:
CRM/CS - pacemaker and ICD systems, mechanical and tissue heart valves and other
cardiac surgery products; Daig - electrophysiology catheters, vascular closure
devices and other cardiology and vascular access products.

Our reportable segments include end customer revenues from the sale of products
they each develop and manufacture. The costs included in each of the reportable
segments' operating results include the direct costs of the products sold to end
customers and operating expenses managed by each of the segments. Certain costs
of goods sold and operating expenses managed by our selling and corporate
functions are not included in segment operating profit. Because of this, segment
operating profit is not representative of the operating profit of our products
in these segments.

The following table presents certain financial information about our reportable
segments (in thousands):



                                       6




                                                                CRM/CS              DAIG               OTHER                TOTAL
==================================================================================================================================
                                                                                                          
FISCAL YEAR ENDED DECEMBER 31, 2003
  Net sales                                                $ 1,499,425         $ 366,433          $   66,656          $ 1,932,514
  Operating profit (a)                                         873,904           202,007            (619,966)             455,945
  Total assets                                                 639,724           147,270           1,769,100            2,556,094
- ----------------------------------------------------------------------------------------------------------------------------------

FISCAL YEAR ENDED DECEMBER 31, 2002
  Net sales                                                $ 1,305,750         $ 284,179          $        -          $ 1,589,929
  Operating profit (a)                                         713,341           149,592            (492,978)             369,955
  Total assets                                                 723,414           134,610           1,093,355            1,951,379
- ----------------------------------------------------------------------------------------------------------------------------------

FISCAL YEAR ENDED DECEMBER 31, 2001 (b)
  Net sales                                                $ 1,135,833         $ 211,523          $        -          $ 1,347,356
  Operating profit (a)                                         583,030           105,947            (453,161)             235,816
==================================================================================================================================


(a)   OTHER OPERATING PROFIT INCLUDES CERTAIN COSTS OF GOODS SOLD AND OPERATING
      EXPENSES MANAGED BY THE COMPANY'S SELLING AND CORPORATE FUNCTIONS. IN
      FISCAL YEAR 2001, OTHER ALSO INCLUDES SPECIAL CHARGES AND PURCHASED
      IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES.

(b)   DURING 2001, THE COMPANY COMPLETED A REORGANIZATION OF ITS GLOBAL SALES
      ACTIVITIES, WHICH RESULTED IN CHANGES TO ITS INTERNAL MANAGEMENT AND
      FINANCIAL REPORTING STRUCTURE. DUE TO THIS RESTRUCTURING, INFORMATION
      RELATING TO 2001 TOTAL ASSETS HAS NOT BEEN COMPILED AS IT IS
      IMPRACTICABLE TO DO SO.

We do not generally manage our business or allocate resources based on the
measure of segment operating profit or loss because these measures are not
indicative of the operating results of the products sold by these segments.
Rather, we utilize the segment results to measure performance against targets
for each segment's controllable activities. Additionally, we review global and
product line sales information to assess performance of the business.

The following discussion of the changes in our net sales is provided by class of
similar products, which is the primary focus of our sales activities. That
analysis sufficiently describes the changes in our sales results for our two
reportable segments.

NET SALES
Net sales by geographic markets were as follows (in thousands):



                                                 2003                2002                2001
==============================================================================================
                                                                           
United States                              $1,129,055          $1,042,766           $ 880,086
International
  Europe                                      465,369             347,936             294,852
  Japan                                       207,431              95,813              83,361
  Other                                       130,659             103,414              89,057
- ----------------------------------------------------------------------------------------------
                                              803,459             547,163             467,270
- ----------------------------------------------------------------------------------------------
                                           $1,932,514          $1,589,929          $1,347,356
- ----------------------------------------------------------------------------------------------


Foreign currency translation relating to our international operations can have a
significant impact on our operating results from year to year. Foreign currency
translation had a favorable impact on 2003 net sales as compared with 2002 by
approximately $71 million due primarily to the strengthening of the



                                       7


Euro against the U.S. dollar. Foreign currency translation had a net favorable
impact on 2002 net sales as compared with 2001 by approximately $9 million due
primarily to the strengthening of the Euro against the U.S. dollar, offset in
part by the weakening of the Brazilian Real against the U.S. dollar. These
amounts are not indicative of the net earnings impact of foreign currency
translation for 2003 and 2002 due to partially offsetting unfavorable foreign
currency translation impacts on cost of sales and operating expenses.

Net sales by class of similar products were as follows (in thousands):



                                                                            2003                2002               2001
========================================================================================================================
                                                                                                     
CARDIAC RHYTHM MANAGEMENT
    Pacemaker systems                                                  $ 826,121           $ 751,575          $ 689,223
    ICD systems                                                          414,255             303,218            200,511
    Electrophysiology catheters                                          124,836              92,696             76,234
- ------------------------------------------------------------------------------------------------------------------------
                                                                       1,365,212           1,147,489            965,968
CARDIAC SURGERY
    Heart valves                                                         250,840             232,986            240,829
    Other cardiac surgery products                                        20,093              17,971              7,216
- ------------------------------------------------------------------------------------------------------------------------
                                                                         270,933             250,957            248,045
CARDIOLOGY AND VASCULAR ACCESS
    Vascular closure devices                                             218,215             156,474            101,591
    Other cardiology and vascular access products                         78,154              35,009             31,752
- ------------------------------------------------------------------------------------------------------------------------
                                                                         296,369             191,483            133,343

- ------------------------------------------------------------------------------------------------------------------------
                                                                      $1,932,514          $1,589,929         $1,347,356
========================================================================================================================


2003 NET SALES COMPARED TO 2002
In cardiac rhythm management, net sales of pacemaker systems increased 9.9% in
2003 due to an increase in pacemaker unit sales of approximately 5% from 2002,
approximately $33 million of favorable impact from foreign currency translation
and $29 million of favorable impact from the Getz acquisitions. Pacemaker net
sales in 2003 benefited from the worldwide launches of our Identity(R) ADx,
Integrity(R) ADx and Verity(TM) ADx pacemaker product families. These increases
were offset in part by average selling price declines of approximately 3%. Net
sales of ICD systems increased 36.6% in 2003 due to growth in ICD unit sales of
approximately 39%, offset in part by average selling price declines of
approximately 6%. ICD net sales in 2003 benefited from the worldwide launch in
mid-2003 of our Epic(TM)+ DR ICD containing AF Suppression(TM) technology. Net
sales of ICD systems in 2003 also included approximately $12 million of
favorable impact from foreign currency translation. Electrophysiology catheter
net sales increased 34.7% in 2003 due primarily to a 9% increase in unit sales,
$18 million of favorable impact from the Getz acquisitions and approximately $4
million of favorable impact from foreign currency translation.

In cardiac surgery, heart valve net sales increased 7.7% in 2003 due primarily
to approximately $12 million of favorable impact from foreign currency
translation and $10 million of favorable impact from the Getz acquisitions.
These increases were partially offset by a global average selling price decline
of approximately 4% due to a larger portion of our sales mix coming from
lower-priced international markets. Net sales of other cardiac surgery products
increased 11.8% in 2003 due primarily to $13 million of favorable impact from
the Getz acquisitions, offset in part by a 60% decrease in aortic connector unit
sales.


                                       8


In cardiology and vascular access, net sales of vascular closure devices
increased 39.5% in 2003 due to an increase of 37% in Angio-Seal(TM) unit sales
and approximately $8 million of favorable impact from foreign currency
translation. These increases were partially offset by a global average selling
price decline of approximately 3% due to a larger portion of our sales mix
coming from lower-priced international markets. Net sales in 2003 benefited from
the global launch of our fifth-generation Angio-Seal(TM) vascular closure
product, the STS Plus, in the third quarter. Net sales of other cardiology and
vascular access products increased 123.2% in 2003 due primarily to $36 million
of sales of non-St. Jude Medical manufactured products distributed in Japan by
Getz, a 19% increase in unit sales and approximately $2 million of favorable
impact from foreign currency translation.

2002 NET SALES COMPARED TO 2001
In cardiac rhythm management, net sales of pacemaker systems increased 9.0% in
2002 due primarily to an increase in unit sales of 9%, attributable to the
ongoing success of our Identity(R) family of pacemakers and other devices that
incorporate BEAT-BY-BEAT AutoCapture(TM) and AF Suppression(TM) technology.
Foreign currency translation had a favorable impact on 2002 net sales of
pacemakers of approximately $3.5 million. Net sales of ICD systems increased
51.2% in 2002 due primarily to increased ICD unit sales of 48% and approximately
$2 million of favorable impact from foreign currency translation. Our ICD net
sales benefited from the ongoing success of the Atlas(R) ICD, the new Epic(TM)
ICD that was launched worldwide in the fourth quarter of 2002 and the Riata(R)
family of ICD leads. EP catheter net sales increased 21.6% in 2002 due primarily
to increased unit sales.

In cardiac surgery, heart valve net sales decreased 3.3% in 2002 due primarily
to an ongoing clinical preference shift from mechanical valves to tissue valves
in the U.S. market, where we hold significant mechanical valve market share and
a smaller share of the tissue valve market. Heart valve net sales were favorably
impacted in 2002 by approximately $1.5 million due to foreign currency
translation. Net sales of other cardiac surgery products increased 149% in 2002
due primarily to an increase in aortic connector sales as a result of the
ongoing rollout of this product in the U.S. market.

In cardiology and vascular access, net sales of vascular sealing devices
increased 54.0% in 2002 due primarily to increased Angio-Seal(TM) unit sales of
approximately 50%. Net sales in 2002 benefited from the worldwide launch in
early 2002 of our newest vascular closure device platform, the Angio-Seal(TM)
STS. Net sales of other cardiology and vascular access products increased 10.3%
in 2002 due primarily to an increase in unit sales.

GROSS PROFIT
Gross profits were as follows (in thousands):



                                             2003                2002              2001
- ----------------------------------------------------------------------------------------
                                                                      
Gross profit                           $1,329,423          $1,083,983          $888,197
Percentage of net sales                     68.8%               68.2%             65.9%
- ----------------------------------------------------------------------------------------


Our 2003 gross profit percentage increased 0.6 percentage points over 2002
despite a 1.6 percentage point reduction as a result of our Getz Japan
acquisition. The increase in our gross profit percentage during 2003 is
primarily a result of reduced material costs and increased labor efficiencies
due to continued improvements in our CRM manufacturing processes, and to lower
overhead costs per unit as a result of higher CRM production volumes. In
addition, our ongoing cost management efforts helped to improve our gross profit
percentage.


                                       9


On April 1, 2003, we valued the Getz Japan-owned inventory of pacemaker systems
and heart valves at fair value in accordance with acquisition accounting rules.
This fair value was established as the price at which we had sold the inventory
to Getz. As these inventory items were sold subsequent to April 1, 2003, our
gross profit percentage was reduced since the gross profit recognized by Getz
Japan was less than our historical gross profit related to the sale of these
items to Getz Japan as our distributor. Once the original Getz Japan-owned
inventory is sold, our gross profit percentage will improve. In 2004, we
anticipate that our gross profit percentage will increase to a range of 70.5% to
71.5% due primarily to completing the sale of the remaining original Getz-owned
inventory and to additional anticipated cost savings in our CRM operations.

Our 2002 gross profit percentage increased 2.3 percentage points over 2001 due
primarily to the $21.7 million of inventory write-downs and equipment write-offs
in 2001 which did not recur in 2002 (see further details under SPECIAL CHARGES).
The remaining 0.7 percentage point improvement in gross profit percentage is due
primarily to reduced material costs and increased labor efficiencies as a result
of improvements in our CRM manufacturing processes, lower overhead costs per
unit as a result of higher CRM production volumes and to ongoing cost management
efforts.

OPERATING EXPENSES
Certain operating expenses were as follows (in thousands):



                                                       2003            2002             2001
=============================================================================================
                                                                           
Selling, general and administrative                $632,395        $513,691         $467,113
Percentage of net sales                               32.7%           32.3%            34.7%

Research and development                           $241,083        $200,337         $164,101
Percentage of net sales                               12.5%           12.6%            12.2%
=============================================================================================


SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense as a percentage
of net sales increased 0.4 percentage points in 2003. This increase is due
primarily to the addition of the Getz direct sales organization beginning April
1, 2003, which included approximately 400 sales, sales support and marketing
personnel. In addition, we incurred increased selling and marketing expenses in
2003 in anticipation of our entry into the CRT segments of the U.S. pacemaker
and ICD markets in 2004. These headcount increases in our worldwide selling
organizations were offset, in part, by the effects of spreading certain
relatively fixed elements of our selling and administrative costs over a revenue
base that grew 22% in 2003. We anticipate that SG&A expense as a percentage of
net sales will increase to a range of 33.5% to 34.0% in 2004 as a result of
increased spending in our sales and marketing areas in support of our
anticipated 2004 launch of our CRT products in the United States and the Getz
results in our income statement for the full year in 2004 versus nine months in
2003.

SG&A expense as a percentage of net sales decreased by 2.4 percentage points in
2002. Approximately $28 million, or 1.8 percentage points of the decrease in
SG&A expense as a percentage of net sales, resulted from the elimination of
goodwill amortization expense in 2002 as a result of our adoption of SFAS No.
142, "GOODWILL AND OTHER INTANGIBLE ASSETS," effective January 1, 2002. The
remaining SG&A improvement as a percentage of net sales represented the effects
of spreading certain relatively fixed elements of our selling and administrative
costs over a revenue base that grew 18% in 2002. During the second quarter of
2002, we received a cash payment of $18.5 million relating to the settlement of




                                       10


certain patent litigation, which was recorded as a reduction of SG&A expense.
Also during the second quarter of 2002, we recorded in SG&A an $11 million
charge to increase the reserve for expenses related to the Silzone(R) recall
(see SPECIAL CHARGES) and a $7.5 million discretionary contribution to our
charitable foundation, the St. Jude Medical Foundation.

During the fourth quarter of 2001, we reversed through SG&A expense a $15
million accrued liability relating to royalties on a license agreement with
Guidant that we believed we had acquired as part of our purchase of assets of
the Telectronics cardiac stimulation device business. This accrual reversal was
necessary as a result of various legal conclusions in the Guidant litigation,
including the judge's rulings in February 2002 (see Note 5 to our Consolidated
Financial Statements), when it was determined that we would never have to pay
any royalties under the license. In addition, during this same quarter we
expensed approximately $15 million of legal fees incurred in relation to the
Guidant litigation that were subject to recoverability under an indemnification
agreement between us and the seller of the Telectronics cardiac stimulation
device business. This write-off occurred as a result of the same legal
conclusions referred to above, when it was determined that our realization of
the indemnity receivable was impaired.

RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expense increased in 2003 and 2002
due primarily to our increased spending on the development of new products and
related clinical trials, including our CRT devices and other products to treat
emerging indications including atrial fibrillation.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES: In September 1999, we
recorded purchased in-process research and development charges of $67.5 million
in connection with our acquisition of Vascular Science, Inc. (VSI). The
purchased in-process research and development charges were computed by an
independent third-party appraisal company and were expensed at the close of the
acquisition, except as noted below, since technological feasibility had not been
established and since there were no alternative future uses for the technology.
To date, we have capitalized $.6 million of intangible assets related to the VSI
acquisition.

The total appraised value of the VSI purchased in-process research and
development was $95.5 million, of which $67.5 million was recorded at the close
of the acquisition. We paid additional contingent consideration of $10 million
in 2001 and $5 million in 2000 as certain regulatory approvals for the proximal
and distal connector technologies were obtained. These additional payments were
also expensed as purchased in-process research and development at the time of
payment. The remaining balance of the purchased in-process research and
development valuation ($13 million) will be recorded in our financial statements
as purchased in-process research and development expense when payment of the
contingent consideration is assured beyond a reasonable doubt. Contingent
consideration payments in excess of the $13 million will be capitalized as
goodwill.

Since 1999, we have continued to develop certain of the in-process technologies
acquired in the VSI acquisition. Development of the proximal connector was
completed and regulatory approvals and E.U. and U.S. market releases occurred in
2000 and 2001. A second VSI in-process technology, the distal connector,
received E.U. regulatory approval in 2001; however, we decided to not release
the product to the market until we were able to make additional enhancements.
The other in-process technologies acquired in the VSI acquisition continue to be
reviewed for ultimate viability in the developing coronary artery bypass graft
anastomoses market.


                                       11


At the date of the VSI acquisition, the total estimated costs necessary to
complete the proximal and distal connector technologies into commercially viable
products and to make certain subsequent product enhancements were approximately
$1 million, all of which were scheduled to be incurred in 1999 and 2000. Through
December 2003, we have incurred approximately $10 million to complete the
proximal connector and the distal connector. The original estimated costs to
complete the other in-process technologies into commercially viable products
were approximately $6 million, of which only an immaterial amount has been
incurred to date.

During 2003, our proximal and distal connector products did not continue to
develop as they did during 2001 and 2002 nor as we had originally anticipated in
September 1999. Product sales declined 54% to $8.2 million during 2003 after
increasing 149% to $18.0 million in 2002. We believe that additional investments
in research and development and clinical studies to support these products will
be required. There can be no assurance that the VSI technologies will achieve
the technological or commercial success which we originally anticipated in
September 1999.

The VSI purchase agreement requires us to make additional payments to the former
VSI shareholders upon the achievement of certain regulatory milestones and
minimum sales levels. To date, we have paid $15 million related to the
achievement of three regulatory milestones. Achievement of the final regulatory
milestone, U.S. regulatory approval of the distal connector, requires an
additional $5 million payment. This contractual commitment continues
indefinitely.

The contingent consideration tied to sales requires us to make additional
payments totaling 5% of sales once cumulative sales exceed $50 million for the
proximal and distal connectors collectively. There is no maximum amount of
contingent consideration that could be paid related to sales. This contractual
commitment ceases in 2009 if the minimum sales threshold is not attained prior
to such date. If the minimum sales threshold is met prior to 2009, the
commitment will extend for 10 years from the date the minimum sales threshold is
met. Cumulative proximal and distal connector sales totaled $33 million through
December 31, 2003.

There can be no assurance that we will be able to complete the development of
these technologies into commercially viable products. Additionally, we are not
able to reasonably predict the level of proximal or distal connector sales over
a period of time which could extend beyond the next 10 years. As a result of
these factors, we are not able to predict the amount of additional contingent
consideration, if any, that may become due. However, we believe that any amounts
which may ultimately become due in the next 5 years will not be material to our
results of operations, financial position or liquidity.

SPECIAL CHARGES: During the first half of 2001, we undertook a review of the
organizational structure of our sales operations and our heart valve operations.
At that time, the structure our sales organization included four separate sales
groups. Additionally, the cardiac surgery markets were experiencing a shift in
clinical preference away from mechanical heart valves in favor of tissue heart
valves and repair product for certain patients. These changes had the potential
to impact the future performance of our heart valve operations. As a result of
these reviews, in July 2001 we approved two restructuring plans. The first plan
included a restructuring of our sales organizations into two geographically
oriented groups (one group focused on the United States and one group focused on
locations outside the United States) and changes within each of these new
organizations to harmonize their operations within each of their geographies.



                                       12


The second plan included the elimination of excess capacity in our heart valve
operations workforce, facilities and equipment and the discontinuance of certain
heart valve product lines.

As a result of these restructuring plans, we recorded pre-tax charges totaling
$20.7 million in the third quarter of 2001 consisting of inventory write-downs
($9.5 million), capital equipment write-offs ($3.4 million), employee
termination costs ($5.3 million) and lease termination and other exit costs
($2.5 million).

Inventory write-downs represented the estimated net carrying value of various
inventory items that would be scrapped in connection with the decision to
terminate two heart valve product lines. Capital equipment write-offs were a
result of the elimination of certain excess capacity in our heart valve
operations. Employee termination costs related to the severance costs for
approximately 90 individuals whose positions were eliminated. Lease termination
and other exit costs included office closings for international locations,
contractual obligations under certain programs that were cancelled and lease
termination costs.

A summary of the employee termination costs and lease termination and other exit
costs activity is as follows (in thousands):



                                                                                    LEASE
                                                           EMPLOYEE           TERMINATION
                                                        TERMINATION             AND OTHER
                                                              COSTS            EXIT COSTS            TOTAL
===========================================================================================================
                                                                                          
Initial expense and accrual in 2001                         $ 5,293               $ 2,495          $ 7,788
Cash payments                                                (2,468)                 (352)          (2,820)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                                  2,825                 2,143            4,968

Cash payments                                                (1,676)               (1,970)          (3,646)
Changes in estimates                                           (639)                  (53)            (692)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2002                                    510                   120              630

Cash payments                                                  (510)                 (120)            (630)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2003                                $     -               $     -          $     -
===========================================================================================================


In addition to the above restructuring activities, we identified a trend early
in the third quarter of 2001 related to the usage of certain diagnostic
equipment, also referred to as programmers. We noted that customer acceptance of
our new programmer, which received FDA regulatory approval in late December 2000
and was subsequently launched during the first and second quarters of 2001,
significantly exceeded our expectations, necessitating a special analysis of the
recoverability of the older programmers that were not yet fully depreciated.
After a review of the situation, we approved a plan to abandon certain older
programmer models during the third quarter of 2001. As a result of this plan, we
wrote off the remaining net book value of the abandoned programmers ($12.2
million) to cost of sales.

The charges relating to employee termination costs, capital equipment write-offs
and other costs ($11.2 million) were recorded in operating expenses as special
charges. The inventory and diagnostic equipment write-offs ($21.7 million) were
included in cost of sales as special charges.

On January 21, 2000, we initiated a worldwide voluntary recall of all field
inventory of heart valve replacement and repair products incorporating
Silzone(R) coating on the sewing cuff fabric. We



                                       13


concluded that we would no longer utilize Silzone(R) coating. As a result of the
voluntary recall and product discontinuance, we recorded a special charge
totaling $26.1 million during the first quarter of 2000. The $26.1 million
special charge consisted of asset write-downs ($9.5 million), legal and patient
monitoring costs ($14.4 million) and customer returns and related costs ($2.2
million).

The $9.5 million of asset write-downs related to inventory write-offs associated
with the physical scrapping of inventory with Silzone(R) coating ($8.6 million),
and to the write-off of a prepaid license asset and related costs associated
with the Silzone(R) coating technology ($0.9 million). The $14.4 million of
legal and patient monitoring costs related to our product liability insurance
deductible ($3.5 million) and patient monitoring costs ($10.9 million) related
to contractual and future monitoring activities directly related to the product
recall and discontinuance. The $2.2 million of customer returns and related
costs represented costs associated with the return of customer-owned Silzone(R)
inventory.

In the second quarter of 2002, we determined that the Silzone(R) reserves should
be increased by $11 million as a result of difficulties in obtaining certain
reimbursements from our insurance carriers under our product liability insurance
policies ($4.6 million), an increase in our estimate of the costs associated
with future patient monitoring costs as a result of extending the time period in
which we planned to perform patient monitoring activities ($5.8 million) and an
increase in other related costs ($0.6 million). This additional accrual was
included in selling, general and administrative expense during the second
quarter ended June 30, 2002.

Our product liability insurance coverage for Silzone(R) claims consists of a
number of policies with different carriers. During 2002, we observed a trend
where various insurance companies were not reimbursing us or outside legal
counsel for a variety of costs incurred, which we believed should be paid under
the product liability insurance policies. These insurance companies were either
refusing to pay the claims or had delayed providing an explanation for
non-payment for an extended period of time. Although we believe we have legal
recourse from these insurance carriers for the costs they are refusing to pay,
the additional costs we would need to incur to resolve these disputes may exceed
the amount we would recover. As a result of these developments, we increased the
Silzone(R) reserves by $4.6 million in the second quarter of 2002, which
represents the existing disputed costs already incurred at that time plus the
anticipated future costs where we expect similar resistance from the insurance
companies on reimbursement.

During the fourth quarter of 2003, we reclassified $15.7 million of existing
accruals to the Silzone(R) special charge accrual from other current assets.
This amount related to probable future legal costs associated with the
Silzone(R) litigation. Previously, these accruals were offset against a
receivable from our insurance carriers.

A summary of the legal and monitoring costs and customer returns and related
costs activity is as follows (in thousands):


                                       14




                                                 LEGAL AND                   CUSTOMER
                                                MONITORING                RETURNS AND
                                                     COSTS              RELATED COSTS                TOTAL
===========================================================================================================
                                                                                      
Initial expense and accrual in 2000               $ 14,397                    $ 2,239             $ 16,636
Cash payments                                       (5,955)                    (2,239)              (8,194)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                         8,442                          -                8,442

Cash payments                                       (3,042)                         -               (3,042)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                         5,400                          -                5,400

Additional expense                                  10,433                        567               11,000
Cash payments                                       (2,442)                       (59)              (2,501)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2002                        13,391                        508               13,899

Cash payments                                       (1,206)                       (22)              (1,228)
Reclassification of legal accruals                  15,721                          -               15,721
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 2003                      $ 27,906                      $ 486             $ 28,392
- -----------------------------------------------------------------------------------------------------------


In addition to the amounts available under the above Silzone(R) reserves, we
have approximately $170 million remaining in product liability insurance
currently available for the Silzone(R)-related matters. See discussion of Kemper
under CRITICAL ACCOUNTING POLICIES AND ESTIMATES - SILZONE(R) SPECIAL CHARGE
ACCRUALS.

OTHER INCOME (EXPENSE)

Other income (expense) consists of the following (in thousands):



                                             2003                2002                2001
==========================================================================================
                                                                         
Interest income                           $ 7,031             $ 5,481             $ 3,261
Interest expense                           (3,746)             (1,754)            (12,567)
Other                                        (593)               (324)              1,468
- ------------------------------------------------------------------------------------------
Other income (expense)                    $ 2,692             $ 3,403            $ (7,838)
- ------------------------------------------------------------------------------------------


The decrease in other income (expense) during 2003 as compared with 2002 was due
primarily to higher levels of interest expense as a result of borrowings for our
Getz Japan acquisition in 2003 and our August 2003 share repurchase, offset in
part by higher levels of interest income as a result of higher average invested
cash balances.

The change in other income (expense) during 2002 as compared with 2001 was due
primarily to reduced interest expense as a result of lower debt levels, lower
interest rates on our borrowings in 2002 and higher levels of interest income as
a result of the increase in cash and equivalents in 2002.

INCOME TAXES
Our reported effective income tax rates were 26.0% in 2003 and 2002, and 24.3%
in 2001. Excluding the purchased in-process research and development and special
charges in 2001, our effective income tax rate was 25.0%. The purchased
in-process research and development charges were not deductible for income tax
purposes, and the special charges were recorded in taxing jurisdictions where
income tax rates varied from our blended 25.0% effective tax rate. Our higher
effective income tax rate in 2003 and 2002 as compared to 2001 was due to a
larger percentage of our taxable income being generated in higher tax rate
jurisdictions.



                                       15


NET EARNINGS
Net earnings were $339.4 million in 2003, a 22.8% increase over 2002, and
diluted net earnings per share was $1.83 in 2003, a 21.2% increase over 2002.
Net earnings were $276.3 million in 2002, a 36.0% increase over 2001, and
diluted net earnings per share was $1.51 in 2002, a 32.5% increase over 2001.
The 2001 net earnings included $42.8 million of pre-tax special charges and
purchased in-process research and development charges, or $0.17 per diluted
share.

In August 2003, we repurchased 9.25 million shares, which we funded through
existing cash balances and borrowings under a short-term credit facility and
commercial paper program. Our share repurchase decreased our weighted average
shares outstanding during 2003 by 3.6 million shares. This impact, offset by the
foregone interest income and additional interest expense we incurred, resulted
in an immaterial increase to our net earnings per share for 2003.

STOCK SPLIT
On May 16, 2002, our Board of Directors declared a two-for-one stock split in
the form of a 100% stock dividend to shareholders of record on June 10, 2002.
Net earnings per share, shares outstanding and weighted average shares
outstanding have been restated to reflect this stock split.

GOVERNMENT REGULATION, 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.

The pacemaker and ICD markets are highly competitive. There are currently three
principal suppliers to these markets, including us, and our two principal
competitors each have substantially more assets and sales than us. Rapid
technological change in these markets is expected to continue, requiring us to
invest heavily in R&D and to effectively market our products. Two trends began
to emerge in these markets during 2002. The first involved a shift of some
traditional pacemaker patients to ICD devices in the United States, and the
second involved the increasing use of resynchronization devices in both the U.S.
ICD and pacemaker markets. Our competitors in CRM have U.S. regulatory approval
to market ICD and pacemaker devices with resynchronization features. We
currently have both a cardiac resynchronization ICD and pacemaker product in
U.S. clinical studies. We currently anticipate U.S. approval of these products
during the second quarter of 2004. If the approvals of these products are
delayed or not received, our pacemaker and ICD sales could be adversely affected
if the markets continue to shift towards products with cardiac resynchronization
capabilities. We have experienced a modest decline in average selling prices for
ICDs in the U.S. market during 2003, which will likely continue until we obtain
U.S. approval of our cardiac resynchronization ICD.

The cardiac surgery markets, which include mechanical heart valves, tissue heart
valves and valve repair products, are also highly competitive. Since 1999,
cardiac surgery therapies have shifted to tissue valves and repair products from
mechanical heart valves, resulting in an overall market share loss for us.
Competition is anticipated to continue to place pressure on pricing and terms,
including a trend



                                       16


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

The cardiology and vascular access therapy area is also growing and has numerous
competitors. Over 70% of our sales in this area are comprised of vascular
closure devices. 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. Additionally, we anticipate
other large companies will enter this market in the coming years, which will
likely increase competition.

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

MARKET RISK
We are exposed to foreign currency exchange rate fluctuations due to
transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars,
Brazilian Reals, British Pounds, and Swedish Kronor. Although we elected not to
enter into any hedging contracts during 2003, 2002 or 2001, historically we
have, from time to time, hedged a portion of our foreign currency exchange rate
risk through the use of forward exchange or option contracts. The gains or
losses on these contracts are intended to offset changes in the fair value of
the anticipated foreign currency transactions. We do not enter into contracts
for trading or speculative purposes. We continue to evaluate our foreign
currency exchange rate risk and the different mechanisms for use in managing
such risk. We had no forward exchange or option contracts outstanding at
December 31, 2003 or 2002. 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 $55 million on our 2003 net sales. This amount is
not indicative of the hypothetical net earnings impact due to partially
offsetting impacts on cost of sales and operating expenses.

With our acquisition of Getz Japan during 2003, we significantly increased our
exposure to foreign currency exchange rate fluctuations due to transactions
denominated in Japanese Yen. We elected to naturally hedge a portion of our
Yen-based net asset exposure by issuing 1.02%Yen-based 7-year notes, the
proceeds of which were used to repay the short-term bank debt that we used to
fund a portion of the Getz Japan purchase price. Excess cash flows from our Getz
Japan operations will be used to fund principal and interest payments on the
Yen-based borrowings. We have not entered into any Yen-based hedging contracts
to mitigate any remaining foreign currency exchange rate risk.

We are exposed to interest rate risk on our short-term, Yen-based bank credit
agreement which has a variable interest rate tied to the floating Yen London
InterBank Offered Rate (LIBOR). In the United States, we issue short-term,
unsecured commercial paper that bears interest at varying market rates. We also
have two committed credit facilities that have variable interest rates tied to
the LIBOR. Our variable interest rate borrowings had a notional value of $169.5
million at December 31, 2003. A hypothetical 10% change in interest rates
assuming the current level of borrowings would have had an impact of
approximately $0.2 million on our 2003 interest expense, which is not material
to our consolidated results of operations.

We are exposed to fair value risk on our 1.02% Yen-based fixed-rate notes. A
hypothetical 10% change in interest rates would have an impact of approximately
$1.3 million on the fair value of these notes, which is not material to our
financial position or consolidated results of operations.


                                       17


We are also exposed to equity market risk on our marketable equity security
investments. We periodically invest in marketable equity securities of emerging
technology companies. Our investments in these companies had a fair value of
$23.7 million and $13.7 million at December 31, 2003 and 2002, which are subject
to the underlying price risk of the public equity markets.

NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, "CONSOLIDATION OF VARIABLE INTEREST ENTITIES" (FIN 46).
FIN 46 requires the consolidation of variable interest entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. FIN 46 is
effective for the first quarter of 2004. We do not expect our adoption of FIN 46
to have an impact on our consolidated results of operations, financial position
or cash flows.

In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" (Statement
150). Statement 150 establishes standards for issuer classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. In accordance with this standard, financial instruments
that embody obligations for the issuer are required to be classified as
liabilities. Statement 150 is effective for all financial instruments entered
into or modified after May 31, 2003, and is otherwise effective at the beginning
of the first interim period beginning after June 15, 2003. Our adoption of
Statement 150 did not have an impact on our consolidated results of operations,
financial position or cash flows.

Emerging Issues Task Force (EITF) Issue No. 00-21, "ACCOUNTING FOR REVENUE
ARRANGEMENTS WITH MULTIPLE DELIVERABLES," addresses certain aspects of the
accounting by a vendor for arrangements under which multiple revenue-generating
activities are performed. EITF Issue No. 00-21 establishes three principles:
revenue arrangements with multiple deliverables should be divided into separate
units of accounting; arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values; and revenue
recognition criteria should be considered separately for separate units of
accounting. EITF Issue No. 00-21 was effective for all revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. Our adoption of
EITF Issue No. 00-21 did not have an impact on our consolidated results of
operations, financial position or cash flows.

In December 2003, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 104, "REVENUE RECOGNITION" (SAB 104). SAB 104 clarifies
existing guidance regarding revenue recognition. Our adoption of SAB 104 did not
have a material impact on our consolidated results of operation, financial
position or cash flows.


FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and cash flows remained strong during 2003. Cash provided by
operating activities was $474.3 million for 2003, up $57.1 million from 2002 due
primarily to increased earnings and an increase in the tax benefit realized from
the exercise of employee stock options. Offsetting these improvements was an
increase in our finished goods inventory levels as a result of fourth quarter
2003 new product launches. Cash provided by operating activities was $417.2
million in 2002, up $107.1 million from 2001 due primarily to increased earnings
and to a reduction of our inventory levels during 2002. Our inventory, expressed
as the number of days of cost of sales on hand (DIOH), declined from



                                       18


199 days at the end of 2001 to 160 days at the end of 2002 due mostly to more
focused inventory management across our business.

At December 31, 2003, substantially all of our cash and equivalents were held by
our non-U.S. subsidiaries. These funds are available for use by our U.S.
operations; however, assuming we accomplished a repatriation under current law
by paying a dividend, the amount paid would be subject to additional U.S. taxes
upon repatriation which could total as much as 33% of the amount repatriated.

On April 1, 2003, we borrowed 24.6 billion Japanese Yen, or approximately $208
million, under a short-term, unsecured bank credit agreement to partially
finance the Getz Japan acquisition. These borrowings bore interest at an average
rate of 0.58% per annum and were repaid in May 2003. In May 2003, we issued
7-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $194.4 million at
December 31, 2003. We also obtained a short-term, unsecured bank credit
agreement which provides for borrowings of up to 3.8 billion Yen. Proceeds from
the issuance of the 7-year notes and from borrowings under the short-term, bank
credit agreement were used to repay the 24.6 billion Yen of short-term bank
borrowings. Outstanding borrowings under our short-term bank credit agreement
were approximately 1.3 billion Yen, or $12.1 million, at December 31, 2003.
Borrowings under the short-term, bank credit agreement bear interest at the
floating Yen LIBOR plus 0.50% per annum (effective rate of 0.54% at December 31,
2003) and are due in May 2004.

On July 22, 2003, the Board of Directors authorized a share repurchase program
of up to $500 million of our outstanding common stock and the establishment of a
$500 million credit facility. The share repurchases could be made at the
direction of management through transactions in the open market and/or privately
negotiated transactions, including the use of options, futures, swaps and
accelerated share repurchase contracts.

On August 7, 2003, we repurchased approximately 9.25 million shares, or about
five percent of our outstanding common stock, for $500 million under a
privately-negotiated transaction with an investment bank. The investment bank
borrowed the 9.25 million shares to complete the transaction and purchased
replacement shares in the open market over a three month period which ended
November 7, 2003. We entered into a related accelerated stock buyback contract
with the same investment bank which, in return for a separate payment to the
investment bank, included a price-protection feature. The price-protection
feature provided that if the investment bank's per share purchase price of the
replacement shares was lower than the initial share purchase price for the 9.25
million shares ($54.06), then the investment bank would, at our election, make a
payment or deliver additional shares to us in the amount of the difference
between the initial share purchase price and their replacement price, subject to
a maximum amount. In addition, the price-protection feature provided that if the
investment bank's replacement price was greater than the initial share purchase
price, we would not be required to make any further payments. On November 7,
2003, the investment bank completed its purchase of replacement shares. The
market price of our shares during this replacement period exceeded the initial
purchase price, resulting in no additional exchange of consideration.

In July 2003, we obtained a $400 million short-term revolving credit facility to
partially fund our $500 million share repurchase in August 2003. Borrowings
under this facility bore interest at an average rate of 1.73% per annum and were
repaid in September 2003. In September 2003, we obtained a $150 million
unsecured, revolving credit facility that expires in September 2004 and a $350
million unsecured, revolving credit facility that expires in September 2008.
These credit facilities bear interest at the LIBOR plus 0.625% and 0.60% per
annum, respectively, subject to adjustment in the event of a



                                       19


change in our debt ratings. There were no outstanding borrowings under these
credit facilities at December 31, 2003.

During September 2003, we began issuing short-term, unsecured commercial paper
with maturities up to 270 days. Outstanding commercial paper borrowings totaled
$157.4 million at December 31, 2003. These commercial paper borrowings bear
interest at varying market rates (effective rate of 1.2% at December 31, 2003).

The debt that we incurred to partially fund our $500 million share repurchase
reflected our decision to increase the debt component of our current
capitalization. Our decision was influenced by a number of factors, including
the relatively low interest rates on our borrowings, the relatively low interest
rates that we were earning on our excess cash investments, the outlook for our
cash flows from operations for the next 1 to 2 years and the adequacy of those
cash flows to repay the debt and continue to fund our operations and investments
in growth opportunities while maintaining our investment grade status with the
debt rating agencies.

We classify all of our commercial paper borrowings as long-term on the balance
sheet as we have the ability to repay any short-term maturity with available
cash from our existing long-term, committed credit facility. We continually
review our cash flow projections and may from time to time repay a portion of
the borrowings.

In May 2003, we made a $15 million minority investment in Epicor, a development
stage company focused on developing products which use high intensity focused
ultrasound (HIFU) to ablate cardiac tissue. This investment is accounted for
under the cost method and is included in other long-term assets on the balance
sheet. In conjunction with this investment, we also agreed to acquire the
remaining ownership of Epicor in 2004 for an additional $185 million in cash if
Epicor receives approval from the FDA by June 30, 2004 to begin marketing its
device for general cardiac tissue ablation and if Epicor achieves certain
success criteria, as defined in the purchase agreement, in connection with its
European clinical study. In addition, we have an option to purchase the
remaining ownership of Epicor for $185 million even if FDA approval is not
received and the success criteria are not achieved. This option to purchase
Epicor expires on June 30, 2004.

Our 7-year notes, short-term bank credit agreement and revolving credit
facilities contain various operating and financial covenants (see Note 4 to our
Consolidated Financial Statements). We were in compliance with all of our debt
covenants at December 31, 2003. We believe that these covenants will not have a
material impact on our ability to borrow in the future.

We believe that our existing cash balances, borrowings under our committed
credit facilities and future cash generated from operations will be sufficient
to meet our working capital and capital investment needs over the next twelve
months and in the foreseeable future thereafter. Should suitable investment
opportunities arise, we believe that our earnings, cash flows and balance sheet
position will permit us to obtain additional debt financing or equity capital,
if necessary.

OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet financing arrangements other than operating leases
for various facilities and equipment as noted below in the table of contractual
obligations and other commitments.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

Presented below is a summary of our contractual obligations and other
commitments as of December 31, 2003 (in thousands). See Note 4 to our
Consolidated Financial Statements for additional



                                       20


information regarding short-term and long-term debt, and Note 5 for additional
information regarding operating leases and contingent acquisitions.



                                                                      PAYMENTS DUE BY PERIOD
                                           --------------------------------------------------------------------------
                                                               Less than           1-3            4-5        After 5
                                                    Total         1 Year         Years          Years          Years
=====================================================================================================================
                                                                                             
Short-term bank credit agreement                 $ 12,115      $  12,115       $     -      $       -       $      -
Long-term debt (1)                                351,813              -             -        157,400        194,413
Operating leases (2)                              108,040         16,349        29,732         24,950         37,009
Purchase commitments (2)(3)                       209,583        132,064        40,919         36,600              -
Contingent acquisitions (2)(4)                    255,230        209,589        26,851         16,090          2,700
- ---------------------------------------------------------------------------------------------------------------------
     Total                                       $936,781      $ 370,117       $97,502      $ 235,040       $234,122
=====================================================================================================================


(1)   LONG-TERM DEBT INCLUDES $194.4 MILLION OF LONG-TERM NOTES DUE IN MAY 2010
      AND $157.4 MILLION OF COMMERCIAL PAPER BORROWINGS THAT ARE BACKED BY OUR
      COMMITTED CREDIT FACILITY THAT EXPIRES IN SEPTEMBER 2008. WE MAY REPAY THE
      COMMERICAL PAPER BORROWINGS PRIOR TO THE EXPIRATION OF OUR LONG-TERM
      COMMITTED CREDIT FACILITY.

(2)   IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
      STATES, THESE OBLIGATIONS ARE NOT RECORDED IN THE CONSOLIDATED BALANCE
      SHEET.

(3)   THESE AMOUNTS INCLUDE COMMITMENTS FOR INVENTORY PURCHASES AND CAPITAL
      EXPENDITURES THAT DO NOT EXCEED OUR PROJECTED REQUIREMENTS OVER THE
      RELATED TERMS AND ARE IN THE NORMAL COURSE OF BUSINESS.

(4)   THESE AMOUNTS INCLUDE A $185 MILLION COMMITMENT TO ACQUIRE THE REMAINING
      OWNERSHIP OF EPICOR IN 2004 PROVIDED THAT SPECIFIC CLINICAL AND REGULATORY
      MILESTONES ARE ACHIEVED, AND CONTINGENT COMMITMENTS TO ACQUIRE VARIOUS
      BUSINESSES INVOLVED IN THE DISTRIBUTION OF OUR PRODUCTS. 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 ESTIMATE OF THE EARLIEST DATE WHEN THE
      MILESTONES OR CONTINGENCIES MAY BE MET.

DIVIDENDS
We did not declare or pay any cash dividends during 2003, 2002 or 2001. We
currently intend to utilize our earnings for operating and investment purposes.

CAUTIONARY STATEMENTS
In this discussion and in other written or oral statements made from time to
time, we have included and may include statements that may constitute
"forward-looking statements" within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not historical facts but instead represent our belief regarding
future events, many of which, by their nature, are inherently uncertain and
beyond our control. These statements relate to our future plans and objectives,
among other things. By identifying these statements for you in this manner, we
are alerting you to the possibility that its actual results may differ, possibly
materially, from the results indicated by these forward-looking statements. We
undertake no obligation to update any forward-looking statements.

Various factors contained in the previous discussion and those described below
may affect our operations and results. We believe the most significant factors
that could affect our future operations



                                       21


and results are set forth in the list 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.

 1.      Legislative or administrative reforms to the U.S. Medicare and Medicaid
         systems or similar reforms of international reimbursement systems in a
         manner that significantly reduces reimbursement for procedures using
         our medical devices or denies coverage for such procedures. Adverse
         decisions relating to our products by administrators of such systems in
         coverage or reimbursement issues.
 2.      Acquisition of key patents by others that have the effect of excluding
         us from market segments or require us to pay royalties.
 3.      Economic factors, including inflation, changes in interest rates and
         changes in foreign currency exchange rates.
 4.      Product introductions by competitors which have advanced technology,
         better features or lower pricing.
 5.      Price increases by suppliers of key components, some of which are
         sole-sourced.
 6.      A reduction in the number of procedures using our devices caused by
         cost-containment pressures or preferences for alternate therapies.
 7.      Safety, performance or efficacy concerns about our marketed 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.      Changes in laws, regulations or administrative practices affecting
         government regulation of our products, such as FDA laws and
         regulations, that increase pre-approval testing requirements for
         products or impose additional burdens on the manufacture and sale of
         medical devices.
 9.      Regulatory actions arising from the concern over Bovine Spongiform
         Encephalopathy (BSE), sometimes referred to as "mad cow disease", that
         have the effect of limiting the Company's ability to market products
         using collagen, such as Angio-SealTM, or that impose added costs on the
         procurement of collagen.
10.      Difficulties obtaining, or the inability to obtain, appropriate levels
         of product liability insurance.
11.      The ability of our Silzone(R) product liability insurers, especially
         Kemper, to meet their obligations to us.
12.      A serious earthquake affecting our facilities in Sunnyvale or Sylmar,
         California, or a hurricane affecting our operations in Puerto Rico.
13.      Healthcare industry consolidation leading to demands for price
         concessions or the exclusion of some suppliers from significant market
         segments.
14.      Adverse developments in litigation including product liability
         litigation and patent litigation or other intellectual property
         litigation including that arising from the Telectronics and Ventritex
         acquisitions.
15.      Enactment of a U.S. law repealing the tax benefit of the
         extraterritorial income exclusion.



                                       22



REPORT OF MANAGEMENT

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.

In our opinion, our accounting systems and procedures, and related internal
controls, provide reasonable assurance that transactions are executed in
accordance with management's intention and authorization, that financial
statements are prepared in accordance with accounting principles generally
accepted in the United States and that assets are properly accounted for and
safeguarded. The concept of reasonable assurance is based on the recognition
that there are inherent limitations in all systems of internal control and that
the cost of such systems should not exceed the benefits to be derived therefrom.
We review and modify the system of internal controls to improve its
effectiveness. The effectiveness of the controls system is supported by the
selection, retention and training of qualified personnel, an organizational
structure that provides an appropriate division of responsibility and a strong
budgeting system of control.

We also recognize our responsibility for fostering a strong ethical climate so
that our affairs are conducted according to the highest standards of personal
and business conduct. This responsibility is reflected in our Code of Business
Conduct.

The adequacy of our internal accounting controls, the accounting principles
employed in our financial reporting and the scope of independent and internal
audits are reviewed by the Audit Committee of the Board of Directors, consisting
solely of outside directors. The independent auditors meet with, and have
confidential access to, the Audit Committee to discuss the results of their
audit work.

/s/ TERRY L. SHEPHERD

Terry L. Shepherd
Chairman and Chief Executive Officer

/s/ JOHN C. HEINMILLER

John C. Heinmiller
Vice President, Finance and Chief Financial Officer





                                       23



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
St. Jude Medical, Inc.

We have audited the accompanying consolidated balance sheets of St. Jude
Medical, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of St. Jude Medical,
Inc. and subsidiaries at December 31, 2003 and 2002 and the consolidated results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
January 26, 2004






                                       24



CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)




FISCAL YEAR ENDED DECEMBER 31,                                              2003                    2002                  2001
===============================================================================================================================
                                                                                                          
Net sales                                                            $ 1,932,514             $ 1,589,929           $ 1,347,356
Cost of sales:
   Cost of sales before special charges                                  603,091                 505,946               437,492
   Special charges                                                             -                       -                21,667
- -------------------------------------------------------------------------------------------------------------------------------
Total cost of sales                                                      603,091                 505,946               459,159
- -------------------------------------------------------------------------------------------------------------------------------
   Gross profit                                                        1,329,423               1,083,983               888,197
Selling, general and administrative expense                              632,395                 513,691               467,113
Research and development expense                                         241,083                 200,337               164,101
Purchased in-process research and development charges                          -                       -                10,000
Special charges                                                                -                       -                11,167
- -------------------------------------------------------------------------------------------------------------------------------
    Operating profit                                                     455,945                 369,955               235,816
Other income (expense)                                                     2,692                   3,403                (7,838)
- -------------------------------------------------------------------------------------------------------------------------------
    Earnings before income taxes                                         458,637                 373,358               227,978
Income tax expense                                                       119,246                  97,073                55,386
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                           $ 339,391               $ 276,285             $ 172,592
===============================================================================================================================

===============================================================================================================================
NET EARNINGS PER SHARE:
      Basic                                                            $    1.92               $    1.56             $    1.00
      Diluted                                                          $    1.83               $    1.51             $    0.97
WEIGHTED AVERAGE SHARES OUTSTANDING:
      Basic                                                              176,956                 176,570               172,428
      Diluted                                                            185,377                 183,002               178,767
===============================================================================================================================


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       25



CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)




DECEMBER 31,                                                                            2003               2002
================================================================================================================
                                                                                                
ASSETS
Current Assets
Cash and equivalents                                                               $ 461,253          $ 401,860
Accounts receivable, less allowances for doubtful accounts                           501,759            381,246
Inventories                                                                          311,761            227,024
Deferred income taxes                                                                112,376             56,857
Other                                                                                105,188             47,330
- ----------------------------------------------------------------------------------------------------------------
    Total current assets                                                           1,492,337          1,114,317
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements                                                     145,405            126,471
Machinery and equipment                                                              431,839            393,726
Diagnostic equipment                                                                 173,851            181,117
- ----------------------------------------------------------------------------------------------------------------
Property, plant and equipment at cost                                                751,095            701,314
Less accumulated depreciation                                                       (449,442)          (400,833)
- ----------------------------------------------------------------------------------------------------------------
    Net property, plant and equipment                                                301,653            300,481
OTHER ASSETS
Goodwill                                                                             407,013            325,575
Other intangible assets, net                                                         154,404             89,491
Deferred income taxes                                                                      -             12,269
Other                                                                                200,687            109,246
- ----------------------------------------------------------------------------------------------------------------
    Total other assets                                                               762,104            536,581
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                     $ 2,556,094        $ 1,951,379
================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt                                                                  $    12,115        $        -
Accounts payable                                                                     128,206            108,931
Income taxes payable                                                                  72,376             51,380
Accrued expenses
    Employee compensation and related benefits                                       190,152            135,705
    Other                                                                            107,466             78,636
- ----------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                        510,315            374,652
LONG-TERM DEBT                                                                       351,813                  -
DEFERRED INCOME TAXES                                                                 89,719                  -
COMMITMENTS AND CONTINGENCIES                                                              -                  -
SHAREHOLDERS' EQUITY
Preferred stock                                                                            -                  -
Common stock (173,014,167 and 178,028,129 shares issued and
    outstanding at December 31, 2003 and 2002, respectively)                          17,301             17,803
Additional paid-in capital                                                            35,627            216,878
Retained earnings                                                                  1,544,499          1,411,194
Accumulated other comprehensive income (loss):
    Cumulative translation adjustment                                                 (4,246)           (73,388)
    Unrealized gain on available-for-sale securities                                  11,066              4,240
- ----------------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                     1,604,247          1,576,727
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $ 2,556,094        $ 1,951,379
================================================================================================================


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       26



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)




                                               COMMON STOCK                                         ACCUMULATED
                                       ------------------------    ADDITIONAL                             OTHER              TOTAL
                                         NUMBER OF                    PAID-IN          RETAINED   COMPREHENSIVE       SHAREHOLDERS'
                                            SHARES       AMOUNT       CAPITAL          EARNINGS    INCOME (LOSS)            EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
BALANCE AT JANUARY 1, 2001             170,672,572     $ 17,067      $ 47,190         $ 962,317       $ (85,725)         $ 940,849
Comprehensive income:
   Net earnings                                                                         172,592                            172,592
   Other comprehensive income (loss):
     Unrealized gain on investments,
       net of taxes of $928                                                                               1,515              1,515
     Foreign currency translation
       adjustment, net of taxes
       of $(19,393)                                                                                     (10,401)           (10,401)
                                                                                                                  -----------------
     Other comprehensive loss                                                                                               (8,886)
                                                                                                                  -----------------
Comprehensive income                                                                                                       163,706
                                                                                                                  =================
Common stock issued under stock
    plans and other, net                 3,746,140          375        57,566                                               57,941
Tax benefit from stock plans                                           21,249                                               21,249
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001           174,418,712       17,442       126,005         1,134,909         (94,611)         1,183,745
Comprehensive income:
   Net earnings                                                                         276,285                            276,285
   Other comprehensive income (loss):
     Unrealized loss on investments,
       net of taxes of $(3,021)                                                                          (4,930)            (4,930)
     Foreign currency translation
       adjustment, net of taxes
       of $4,291                                                                                         30,393             30,393
                                                                                                                  -----------------
     Other comprehensive income                                                                                             25,463
                                                                                                                  -----------------
Comprehensive income                                                                                                       301,748
                                                                                                                  =================
Common stock issued under stock
    plans and other, net                 3,609,417          361        65,644                                               66,005
Tax benefit from stock plans                                           25,229                                               25,229
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002           178,028,129       17,803       216,878         1,411,194         (69,148)         1,576,727
Comprehensive income:
   Net earnings                                                                         339,391                            339,391
   Other comprehensive income (loss):
     Unrealized gain on investments,
       net of taxes of $4,183
       and reclassification
       adjustment (see below)                                                                             6,826              6,826
     Foreign currency translation
       adjustment, net of taxes
       of $16,719                                                                                        69,142             69,142
                                                                                                                  -----------------
     Other comprehensive income                                                                                             75,968
                                                                                                                  -----------------
Comprehensive income                                                                                                       415,359
                                                                                                                  =================
Common stock issued under stock
    plans and other, net                 4,234,583          423        89,279                                               89,702
Tax benefit from stock plans                                           42,484                                               42,484
Common stock repurchased,
  including related costs               (9,248,545)        (925)     (313,014)         (206,086)                          (520,025)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003           173,014,167     $ 17,301      $ 35,627       $ 1,544,499         $ 6,820        $ 1,604,247
===================================================================================================================================


Other comprehensive income reclassification adjustments for realized losses on
the write-down of marketable securities, net of income taxes, were $620 in 2003.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       27


CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)




FISCAL YEAR ENDED DECEMBER 31                                                       2003             2002             2001
==============================================================================================================================
                                                                                                        
OPERATING ACTIVITIES
Net earnings                                                                    $339,391         $276,285        $ 172,592
Adjustments to reconcile net earnings to net
  cash from operating activities:
      Depreciation                                                                64,695           67,224           58,404
      Amortization                                                                11,988            7,696           31,895
      Purchased in-process research and development charges                            -                -           10,000
      Special charges                                                                  -                -           32,834
      Deferred income taxes                                                       33,146           37,695          (11,681)
      Changes in operating assets and liabilities, net of
        business acquisitions:
         Accounts receivable                                                     (31,315)         (39,146)         (23,941)
         Inventories                                                             (17,388)          15,784          (32,373)
         Other current assets                                                    (40,273)          (8,719)          13,605
         Accounts payable and accrued expenses                                    52,714           48,376           12,907
         Income taxes payable                                                     61,327           12,005           45,893
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                        474,285          417,200          310,135

INVESTING ACTIVITIES
Purchase of property, plant and equipment                                        (49,565)         (62,176)         (63,129)
Proceeds from sale or maturity of marketable securities                                -            7,000           15,000
Business acquisition payments, net of cash acquired                             (230,839)         (29,500)         (20,444)
Minority investment in Epicor Medical, Inc.                                      (15,505)               -                -
Other                                                                            (50,691)         (31,088)         (26,220)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                           (346,600)        (115,764)         (94,793)

FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued                          89,702           66,005           57,941
Common stock repurchased, including related costs                               (520,025)               -                -
Net borrowings under short-term debt facilities                                    9,454                -                -
Issuance of long-term notes                                                      173,350                -                -
Borrowings under debt facilities                                               1,111,450          352,000        2,115,028
Payments under debt facilities                                                  (954,050)        (475,128)      (2,286,400)
==============================================================================================================================
NET CASH USED IN FINANCING ACTIVITIES                                            (90,119)         (57,123)        (113,431)

Effect of currency exchange rate changes on cash and equivalents                  21,827            9,212           (4,015)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS                                              59,393          253,525           97,896
CASH AND EQUIVALENTS AT BEGINNING OF YEAR                                        401,860          148,335           50,439
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR                                             $461,253         $401,860        $ 148,335
==============================================================================================================================

SUPPLEMENTAL CASH FLOW INFORMATION
==============================================================================================================================
Cash paid during the year for:
   Interest                                                                      $ 3,557          $ 1,473         $ 10,663
   Income taxes                                                                   57,217           51,243           21,424
- ------------------------------------------------------------------------------------------------------------------------------


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       28



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY OVERVIEW: St. Jude Medical, Inc. (St. Jude Medical or the Company)
develops, manufactures and distributes cardiovascular medical devices for the
global cardiac rhythm management (CRM), cardiac surgery (CS) and cardiology and
vascular access (C/VA) therapy areas. The Company's principal products in each
of these therapy areas are as follows:

CRM
      o   bradycardia pacemaker systems (pacemakers),
      o   tachycardia implantable cardioverter defibrillator systems (ICDs), and
      o   electrophysiology (EP) catheters

CS
      o   mechanical and tissue heart valves, and
      o   valve repair products

C/VA
      o   vascular closure devices,
      o   angiography catheters,
      o   guidewires, and
      o   hemostasis introducers

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 and Japan.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Significant
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications of previously reported amounts have been made to
conform to the current year presentation.

FISCAL YEAR: The Company utilizes a 52/53-week fiscal year ending on the
Saturday nearest December 31. For simplicity of presentation, the Company
describes all periods as if the year end is December 31. Fiscal year 2003
consisted of 53 weeks and fiscal years 2002 and 2001 consisted of 52 weeks.

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

CASH EQUIVALENTS: The Company considers highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost, which approximates market. The Company's cash
equivalents include bank certificates of deposit, money market funds and
instruments, commercial paper investments and repurchase agreements
collateralized by U.S. government agency securities. The Company performs
periodic evaluations of the relative credit



                                       29


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. Marketable securities are classified as available-for-sale, recorded
at fair market value based upon quoted market prices and are classified with
other current assets on the balance sheet. The following table summarizes the
Company's available-for-sale marketable securities as of December 31 (in
thousands):

                                                    2003                  2002
===============================================================================
Adjusted cost                                    $ 5,826               $ 6,826
Gross unrealized gains                            18,461                 8,639
Gross unrealized losses                             (613)               (1,800)
- -------------------------------------------------------------------------------
Fair value                                      $ 23,674              $ 13,665
===============================================================================

Unrealized gains and losses, net of related incomes taxes, are recorded in other
comprehensive income (loss) in shareholders' equity. Realized gains and losses
from the sale of marketable securities are recorded in other income (expense)
and are computed using the specific identification method.

The Company's policy for assessing recoverability of its available-for-sale
securities is to record a charge against net earnings when the Company
determines that a decline in the fair value of a security drops below the cost
basis and judges that decline to be other-than-temporary. During 2003, the
Company recorded a $1 million write-down on one of its equity securities, which
is included in other income (expense).

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
$31.9 million at December 31, 2003 and $24.1 million at December 31, 2002.

INVENTORIES: Inventories are stated at the lower of cost or market with cost
determined using the first-in, first-out method.

Inventories consist of the following at December 31 (in thousands):

                                      2003                   2002
==================================================================
Finished goods                   $ 209,236              $ 140,856
Work in process                     32,547                 27,481
Raw materials                       69,978                 58,687
- ------------------------------------------------------------------
                                 $ 311,761              $ 227,024
==================================================================

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 five to eight years for
diagnostic equipment. Diagnostic equipment primarily consists of programmers
that are used by physicians and healthcare professionals to program and analyze
data from pacemaker and ICD devices. The estimated useful lives of this
equipment are based on




                                       30


management's estimates of its usage by the physicians and healthcare
professionals, factoring in new technology platforms and rollouts by the
Company. To the extent that the Company experiences changes in the usage of this
equipment or 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 $68.7 million and $81.0 million at
December 31, 2003 and 2002. Accelerated depreciation methods are used 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. The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"GOODWILL AND OTHER INTANGIBLE ASSETS" (Statement 142), effective January 1,
2002. Under Statement 142, goodwill is no longer amortized, but is subject to
annual impairment tests. See Note 3 for pro forma 2001 net earnings and net
earnings per share exclusive of goodwill amortization.

Other intangible assets consist of purchased technology and patents,
distribution agreements, customer relationships, trademarks and licenses and are
amortized on a straight-line basis using lives ranging from 10 to 20 years.

Statement 142 requires that goodwill for each reporting unit be reviewed for
impairment at least annually. The Company has three reporting units at December
31, 2003, consisting of its three operating segments (see Note 11). The Company
tests goodwill for impairment using the two-step process prescribed in Statement
142. In the first step, the Company compares the fair value of each reporting
unit, as computed primarily by present value cash flow calculations, to its book
carrying value, including goodwill. If the fair value exceeds the carrying
value, no further work is required and no impairment loss is recognized. If the
carrying value exceeds the fair value, the goodwill of the reporting unit is
potentially impaired and the Company would then complete step 2 in order to
measure the impairment loss. In step 2, the Company would calculate 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.

Management also reviews other intangible assets for impairment at least annually
to determine if any adverse conditions exist that would indicate impairment. If
the carrying value of other intangible assets exceeds the undiscounted cash
flows, the carrying value is written down to fair value in the period
identified. Indefinite-lived intangible assets are reviewed at least annually
for impairment by calculating the fair value of the assets and comparing with
their carrying value. In assessing fair value, management generally utilizes
present value cash flow calculations using an appropriate risk-adjusted discount
rate.

During the fourth quarters of 2003 and 2002, management completed its annual
goodwill and other intangible asset impairment reviews with no impairments to
the carrying values identified.

TECHNOLOGY LICENSE AGREEMENT: The Company has a technology license agreement
that provides access to a significant number of patents covering a broad range
of technology used in the Company's pacemaker and ICD systems. The agreement
provides for payments through September 2004 at which time the Company will have
a fully paid-up license, granting access to the underlying patents which expire
at various dates through the year 2014. The Company recognizes the total
estimated costs under this license agreement as an expense over the term of the
underlying patents' lives. The costs deferred under this license are recorded on
the balance sheet in other long-term assets.


                                       31


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 2003 and 2002 were as follows (in thousands):

                                               2003                      2002
==============================================================================
Balance at beginning of year               $ 14,755                  $ 11,369
Warranty expense recognized                   3,035                     5,174
Warranty credits issued                      (2,569)                   (1,788)
- ------------------------------------------------------------------------------
Balance at end of year                     $ 15,221                  $ 14,755
==============================================================================

REVENUE RECOGNITION: The Company sells its products to hospitals primarily
through a direct sales force. In certain international markets, the Company
sells its products through independent distributors. The Company recognizes
revenue when persuasive evidence of a sales arrangement exists, delivery of
goods occurs through the transfer of title and risks and rewards of ownership,
the selling price is fixed or determinable and collectibility is reasonably
assured. In most markets where the Company has a direct sales force, the Company
consigns inventory to hospitals. For consigned products, revenue is recognized
at the time the product is used by a physician at the hospital. 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 records estimated sales returns, discounts and rebates as a reduction of
net sales in the same period revenue is recognized.

RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense
as incurred. Purchased in-process research and development charges are
recognized in business acquisitions for the portion of the purchase price
allocated to the appraised value of in-process technologies. The portion
assigned to in-process research and development technologies excludes the value
of core and developed technologies, which are recognized as intangible assets.

STOCK-BASED COMPENSATION: The Company accounts for its stock-based employee
compensation plans (see Note 6) under the recognition and measurement principles
of APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO Employees," and related
Interpretations. The following table illustrates the effect on net earnings and
net earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," to its
stock-based employee compensation (in thousands, except per share amounts):

                                       32





                                                            2003            2002             2001
==================================================================================================
                                                                               
Net earnings, as reported                              $ 339,391       $ 276,285        $ 172,592

Less:  Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects             (38,030)        (33,194)         (26,619)
- --------------------------------------------------------------------------------------------------

Pro forma net earnings                                 $ 301,361       $ 243,091        $ 145,973
==================================================================================================

==================================================================================================
Net earnings per share:
  Basic-as reported                                       $ 1.92          $ 1.56           $ 1.00
  Basic-pro forma                                           1.70            1.38             0.85

  Diluted-as reported                                     $ 1.83          $ 1.51           $ 0.97
  Diluted-pro forma                                         1.63            1.33             0.82
==================================================================================================


The weighted-average fair value of options granted and the assumptions used in
the Black-Scholes option-pricing model are as follows:

                                         2003             2002             2001
================================================================================
Fair value of options granted         $ 21.75          $ 12.95          $ 12.84
Assumptions used:
  Expected life (years)                     5                5                5
  Risk-free rate of return               3.2%             3.3%             4.4%
  Volatility                            35.0%            35.0%            30.9%
  Dividend yield                           0%               0%               0%
================================================================================

NET EARNINGS PER SHARE: Basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares during the
period, exclusive of restricted shares. Diluted net earnings per share is
computed by dividing net earnings by the weighted average number of outstanding
common shares and dilutive securities.

The table below sets forth the computation of basic and diluted net earnings per
share (in thousands, except per share amounts).


                                       33




                                                         2003          2002         2001
=========================================================================================
                                                                      
Numerator:
  Net earnings                                      $ 339,391     $ 276,285    $ 172,592

Denominator:
  Basic-weighted average shares outstanding           176,956       176,570      172,428
  Effect of dilutive securities:
    Employee stock options                              8,410         6,410        6,269
    Restricted shares                                      11            22           70
- -----------------------------------------------------------------------------------------
  Diluted-weighted average shares outstanding         185,377       183,002      178,767
=========================================================================================
Basic net earnings per share                           $ 1.92        $ 1.56       $ 1.00
=========================================================================================
Diluted net earnings per share                         $ 1.83        $ 1.51       $ 0.97
- -----------------------------------------------------------------------------------------


Diluted-weighted average shares outstanding have not been adjusted for certain
employee stock options and awards where the effect of those securities would
have been anti-dilutive.

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

NEW ACCOUNTING PRONOUNCEMENTS: In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 46, "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES" (FIN 46). FIN 46 requires the consolidation of
variable interest entities in which an enterprise absorbs a majority of the
entity's expected losses, receives a majority of the entity's expected residual
returns, or both, as a result of ownership, contractual or other financial
interests in the entity. FIN 46 is effective for the first quarter of 2004. The
Company does not expect its adoption of FIN 46 to have an impact on its
consolidated results of operations, financial position or cash flows.

In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" (Statement
150). Statement 150 establishes standards for issuer classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. In accordance with this standard, financial instruments
that embody obligations for the issuer are required to be classified as
liabilities. Statement 150 is effective for all financial instruments entered
into or modified after May 31, 2003, and is otherwise effective at the beginning
of the first interim period beginning after June 15, 2003. The Company's
adoption of Statement 150 did not have an impact on its consolidated results of
operations, financial position or cash flows.

Emerging Issues Task Force (EITF) Issue No. 00-21, "ACCOUNTING FOR REVENUE
ARRANGEMENTS WITH MULTIPLE DELIVERABLES," addresses certain aspects of the
accounting by a vendor for arrangements under which multiple revenue-generating
activities are performed. EITF Issue No. 00-21 establishes three principles:
revenue arrangements with multiple deliverables should be divided into separate
units of accounting; arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values; and revenue
recognition criteria should be considered separately for separate units of
accounting. EITF Issue No. 00-21 was effective for all revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. The Company's
adoption



                                       34


of EITF Issue No. 00-21 did not have an impact on its consolidated results of
operations, financial position or cash flows.

In December 2003, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 104, "REVENUE RECOGNITION" (SAB 104). SAB 104 clarifies
existing guidance regarding revenue recognition. The Company's adoption of SAB
104 did not have a material impact on its consolidated results of operation,
financial position or cash flows.


NOTE 2--ACQUISITIONS & MINORITY INVESTMENT

ACQUISITIONS: On April 1, 2003, the Company completed its acquisition of Getz
Bros. Co., Ltd. (Getz Japan), a distributor of medical technology products in
Japan and the Company's largest volume distributor in Japan. The Company paid
26.9 billion Japanese Yen in cash to acquire 100% of the outstanding common
stock of Getz Japan. Net consideration paid was $219.2 million, which includes
closing costs less $12.0 million of cash acquired.

On April 1, 2003, the Company also acquired the net assets of Getz Bros. & Co.
(Aust.) Pty. Limited and Medtel Pty. Limited (collectively referred to as Getz
Australia) related to the distribution of the Company's products in Australia
for $6.2 million in cash, including closing costs.

The Company acquired Getz Japan and Getz Australia (collectively referred to as
Getz) in order to further strengthen its presence in the Japanese and Australian
medical technology markets. The purchase price for Getz was based on the future
cash flows of the businesses. In addition, Getz Japan had equity securities
which traded on a Japanese stock exchange. The goodwill recognized as part of
the Getz acquisitions relates primarily to the operating efficiencies that these
businesses were able to achieve and the increased levels of efficiencies
anticipated in the future as the Company expands its presence in the Japanese
and Australian medical technology markets. The goodwill recorded in connection
with the Getz acquisitions has been allocated entirely to the Company's Cardiac
Rhythm Management/Cardiac Surgery (CRM/CS) reportable segment.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed as a result of these acquisitions (in thousands):

=========================================================
Current assets                                 $ 124,961
  Goodwill                                        67,465
  Intangible assets                               64,106
  Other long-term assets                          33,945
- ---------------------------------------------------------
   Total assets acquired                       $ 290,477

Current liabilities                             $ 27,724
  Deferred income taxes                           25,390
- ---------------------------------------------------------
   Total liabilities assumed                    $ 53,114
- ---------------------------------------------------------
Net assets acquired                            $ 237,363
=========================================================

The goodwill recorded as a result of these acquisitions is not deductible for
income tax purposes.

In connection with the acquisitions of Getz, the Company recorded intangible
assets valued at $64.1 million that each have a weighted average useful life of
10 years. Total intangible assets subject to amortization include distribution
agreements of $44.9 million, customer lists and relationships of $9.5



                                       35


million, and licenses and other of $5.6 million. Intangible assets not subject
to amortization include trademarks of $4.1 million.

The Getz acquisitions did not provide for the payment of any contingent
consideration. The third party appraisal used by the Company for purposes of the
purchase price allocation did not include any in-process research and
development. There are no material unresolved items relating to the purchase
price allocation.

During 2003, 2002 and 2001, the Company also acquired various businesses
involved in the distribution of the Company's products. Aggregate consideration
paid in cash during 2003, 2002 and 2001 was $5.4 million, $24.5 million and
$10.4 million, respectively.

In December 2002, the Company acquired the assets of a catheter business for $5
million in cash. Substantially all of the purchase price was allocated to
technology and patents with estimated useful lives of 15 years.

The results of operations of the above-mentioned business acquisitions have been
included in the Company's consolidated results of operations since the date 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.

During 2001, the Company paid $10 million relating to the September 1999
acquisition of Vascular Science, Inc. (VSI - see Note 7).

MINORITY INVESTMENT: In May 2003, the Company made a $15 million minority
investment in Epicor Medical, Inc. (Epicor), a development stage company focused
on developing products which use high intensity focused ultrasound (HIFU) to
ablate cardiac tissue. This investment is accounted for under the cost method
and is included in other long-term assets on the balance sheet. In conjunction
with this investment, the Company also agreed to acquire the remaining ownership
of Epicor in 2004 for an additional $185 million in cash if Epicor receives
approval from the U.S. Food and Drug Administration (FDA) by June 30, 2004 to
begin marketing its device to ablate cardiac tissue and if Epicor achieves
certain success criteria, as defined in the purchase agreement, in connection
with its European clinical study. In addition, the Company has an option to
purchase the remaining ownership of Epicor for $185 million even if FDA approval
is not received and the success criteria are not achieved. This option to
purchase Epicor expires on June 30, 2004.


NOTE 3-- GOODWILL AND OTHER INTANGIBLE ASSETS

The Company ceased amortizing goodwill effective January 1, 2002 as discussed in
Note 1 - GOODWILL AND OTHER INTANGIBLE ASSETS. The following table provides pro
forma fiscal year 2001 net earnings and net earnings per share had Statement 142
been effective January 1, 2001 (in thousands, except per share amounts):


                                       36



                                                                          2001
===============================================================================

NET EARNINGS:
As reported                                                          $ 172,592
Goodwill amortization, net of taxes                                     21,323
- -------------------------------------------------------------------------------
Pro forma net earnings                                               $ 193,915
===============================================================================

BASIC NET EARNINGS PER SHARE:
As reported                                                             $ 1.00
Goodwill amortization, net of taxes                                       0.12
- -------------------------------------------------------------------------------
Pro forma basic net earnings per share                                  $ 1.12
===============================================================================

DILUTED NET EARNINGS PER SHARE:
As reported                                                             $ 0.97
Goodwill amortization, net of taxes                                       0.12
- -------------------------------------------------------------------------------
Pro forma diluted net earnings per share                                $ 1.08
===============================================================================

The changes in the carrying amount of goodwill for each of the Company's
reportable segments for the fiscal year ended December 31, 2003 are as follows
(in thousands):



                                                       CRM/CS                  DAIG                TOTAL
=========================================================================================================
                                                                                      
Balance at December 31, 2002                        $ 270,829              $ 54,746            $ 325,575
Goodwill recorded from the Getz acquisitions           67,465                     -               67,465
Foreign currency translation                           13,372                   123               13,495
Other                                                     478                     -                  478
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2003                        $ 352,144              $ 54,869            $ 407,013
=========================================================================================================


The following table provides the gross carrying amount of other intangible
assets and related accumulated amortization at December 31 (in thousands):



                                                     2003                                2002
==========================================================================================================
                                               GROSS                               GROSS
                                            CARRYING       ACCUMULATED          CARRYING      ACCUMULATED
                                              AMOUNT      AMORTIZATION            AMOUNT     AMORTIZATION
- ----------------------------------------------------------------------------------------------------------
                                                                                     
Amortized intangible assets:
  Purchased technology and patents           $76,189          $ 21,253           $75,749         $ 17,075
  Distribution agreements                     49,348             3,701                 -                -
  Customer lists and relationships            50,511             7,278            33,306            2,822
  Licenses and other                           6,679               610               435              102
- ----------------------------------------------------------------------------------------------------------
                                           $ 182,727          $ 32,842         $ 109,490         $ 19,999
==========================================================================================================

Unamortized intangible assets:
  Trademarks                                 $ 4,519
- ----------------------------------------------------------------------------------------------------------


                                       37


Amortization expense of other intangible assets was $12.0 million, $7.7 million
and $3.8 million for the fiscal years ended December 31, 2003, 2002 and 2001,
respectively. Estimated amortization expense for fiscal years 2004 through 2008
based on the current carrying value of other intangible assets is approximately
$14 million per year.


NOTE 4-- DEBT

On April 1, 2003, the Company borrowed 24.6 billion Japanese Yen, or
approximately $208 million, under a short-term, unsecured bank credit agreement
to partially finance the Getz Japan acquisition. Borrowings under this agreement
bore interest at an average rate of 0.58% per annum and were repaid in May 2003.
In May 2003, the Company issued 7-year, 1.02% unsecured notes totaling 20.9
billion Yen. The Company also obtained a short-term, unsecured bank credit
agreement that provides for borrowings of up to 3.8 billion Yen. Proceeds from
the issuance of the 7-year notes and from borrowings under the short-term, bank
credit agreement were used to repay the 24.6 billion Yen of short-term bank
borrowings. Outstanding borrowings under the Company's short-term bank credit
agreement were approximately 1.3 billion Yen, or $12.1 million, at December 31,
2003. Borrowings under the short-term, bank credit agreement bear interest at
the floating Yen London InterBank Offered Rate (LIBOR) plus 0.50% per annum
(effective rate of 0.54% at December 31, 2003) and are due in May 2004.

In July 2003, the Company obtained a $400 million short-term revolving credit
facility to partially fund its $500 million share repurchase in August 2003.
Borrowings under this facility bore interest at an average rate of 1.73% per
annum and were repaid in September 2003. In September 2003, the Company obtained
a $150 million unsecured, revolving credit facility that expires in September
2004 and a $350 million unsecured, revolving credit facility that expires in
September 2008. These credit facilities bear interest at the LIBOR plus 0.625%
and 0.60% per annum, respectively, subject to adjustment in the event of a
change in the Company's debt ratings. There were no outstanding borrowings under
these credit facilities at December 31, 2003.

During September 2003, the Company began issuing short-term, unsecured
commercial paper with maturities up to 270 days. These commercial paper
borrowings bear interest at varying market rates (effective rate of 1.2% at
December 31, 2003).

The Company's long-term debt consisted of the following at December 31, 2003 (in
thousands):

- -------------------------------------------------------------------------------
1.02% Yen-denominated notes, due 2010                                $ 194,413
Commercial paper borrowings                                            157,400
- -------------------------------------------------------------------------------
                                                                     $ 351,813
===============================================================================

The Company classifies all of its commercial paper borrowings as long-term on
its balance sheet as the Company has the ability to repay any short-term
maturity with available cash from its existing long-term, committed credit
facility. Management continually reviews the Company's cash flow projections and
may from time to time repay a portion of the Company's borrowings.

The Company's 7-year notes, short-term bank credit agreement and revolving
credit facilities contain various operating and financial covenants.
Specifically, the Company must have a ratio of total debt to total
capitalization not exceeding 55%, have a leverage ratio (defined as the ratio of
total debt to EBITDA (net earnings before interest, income taxes, depreciation
and amortization) and the ratio of




                                       38


total debt to EBIT (net earnings before interest and income taxes)) not
exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of
EBITDA to interest expense and the ratio of EBIT to interest expense) not less
than 3.0 to 1.0. The Company also has limitations on additional liens or
indebtedness and limitations on certain acquisitions, investments and
dispositions of assets. However, these agreements do not include provisions for
the termination of the agreements or acceleration of repayment due to changes in
the Company's credit ratings. The Company was in compliance with all of its debt
covenants at December 31, 2003.


NOTE 5--COMMITMENTS AND CONTINGENCIES

LEASES: The Company leases various facilities and equipment under noncancelable
operating lease arrangements. Future minimum lease payments under these leases
are as follows: $16.3 million in 2004; $15.5 million in 2005; $14.2 million in
2006; $13.3 million in 2007; $11.7 million in 2008; and $37.0 million in years
thereafter. Rent expense under all operating leases was $16.5 million, $10.2
million and $8.9 million in 2003, 2002 and 2001.

SILZONE(R) LITIGATION: In July 1997, the Company began marketing mechanical
heart valves which incorporated a Silzone(R) coating. The Company later began
marketing heart valve repair products incorporating a Silzone(R) coating. The
Silzone(R) coating was intended to reduce the risk of endocarditis, a bacterial
infection affecting heart tissue, which is associated with replacement heart
valves.

In January 2000, the Company voluntarily recalled all field inventories of
Silzone(R) devices after receiving information from a clinical study that
patients with a Silzone valve had a small, but statistically significant,
increased incidence of explant due to paravalvular leak compared to patients in
that clinical study with non-Silzone(R) heart valves.

Subsequent to the Company's voluntary recall, the Company has been sued in the
United States, Canada, and United Kingdom by some patients who received a
Silzone(R) device. Some of these claims allege bodily injuries as a result of an
explant or other complications, which they attribute to the Silzone(R) devices.
Others, who have not had their device explanted, seek compensation for past and
future costs of special monitoring they allege they need over and above the
medical monitoring all 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.

The Company has settled a number of these Silzone(R)-related cases and others
have been dismissed. Cases filed in the United States in federal courts have
been consolidated in the federal district court for the district of Minnesota
under Judge Tunheim. A number of class action complaints have been consolidated
into one case seeking certification of two separate classes. One proposed class
in the consolidated complaint seeks injunctive relief in the form of medical
monitoring. A second class in the consolidated complaint seeks an unspecified
amount of money damages. The Court also certified a class action for patients
claiming relief under Minnesota's Consumer Protection Statutes.

On January 5, 2004, the judge ruled on the ability of certain claims to proceed
as class actions. The judge declined to grant class action status to personal
injury claims; however, he granted class action status for patients from a
limited group of states to proceed with medical monitoring claims. Further




                                       39


briefing is pending on exactly which states fall into this category and how a
class action proceeding involving such claims would proceed.

In addition, there have been 39 individual Silzone(R) cases filed in federal
court where plaintiffs are each requesting damages ranging from an unspecified
amount to $120.5 million. These cases are proceeding in accordance with the
orders issued by Judge Tunheim. There have also been 25 individual state court
suits filed involving 42 patients. The complaints in these cases each request
damages ranging from an unspecified amount to $70,000. These state court cases
are proceeding in accordance with the orders issued by the judges in those
matters.

Four class action cases have been filed against the Company in Canada. In one
such case in Ontario, the court certified that a class action may proceed
involving Silzone(R) patients. The most recent certification decision was issued
on January 16, 2004. In the United Kingdom, one case involving one plaintiff has
been filed. The complaint in this case requests damages of an unspecified
amount. This matter is in its very early stages.

The Company is not aware of any unasserted claims related to Silzone(R) devices.

Company management believes that the final resolution of the Silzone(R) cases
will take several years. At this time, management cannot reasonably estimate the
time frame in which any potential settlements or judgments would be paid out.
The Company accrues for contingent losses when it is probable that a loss has
been incurred and the amount can be reasonably estimated. The Company has
recorded an accrual for probable legal costs that it will incur to defend the
various cases involving Silzone(R) devices, and the Company has recorded a
receivable from its product liability insurance carriers for amounts expected to
be recovered (see Note 7). The Company has not accrued for any amounts
associated with probable settlements or judgments because management cannot
reasonably estimate such amounts. However, management believes that no
significant claims will ultimately be allowed to proceed as class actions in the
United States and, therefore, that all settlements and judgments will be covered
under the Company's remaining product liability insurance coverage
(approximately $170 million at December 31, 2003), subject to the insurance
companies' performance under the policies (see Note 7 for further discussion on
the Company's insurance carriers). As such, management believes that any costs
(the material components of which are settlements, judgments and legal fees) not
covered by its product liability insurance policies or existing reserves will
not have a material adverse effect on the Company's statement of financial
position or liquidity, although such costs may be material to the Company's
consolidated results of operations of a future period.

GUIDANT 1996 PATENT LITIGATION: In November 1996, Guidant Corporation (Guidant)
sued St. Jude Medical alleging that the Company did not have a license to
certain patents controlled by Guidant covering ICD products and alleging that
the Company was infringing those patents. St. Jude Medical's contention was that
it had obtained a license from Guidant to the patents in issue when it acquired
certain assets of Telectronics in November 1996. In July 2000, an arbitrator
rejected St. Jude Medical's position, and in May 2001, a federal district court
judge also ruled that the Guidant patent license with Telectronics had not
transferred to St. Jude Medical.

Guidant's suit originally alleged infringement of four patents by St. Jude
Medical. Guidant later dismissed its claim on one patent and a court ruled that
a second patent was invalid. This determination of invalidity was appealed by
Guidant and the Court of Appeals upheld the lower court's invalidity
determination. In a jury trial involving the two remaining patents (the `288 and
`472 patents), the jury found that these patents were valid and that St. Jude
Medical did not infringe the `288 patent. The jury also found that the Company
did infringe the `472 patent, though such



                                       40


infringement was not willful. The jury awarded damages of $140 million to
Guidant. In post-trial rulings, however, the judge overseeing the jury trial
ruled that the `472 patent was invalid and also was not infringed by St. Jude
Medical, thereby eliminating the $140 million verdict against the Company. The
trial court also made other rulings as part of the post-trial order, including a
ruling that the `288 patent was invalid on several grounds.

In August 2002, Guidant commenced an appeal of certain of the trial judge's
post-trial decisions pertaining to the `288 patent. Guidant did not appeal the
trial court's finding of invalidity and non-infringement of the `472 patent. As
part of its appeal, Guidant requested that the monetary damages awarded by the
jury pertaining to the `472 patent ($140 million) be transferred to the `288
patent infringement claim. The Company maintains that such a request is not
supported by the facts or law. After the briefing for this appeal was completed,
oral argument before the Court of Appeals occurred on September 4, 2003. The
Company expects that the Appellate Court will issue a decision concerning
Guidant's appeal sometime later in 2004. While it is not possible to predict the
outcome of the appeal process, the Company believes that the decision of the
trial court in its post-trial rulings, which is publicly available, was correct.

The `288 patent expired in December 2003. Accordingly, the final outcome of the
appeal process cannot involve an injunction precluding the Company from selling
ICD products in the future. Sales of the Company's ICD products which Guidant
asserts infringed the `288 patent were approximately 18%, 16% and 13% of the
Company's consolidated net sales during the fiscal years ended December 31,
2003, 2002 and 2001, respectively.

The Company has not accrued any amounts for losses related to the Guidant 1996
patent litigation. Although the Company believes that the assertions and claims
in these matters are without merit, potential losses arising from this
litigation are possible, but not estimable, at this time. The range of such
losses could be material to the operations, financial position and liquidity of
the Company.

GUIDANT 2004 PATENT LITIGATION: In February 2004, Guidant sued the Company
alleging that the Company's Epic(TM) HF ICD, Atlas(R)+ HF ICD and Frontier(TM)
device infringe U.S Patent No. RE 38,119E (the `119 patent). Guidant also sued
the Company in February 2004 alleging that the Company's QuickSite(TM) 1056K
pacing lead infringes U.S. Patent No. 5,755,766 (the `766 patent). Guidant is
seeking an injunction against the manufacture and sale of these devices by the
Company in the United States and compensation for what it claims are infringing
sales of these products up through the effective date of the injunction. Sales
of the above St. Jude Medical devices in the United States were not material
during fiscal years 2003, 2002 and 2001, although it is anticipated that once
the Company receives FDA approval to market these products during 2004, sales of
these devices could become material in the future. The Company has not submitted
a substantive response to Guidant's claims at this time. Another competitor of
the Company, Medtronic, Inc., which has a license to the `119 patent, is
contending in a separate lawsuit with Guidant that the `119 patent is invalid.

The Company has not accrued any amounts for losses related to the Guidant 2004
patent litigation. Potential losses arising from this litigation are possible,
but not estimable, at this time. The range of such losses could be material to
the operations, financial position and liquidity of the Company.

SYMMETRY(TM) LITIGATION: The Company has been sued in six cases in the United
States alleging that its Symmetry(TM) Bypass System Aortic Connector
(Symmetry(TM) device) caused bodily injury or might cause bodily injury. The
firST such suit was filed against the Company on August 5, 2003, and the



                                       41


most recently initiated case was served upon the Company on January 28, 2004.
Each of the complaints in these cases request damages ranging from an
unspecified amount to $100,000. Three of the six cases are seeking class-action
status. One of the cases seeking class-action status has been dismissed but the
dismissal is being appealed by the plaintiff. The Company believes that those
cases seeking class-action status will request damages for injuries and
monitoring costs.

The Company's Symmetry(TM) device was cleared through a 510(K) submission to the
FDA, and therefore, is not eligible for the defense under the doctrine of
federal preemption that such suits are prohibited. Given the Company's
self-insured retention levels under its product liability insurance policies,
the Company expects that it will be solely responsible for these lawsuits,
including any costs of defense, settlements and judgments. The Company
management believes that class action status is not appropriate for the claims
asserted based on existing facts and case law. Discovery is in the very early
stages in these cases.

The Company has not accrued any amounts for losses related to the Symmetry(TM)
litigation. Potential losses arising from this litigation are possible, but not
estimable, at this time. The range of such losses could be material to the
operations, financial position and liquidity of the Company. At this time,
Company management cannot reasonably estimate the time frame in which this
litigation will be resolved, including when potential settlements or judgments
would be paid out, if any.

OTHER LITIGATION MATTERS: The Company is involved in various other product
liability lawsuits, claims and proceedings of a nature considered normal to its
business.

OTHER CONTINGENCIES: The Company has agreed to acquire the remaining ownership
of Epicor in 2004 for $185 million in cash, provided that specific clinical and
regulatory milestones are achieved (see Note 2 for further discussion on
Epicor). The Company also has contingent commitments to acquire various
businesses involved in the distribution of its products that could total
approximately $70 million in aggregate during 2004 to 2010, provided that
certain contingencies are satisfied. The purchase prices of the individual
businesses range from approximately $0.1 million to $7.0 million. In addition,
the Company is required to make additional payments for the acquisition of VSI
upon the achievement of certain regulatory milestones and minimum sales levels
(see Note 7 for further discussion on these contingent payments).


NOTE 6--SHAREHOLDERS' EQUITY

CAPITAL STOCK: The Company has 250,000,000 authorized shares of $0.10 per share
par value common stock. The Company also has 25,000,000 authorized shares of
$1.00 par value per share preferred stock. The Company has designated 1,100,000
of the authorized preferred shares as a Series B Junior Preferred Stock for its
shareholder rights plan (see SHAREHOLDERS' RIGHTS PLAN below for further
discussion). There were no shares of preferred stock issued or outstanding
during 2003, 2002 or 2001.

SHARE REPURCHASE: On July 22, 2003, the Company's Board of Directors authorized
a share repurchase program of up to $500 million of the Company's outstanding
common stock. The share repurchases could be made at the direction of the
Company's management through transactions in the open market and/or privately
negotiated transactions, including the use of options, futures, swaps and
accelerated share repurchase contracts.


                                       42



On August 7, 2003, the Company repurchased approximately 9.25 million shares, or
about five percent of its outstanding common stock, for $500 million under a
privately-negotiated transaction with an investment bank. The investment bank
borrowed the 9.25 million shares to complete the transaction and purchased
replacement shares in the open market over a three month period which ended on
November 7, 2003. The Company entered into a related accelerated stock buyback
contract with the same investment bank which, in return for a separate payment
to the investment bank, included a price-protection feature. The
price-protection feature provided that if the investment bank's per share
purchase price of the replacement shares was lower than the initial share
purchase price for the 9.25 million shares ($54.06), then the investment bank
would, at the Company's election, make a payment or deliver additional shares to
the Company in the amount of the difference between the initial share purchase
price and their replacement price, subject to a maximum amount. In addition, the
price-protection feature provided that if the investment bank's replacement
price was greater than the initial share purchase price, the Company would not
be required to make any further payments.

The Company recorded the cost of the shares repurchased and the payment for the
price-protection feature, totaling $520 million, as a reduction of shareholders'
equity on the date of share repurchase (August 7, 2003). On November 7, 2003,
the investment bank completed its purchase of replacement shares. The market
price of the Company's shares during this replacement period exceeded the
initial purchase price, resulting in no additional exchange of consideration.

SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholder rights plan that
entitles shareholders to purchase one-tenth of a share of Series B Junior
Preferred Stock at a stated price, or to purchase either the Company's shares or
shares of an acquiring entity at half their market value, upon the occurrence of
certain events which result in a change in control, as defined by the Plan. The
rights related to this plan expire in 2007.

EMPLOYEE STOCK PURCHASE SAVINGS PLAN: The Company's employee stock purchase
savings plan allows participating employees to purchase, through payroll
deductions, newly issued shares of the Company's common stock at 85% of the fair
market value at specified dates. Employees purchased 0.3 million, 0.2 million
and 0.3 million shares in 2003, 2002 and 2001, respectively, under this plan. At
December 31, 2003, 1.2 million shares of additional common stock were available
for purchase under the plan.

STOCK COMPENSATION PLANS: The Company's stock compensation plans provide for the
issuance of stock-based awards, such as restricted stock or stock options, to
directors, officers, employees and consultants. Stock option awards under these
plans generally have an eight to ten year life, an exercise price equal to the
fair market value on the date of grant and a four-year vesting term. Under the
Company's current stock plans, a majority of the stock option awards have an
eight-year life. At December 31, 2003, the Company had 4.5 million shares of
common stock available for grant under these plans.

Stock option transactions under these plans during each of the three years in
the period ended December 31, 2003 are as follows:


                                       43




                                                                  OPTIONS           WEIGHTED AVERAGE
                                                              OUTSTANDING             EXERCISE PRICE
=====================================================================================================
                                                                                       
Balance at January 1, 2001                                     26,539,640                    $ 18.24
      Granted                                                   6,373,310                      35.94
      Canceled                                                   (762,734)                     21.08
      Exercised                                                (3,467,214)                     15.27
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2001                                   28,683,002                      22.45
      Granted                                                   5,041,340                      35.60
      Canceled                                                   (716,452)                     26.89
      Exercised                                                (3,312,968)                     16.66
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2002                                   29,694,922                      25.22
      Granted                                                   4,552,336                      60.03
      Canceled                                                   (721,246)                     31.53
      Exercised                                                (3,962,865)                     20.30
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 2003                                   29,563,147                    $ 31.09
- -----------------------------------------------------------------------------------------------------


Stock options totaling 16.3 million, 15.4 million and 12.6 million were
exercisable at December 31, 2003, 2002 and 2001, respectively.

The following tables summarize information concerning currently outstanding and
exercisable stock options at December 31, 2003:



                                                                                  OPTIONS OUTSTANDING
======================================================================================================
                                                           WEIGHTED AVERAGE
             RANGES OF                NUMBER             REMAINING CONTRAC-          WEIGHTED AVERAGE
       EXERCISE PRICES            OUSTANDING               TUAL LIFE (YEARS)           EXERCISE PRICE
======================================================================================================
                                                                                  
       $ 9.29 - $19.02             8,804,726                            3.7                   $ 14.94
         19.03 - 25.37             1,419,478                            3.0                     20.50
         25.38 - 31.71             5,137,790                            4.9                     26.71
         31.72 - 38.05             9,057,277                            6.3                     35.73
         38.06 - 50.74             1,170,520                            6.7                     44.51
         50.75 - 63.36             3,973,356                            7.9                     61.77
- ------------------------------------------------------------------------------------------------------
                                  29,563,147                            5.4                   $ 31.09
======================================================================================================


                                                                                  OPTIONS EXERCISABLE
======================================================================================================

             RANGES OF                NUMBER                                         WEIGHTED AVERAGE
       EXERCISE PRICES            OUSTANDING                                           EXERCISE PRICE
======================================================================================================
       $ 9.29 - $19.02             8,614,356                                                  $ 14.95
         19.03 - 25.37               967,278                                                    20.68
         25.38 - 31.71             3,292,158                                                    26.48
         31.72 - 38.05             3,266,046                                                    35.93
         38.06 - 50.74               181,215                                                    40.63
         50.75 - 63.36                28,000                                                    51.70
- ------------------------------------------------------------------------------------------------------
                                  16,349,053                                                  $ 22.15
======================================================================================================


                                       44


The Company also granted 18,796 shares of restricted common stock during the
three years ended December 31, 2003, under the Company's stock compensation
plans. The value of restricted stock awards as of the date of grant is charged
to expense over the periods during which the restrictions lapse.


NOTE 7--PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT AND SPECIAL CHARGES

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES: In September 1999, the
Company purchased VSI for $75.1 million in cash, net of cash acquired, plus
additional contingent consideration related to product development milestones
for regulatory approvals and to future sales. The total consideration paid at
close was allocated to the fair value of the net assets acquired ($7.6 million)
and in-process research and development ($67.5 million). The Company paid
additional amounts totaling $10 million in 2001 and $5 million in 2000, which
were recorded as purchased in-process research and development expenses, as
certain product development milestones were achieved. The remaining balance of
the original $95.5 million in-process research and development valuation ($13
million) will be recorded in the Company's consolidated financial statements as
purchased in-process research and development expense when payment of the
contingent consideration is assured beyond a reasonable doubt. Contingent
consideration payments in excess of the $13 million will be capitalized as
goodwill.

The VSI purchase agreement requires the Company to make additional payments to
the former VSI shareholders upon the achievement of certain regulatory
milestones and minimum sales levels. To date, the Company has paid $15 million
related to the achievement of three regulatory milestones. Achievement of the
final regulatory milestone, U.S. regulatory approval of the distal connector,
requires an additional $5 million payment. This contractual commitment continues
indefinitely.

The contingent consideration tied to sales requires the Company to make
additional payments totaling 5% of sales once cumulative sales exceed $50
million for the proximal and distal connectors collectively. There is no maximum
amount of contingent consideration that could be paid related to sales. This
contractual commitment ceases in 2009 if the minimum sales threshold is not
attained prior to such date. If the minimum sales threshold is met prior to
2009, the commitment will extend for 10 years from the date the minimum sales
threshold is met. Cumulative proximal and distal connector sales totaled $33
million through December 31, 2003.

Company management continues to evaluate the additional research and development
expenditures necessary to develop the distal and other connector technologies
into commercially viable products. There can be no assurance that the Company
will be able to complete the development of these technologies into commercially
viable products. Additionally, the Company is not able to reasonably predict the
level of proximal or distal connector sales over a period of time which could
extend beyond the next 10 years. As a result of these factors, the Company is
not able to predict the amount of additional contingent consideration, if any,
that may become due. However, the Company believes that any amounts which may
ultimately become due in the next 5 years will not be material to the Company's
results of operations, financial position or liquidity.

2001 SPECIAL CHARGE: During the first half of 2001, Company management undertook
a review of the organizational structure of the Company's sales operations and
its heart valve operations. At that time, the structure of the Company's sales
organization included four separate sales groups. Additionally, the cardiac
surgery markets were experiencing a shift in clinical preference away from
mechanical heart



                                       45


valves in favor of tissue heart valves and repair products for certain patients.
These changes had the potential to impact the future performance of the
Company's heart valve operations. As a result of these reviews, in July 2001
Company management approved two restructuring plans. The first plan included a
restructuring of the Company's sales organizations into two geographically
oriented groups (one group focused on the United States and one group focused on
locations outside the United States) and changes within each of these new
organizations to harmonize their operations within each of their geographies.
The second plan included the elimination of excess capacity in the Company's
heart valve operations workforce, facilities and equipment and the
discontinuance of certain heart valve product lines. As a result of these
restructuring plans, the Company recorded pre-tax charges totaling $20.7 million
in the third quarter of 2001 consisting of inventory write-downs ($9.5 million),
capital equipment write-offs ($3.4 million), employee termination costs ($5.3
million) and lease termination and other exit costs ($2.5 million).

Inventory write-downs represented the estimated net carrying value of various
inventory items that would be scrapped in connection with the decision to
terminate two heart valve product lines. Capital equipment write-offs were a
result of the elimination of certain excess capacity in the Company's heart
valve operations. Employee termination costs related to the severance costs for
approximately 90 individuals whose positions were eliminated. Lease termination
and other exit costs included office closings for international locations,
contractual obligations under certain programs that were cancelled and lease
termination costs.

A summary of the employee termination costs and lease termination and other exit
costs activity is as follows (in thousands):



                                                                       LEASE
                                              EMPLOYEE           TERMINATION
                                           TERMINATION             AND OTHER
                                                 COSTS            EXIT COSTS            TOTAL
==============================================================================================
                                                                          
Initial expense and accrual in 2001            $ 5,293               $ 2,495          $ 7,788
Cash payments                                   (2,468)                 (352)          (2,820)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 2001                     2,825                 2,143            4,968

Cash payments                                   (1,676)               (1,970)          (3,646)
Changes in estimates                              (639)                  (53)            (692)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 2002                       510                   120              630

Cash payments                                     (510)                 (120)            (630)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 2003                   $     -               $     -          $     -
==============================================================================================


In addition to the above restructuring activities, Company management identified
a trend early in the third quarter of 2001 related to the usage of certain
diagnostic equipment, also referred to as programmers. Management noted that
customer acceptance of its new programmer, which received FDA regulatory
approval in late December 2000 and was subsequently launched during the first
and second quarters of 2001, significantly exceeded its expectations,
necessitating a special analysis of the recoverability of the older programmers
that were not yet fully depreciated. After a review of the situation, Company
management approved a plan to abandon certain older programmer models during the
third quarter of 2001. As a result of this plan, the Company wrote off the
remaining net book value of the abandoned programmers ($12.2 million) to cost of
sales.



                                       46


The charges relating to employee termination costs, capital equipment write-offs
and other costs ($11.2 million) were recorded in operating expenses as special
charges. The inventory and diagnostic equipment write-offs ($21.7 million) were
included in cost of sales as special charges.

SILZONE(R) SPECIAL CHARGES: On January 21, 2000, the Company initiated a
worldwide voluntary recall of all field inventory of heart valve replacement and
repair products incorporating Silzone(R) coating on the sewing cuff fabric. The
Company concluded that it would no longer utilize Silzone(R) coating. As a
result of the voluntary recall and product discontinuance, the Company recorded
a special charge totaling $26.1 million during the first quarter of 2000. The
$26.1 million special charge consisted of asset write-downs ($9.5 million),
legal and patient monitoring costs ($14.4 million) and customer returns and
related costs ($2.2 million).

The $9.5 million of asset write-downs related to inventory write-offs associated
with the physical scrapping of inventory with Silzone(R) coating ($8.6 million),
and to the write-off of a prepaid license asset and related costs associated
with the Silzone(R) coating technology ($0.9 million). The $14.4 million of
legal and patient monitoring costs related to the Company's product liability
insurance deductible ($3.5 million) and patient monitoring costs ($10.9 million)
related to contractual and future monitoring activities directly related to the
product recall and discontinuance. The $2.2 million of customer returns and
related costs represented costs associated with the return of customer-owned
Silzone(R) inventory.

In the second quarter of 2002, the Company determined that the Silzone(R)
reserves should be increased by $11 million as a result of difficulties in
obtaining certain reimbursements from the Company's insurance carriers under its
product liability insurance policies ($4.6 million), an increase in management's
estimate of the costs associated with future patient monitoring costs as a
result of extending the time period in which it planned to perform patient
monitoring activities ($5.8 million) and an increase in other related costs
($0.6 million). This additional accrual was included in selling, general and
administrative expense during the second quarter ended June 30, 2002.

The Company's product liability insurance coverage for Silzone(R) claims
consists of a number of policies with different carriers. During 2002, Company
management observed a trend where various insurance companies were not
reimbursing the Company or outside legal counsel for a variety of costs
incurred, which the Company believed should be paid under the product liability
insurance policies. These insurance companies were either refusing to pay the
claims or had delayed providing an explanation for non-payment for an extended
period of time. Although the Company believes it has legal recourse from these
insurance carriers for the costs they are refusing to pay, the additional costs
the Company would need to incur to resolve these disputes may exceed the amount
the Company would recover. As a result of these developments, the Company
increased the Silzone(R) reserves by $4.6 million in the second quarter of 2002,
which represents the existing disputed costs already incurred at that time plus
the anticipated future costs where the Company expects similar resistance from
the insurance companies on reimbursement.

During the fourth quarter of 2003, the Company reclassified $15.7 million of
existing accruals to the Silzone(R) special charge accrual from other current
assets. This amount related to probable future legal costs associated with the
Silzone(R) litigation. Previously, these accruals were offset against a
receivable from the Company's insurance carriers.

A summary of the legal and monitoring costs and customer returns and related
costs activity is as follows (in thousands):


                                       47




                                               LEGAL AND                   CUSTOMER
                                              MONITORING                RETURNS AND
                                                   COSTS              RELATED COSTS                TOTAL
=========================================================================================================
                                                                                       
Initial expense and accrual in 2000             $ 14,397                    $ 2,239             $ 16,636
Cash payments                                     (5,955)                    (2,239)              (8,194)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                       8,442                          -                8,442

Cash payments                                     (3,042)                         -               (3,042)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                       5,400                          -                5,400

Additional expense                                10,433                        567               11,000
Cash payments                                     (2,442)                       (59)              (2,501)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2002                      13,391                        508               13,899

Cash payments                                     (1,206)                       (22)              (1,228)
Reclassification of legal accruals                15,721                          -               15,721
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2003                    $ 27,906                    $   486             $ 28,392
- ---------------------------------------------------------------------------------------------------------


In addition to the amounts available under the above Silzone(R) reserves, the
Company has approximately $170 million remaining in product liability insurance
currently available for the Silzone(R)-related matters. The Company's remaining
product liability insurance for Silzone(R) claims consists of a number of
layers, each of which is covered by one or more insurance companies. The next
layer of insurance, which is a $30 million layer that would be reached after the
present $35 million layer is exhausted, is covered by Lumberman's Mutual
Casualty Insurance, a unit of the Kemper Insurance Companies (collectively
referred to as Kemper). Kemper's credit rating by A.M. Best has been downgraded
to a "D" (poor). Kemper is currently in "run off," which means that it is not
issuing new policies and is, therefore, not generating any new revenue that
could be used to cover claims made under previously-issued policies. In the
event Silzone(R) claims were to reach the Kemper layer and Kemper was unable to
pay part or all of such claims, the Company believes the other insurance
carriers in its program will take the position that the Company will be directly
liable for any claims and costs that Kemper is unable to pay, and that insurance
carriers at policy layers following Kemper's layer will not provide coverage for
Kemper's layer. Kemper also provides part of the coverage for Silzone(R) claims
in the Company's final layer of insurance ($20 million of the final $50 million
layer).

It is possible that Silzone(R) costs and expenses will reach the Kemper layers
of insurance coverage, and it is possible that Kemper will be unable to meet its
obligations to the Company. If this were to happen, the Company could incur a
loss of up to $50 million. The Company has not accrued for any such losses.


NOTE 8--OTHER INCOME (EXPENSE)

Other income (expense) consists of the following (in thousands):

                                           2003            2002            2001
================================================================================
Interest income                        $  7,031        $  5,481      $    3,261
Interest expense                         (3,746)         (1,754)        (12,567)
Other                                      (593)           (324)          1,468
- --------------------------------------------------------------------------------
Other income (expense)                 $  2,692        $  3,403      $   (7,838)
================================================================================



                                       48


NOTE 9--INCOME TAXES

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



                                         2003             2002             2001
================================================================================
U.S.                                 $285,214         $270,595          $83,128
International                         173,423          102,763          144,850
- --------------------------------------------------------------------------------
Earnings before income taxes         $458,637         $373,358         $227,978
================================================================================

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

                                        2003             2002             2001
================================================================================
Current:
      U.S. federal                   $56,669          $48,459          $48,844
      U.S. state and other             4,285            4,732            4,994
      International                   25,146            6,187           13,229
- --------------------------------------------------------------------------------
      Total current                   86,100           59,378           67,067
Deferred                              33,146           37,695          (11,681)
- --------------------------------------------------------------------------------
Income tax expense                  $119,246          $97,073          $55,386
================================================================================

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

                                                       2003                2002
================================================================================
Deferred income tax assets:
  Net operating loss carryforwards                  $ 3,088            $ 12,732
  Tax credit carryforwards                           20,272              30,554
  Inventories                                        53,395              34,403
  Intangible assets                                       -               3,552
  Accrued liabilities and other                      16,801              11,569
- --------------------------------------------------------------------------------
    Deferred income tax assets                       93,556              92,810
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
  Unrealized gain on available-for-sale securities   (6,782)             (2,599)
  Property, plant and equipment                     (30,955)            (21,085)
  Intangible assets                                 (33,162)                  -
- --------------------------------------------------------------------------------
    Deferred income tax liabilities                 (70,899)            (23,684)
- --------------------------------------------------------------------------------
Net deferred income tax asset                      $ 22,657            $ 69,126
- --------------------------------------------------------------------------------

The increase in the Company's current deferred income taxes during 2003 was due
primarily to an increase in the book to tax differences related to profits on
intercompany sales of inventory and to various differences related to the
acquisition of Getz Japan. The change in the Company's long-term deferred income
tax asset/liability during 2003 was due primarily to the utilization of net
operating losses and tax credits, the acquisition of Getz Japan, and increases
in the book to tax differences related to depreciation of fixed assets and
amortization of goodwill and other intangible assets. The



                                       49


Company has not recorded any valuation allowance for its deferred tax assets as
of December 31, 2003 or 2002.

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



                                                             2003               2002               2001
========================================================================================================
                                                                                       
Income tax expense at the U.S. federal
  statutory rate of 35%                                 $ 160,523          $ 130,675            $79,792
U.S. state income taxes, net of federal tax benefit        12,533              8,378              3,654
International taxes at lower rates                        (39,032)           (29,972)           (20,089)
Tax benefits from extraterritorial income exclusion        (7,173)            (3,675)            (3,681)
Research and development credits                          (11,013)            (9,467)            (5,984)
Non-deductible purchased in-process research
  and development charges                                       -                  -              3,912
Other                                                       3,408              1,134             (2,218)
- --------------------------------------------------------------------------------------------------------
Income tax expense                                      $ 119,246            $97,073            $55,386
========================================================================================================
Effective income tax rate                                   26.0%              26.0%              24.3%
- --------------------------------------------------------------------------------------------------------


At December 31, 2003, the Company has $8.8 million of U.S. federal net operating
loss carryforwards and $6.6 million of U.S. tax credit carryforwards that will
expire from 2004 through 2019 if not utilized. The Company also has state tax
credit carryforwards of $13.7 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 $547 million of its
non-U.S. subsidiaries' undistributed earnings, because such amounts are intended
to be reinvested outside the United States indefinitely.


NOTE 10--RETIREMENT PLANS

DEFINED CONTRIBUTION PLANS: The Company has a 401(k) profit sharing plan that
provides retirement benefits to substantially all full-time U.S. employees.
Eligible employees may contribute a percentage of their annual compensation,
subject to Internal Revenue Service limitations, with the Company matching a
portion of the employees' contributions. The Company also contributes a portion
of its earnings to the plan based upon Company performance. The Company's
matching and profit sharing contributions are at the discretion of the Company's
Board of Directors. In addition, the Company has defined contribution programs
for employees in certain countries outside the United States. Company
contributions under all defined contribution plans totaled $24.0 million, $18.8
million and $16.2 million in 2003, 2002 and 2001, 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 $16.0 million and $10.7 million at December 31, 2003
and 2002, respectively, which approximated the actuarially calculated unfunded
liability. The related pension expense was not material.


                                       50



NOTE 11--SEGMENT AND GEOGRAPHIC INFORMATION

SEGMENT INFORMATION: The Company develops, manufactures and distributes
cardiovascular medical devices for the global cardiac rhythm management (CRM),
cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.
The Company has three operating segments, Cardiac Rhythm Management (CRM),
Cardiac Surgery (CS) and Daig, which focus on the development and manufacture of
products for the three therapy areas. The primary products produced by each
segment are: CRM - pacemaker and ICD systems; CS - mechanical and tissue heart
valves; Daig - electrophysiology catheters, vascular closure devices and other
cardiology and vascular access products. The Company has aggregated the CRM and
CS segments into one reportable segment based primarily upon their similar
operational and economic characteristics.

The Company's reportable segments include end customer revenues from the sale of
products they each develop and manufacture. The costs included in each of the
reportable segments' operating results include the direct costs of the products
sold to end customers and operating expenses managed by each of the segments.
Certain costs of goods sold and operating expenses managed by the Company's
selling and corporate functions are not included in segment operating profit.
Consequently, segment operating profit presented below is not representative of
the operating profit of the Company's products in these segments.

The following table presents certain financial information about the Company's
reportable segments (in thousands):



                                       51








                                                           CRM/CS                  DAIG                  OTHER                TOTAL
====================================================================================================================================
                                                                                                            
FISCAL YEAR ENDED DECEMBER 31, 2003
  Net sales                                           $ 1,499,425             $ 366,433               $ 66,656          $ 1,932,514
  Operating profit (a)                                    873,904               202,007               (619,966)             455,945
  Depreciation and
    amortization expense                                   29,836                 8,307                 38,540               76,683
  Total assets (b)(c)                                     639,724               147,270              1,769,100            2,556,094
- ------------------------------------------------------------------------------------------------------------------------------------

FISCAL YEAR ENDED DECEMBER 31, 2002
  Net sales                                           $ 1,305,750             $ 284,179                    $ -          $ 1,589,929
  Operating profit (a)                                    713,341               149,592               (492,978)             369,955
  Depreciation and
    amortization expense                                   33,819                 7,158                 33,943               74,920
  Total assets (b)(c)                                     723,414               134,610              1,093,355            1,951,379
- ------------------------------------------------------------------------------------------------------------------------------------

FISCAL YEAR ENDED DECEMBER 31, 2001 (D)
  Net sales                                           $ 1,135,833             $ 211,523                    $ -          $ 1,347,356
  Operating profit (a)                                    583,030               105,947               (453,161)             235,816
====================================================================================================================================


(a)    OTHER OPERATING PROFIT INCLUDES CERTAIN COSTS OF GOODS SOLD AND OPERATING
       EXPENSES MANAGED BY THE COMPANY'S SELLING AND CORPORATE FUNCTIONS. IN
       FISCAL YEAR 2001, OTHER ALSO INCLUDES SPECIAL CHARGES AND PURCHASED
       IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES.

(b)    OTHER TOTAL ASSETS INCLUDE THE ASSETS MANAGED BY THE COMPANY'S SELLING
       AND CORPORATE FUNCTIONS, INCLUDING END CUSTOMER RECEIVABLES, INVENTORY,
       CORPORATE CASH AND EQUIVALENTS AND DEFERRED INCOME TAXES.

(c)    THE COMPANY DOES NOT COMPILE EXPENDITURES FOR LONG-LIVED ASSETS BY
       SEGMENT AND, THEREFORE, HAS NOT INCLUDED THIS INFORMATION AS IT IS
       IMPRACTICABLE TO DO SO.

(d)    DURING 2001, THE COMPANY COMPLETED A REORGANIZATION OF ITS GLOBAL SALES
       ACTIVITIES, WHICH RESULTED IN CHANGES TO ITS INTERNAL MANAGEMENT AND
       FINANCIAL REPORTING STRUCTURE. DUE TO THIS RESTRUCTURING, INFORMATION
       RELATING TO DEPRECIATION AND AMORTIZATION, TOTAL ASSETS AND EXPENDITURES
       FOR LONG-LIVED ASSETS FOR FISCAL YEAR 2001 BY CURRENT REPORTING SEGMENTS
       HAS NOT BEEN COMPILED AS IT IS IMPRACTICABLE TO DO SO.

Net sales by class of similar products were as follows (in thousands):




NET SALES                                     2003                  2002                   2001
================================================================================================
                                                                             
Cardiac rhythm management              $ 1,365,212           $ 1,147,489              $ 965,968
Cardiac surgery                            270,933               250,957                248,045
Cardiology and vascular access             296,369               191,483                133,343
- ------------------------------------------------------------------------------------------------
                                       $ 1,932,514           $ 1,589,929            $ 1,347,356
================================================================================================


                                       52



GEOGRAPHIC INFORMATION: The following tables present certain geographical
financial information (in thousands):




NET SALES (a)                                 2003                  2002                   2001
================================================================================================
                                                                             
  United States                        $ 1,129,055           $ 1,042,766              $ 880,086
  International
     Europe                                465,369               347,936                294,852
     Japan                                 207,431                95,813                 83,361
     Other (b)                             130,659               103,414                 89,057
- ------------------------------------------------------------------------------------------------
                                           803,459               547,163                467,270
- ------------------------------------------------------------------------------------------------
                                       $ 1,932,514           $ 1,589,929            $ 1,347,356
================================================================================================

LONG-LIVED ASSETS (b)                         2003                  2002                   2001
================================================================================================
  United States                          $ 744,445             $ 674,119              $ 626,140
  International
     Europe                                 96,520                88,194                 76,542
     Japan                                 152,772                   267                     46
     Other                                  70,020                62,213                 61,215
- ------------------------------------------------------------------------------------------------
                                           319,312               150,674                137,803
- ------------------------------------------------------------------------------------------------
                                       $ 1,063,757             $ 824,793              $ 763,943
================================================================================================


(a) NET SALES ARE ATTRIBUTED TO GEOGRAPHIES BASED ON LOCATION OF THE CUSTOMER.
(b) NO ONE GE0GRAPHIC MARKET IS GREATER THAN 2% OF CONSOLIDATED NET SALES.
(c) LONG-LIVED ASSETS EXCLUDE DEFERRED INCOME TAXES.

                                       53



NOTE 12--QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for 2003 and 2002 is as follows (in thousands, except
per share amounts):



                                                                QUARTER
                                            FIRST        SECOND         THIRD        FOURTH
============================================================================================
                                                                      
FISCAL YEAR ENDED DECEMBER 31, 2003:
  Net sales                             $441,384      $495,093      $477,454      $518,583
  Gross profit                           301,920       333,793       330,741       362,969
  Net earnings                            79,987        81,932        84,621        92,851
  Basic net earnings per share              0.45          0.45          0.48          0.54
  Diluted net earnings per share        $   0.43      $   0.43      $   0.46      $   0.51

FISCAL YEAR ENDED DECEMBER 31, 2002:
  Net sales                             $371,193      $404,348      $404,857      $409,531
  Gross profit                           252,405       275,386       276,476       279,716
  Net earnings                            62,076        69,555 (a)    71,680        72,974
  Basic net earnings per share              0.35          0.39          0.40          0.41
  Diluted net earnings per share        $   0.34      $   0.38      $   0.39      $   0.40
============================================================================================


(a) INCLUDES A CASH RECEIPT OF $18.5 MILLION RELATING TO THE SETTLEMENT OF
    CERTAIN PATENT LITIGATION, WHICH WAS RECORDED AS A REDUCTION OF SG&A
    EXPENSE.  ALSO, THE COMPANY RECORDED IN SG&A AN $11 MILLION CHARGE TO
    INCREASE THE RESERVE FOR EXPENSES RELATED TO THE SILZONE(R)RECALL AND A $7.5
    MILLION DISCRETIONARY CONTRIBUTION TO THE COMPANY'S CHARITABLE FOUNDATION,
    THE ST. JUDE MEDICAL FOUNDATION.




                                       54



FIVE-YEAR SUMMARY FINANCIAL DATA
(In thousands, except per share amounts)



                                                    2003           2002 (a)         2001 (b)         2000 (c)          1999 (d)
===============================================================================================================================
                                                                                                    
SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:
Net sales                                     $1,932,514        $1,589,929       $1,347,356       $1,178,806        $1,114,549
Gross profit                                  $1,329,423        $1,083,983       $  888,197       $  787,657        $  733,647
    Percent of net sales                           68.8%             68.2%            65.9%            66.8%             65.8%
Operating profit                              $  455,945        $  369,955       $  235,816       $  202,359        $   89,188
    Percent of net sales                           23.6%             23.3%            17.5%            17.2%              8.0%
Net earnings                                  $  339,391        $  276,285       $  172,592       $  129,094        $   24,227
    Percent of net sales                           17.6%             17.4%            12.8%            11.0%              2.2%
Diluted net earnings per share                $     1.83        $     1.51       $     0.97       $     0.75        $     0.14
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END:
Cash and equivalents                          $  461,253        $  401,860       $  148,335       $   50,439        $    9,655
Working capital (e)                              982,022           739,665          475,692          388,322           389,768
Total assets                                   2,556,094         1,951,379        1,628,727        1,532,716         1,554,038
Long-term debt                                   351,813                 -          123,128          294,500           477,495
Shareholders' equity                          $1,604,247        $1,576,727       $1,183,745       $  940,849        $  794,021
- -------------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Diluted weighted average
    shares outstanding                           185,377           183,002          178,767          171,634           169,470
===============================================================================================================================


FISCAL YEAR 2003 CONSISTED OF 53 WEEKS. ALL OTHER FISCAL YEARS NOTED ABOVE
CONSISTED OF 52 WEEKS. THE COMPANY DID NOT DECLARE OR PAY ANY CASH DIVIDENDS
DURING 1999 THROUGH 2003.

(a) RESULTS FOR 2002 INCLUDE A CASH RECEIPT OF $18.5 MILLION RELATING TO THE
    SETTLEMENT OF CERTAIN PATENT LITIGATION, WHICH WAS RECORDED AS A REDUCTION
    OF SG&A EXPENSE. ALSO, THE COMPANY RECORDED IN SG&A AN $11 MILLION CHARGE TO
    INCREASE THE RESERVE FOR EXPENSES RELATED TO THE SILZONE(R) RECALL AND A
    $7.5 MILLION DISCRETIONARY CONTRIBUTION TO THE COMPANY'S CHARITABLE
    FOUNDATION, THE ST. JUDE MEDICAL FOUNDATION.

(b) RESULTS FOR 2001 INCLUDE A $32.8 MILLION SPECIAL CHARGE AND PURCHASED
    IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES OF $10 MILLION. THE IMPACT OF
    THESE ITEMS ON 2001 NET EARNINGS WAS $30.5 MILLION, OR $0.17 PER DILUTED
    SHARE.

(c) RESULTS FOR 2000 INCLUDE A $26.1 MILLION SPECIAL CHARGE AND A PURCHASED
    IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF $5 MILLION. THE IMPACT OF
    THESE ITEMS ON 2000 NET EARNINGS WAS $27.2 MILLION, OR $0.16 PER DILUTED
    SHARE.

(d) RESULTS FOR 1999 INCLUDE A $9.8 MILLION SPECIAL CHARGE AND PURCHASED
    IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES TOTALING $115.2 MILLION. THE
    IMPACT OF THESE ITEMS ON 1999 NET EARNINGS WAS $119.8 MILLION, OR $0.71 PER
    DILUTED SHARE.

(e) TOTAL CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.

                                       55




                              INVESTOR INFORMATION


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

EquiServe Trust Company, N.A.
P.O. Box 43023
Providence, Rhode Island 02940-3023
1.877.498.8861
www.equiserve.com (Account Access Availability)
Hearing impaired #TDD: 1.800.952.9245


ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held at 9:30 a.m. on Wednesday, May
12, 2004, at the Minnesota Historical Center, 345 Kellogg Boulevard West, St.
Paul, Minnesota, 55102. Parking is available.


INVESTOR CONTACT
Laura C. Merriam, Director, Investor Relations

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

Investor Relations
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, Minnesota 55117-9983

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



CORPORATE GOVERNANCE
(SEE COMPANY INFORMATION ON WEB SITE- WWW.SJM.COM)
o   Corporate Governance Charter
o   Code of Business Conduct
o   SEC Filings


COMPANY STOCK SPLITS
2:1 on 4/27/79, 1/25/80, 9/30/86, 3/15/89, 4/30/90 and 6/10/02;
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 2003 and 2002 is set forth below. As of February 17, 2004, the Company
had 3,234 shareholders of record.

Fiscal Year Ended December 31         2003                  2002
========================================================================
Quarter                         High        Low        High        Low
========================================================================
First                           $49.48     $38.76     $40.80     $35.75
Second                          $63.60     $47.50     $43.13     $36.20
Third                           $59.10     $48.10     $41.00     $30.52
Fourth                          $64.00     $52.49     $40.35     $31.16

TRADEMARKS
Aescula(TM), AF Suppression(TM), Alliance(TM), Angio-Seal(TM),
Apeel(TM), Atlas(R), AutoCapture(TM), BEAT-BY-BEAT(TM), BiLinx(TM), Epic(TM),
Fast Cath(TM), Fast Cath Duo(TM), FaSt Path(TM), FlexCuff(TM), Frontier(TM),
GuideRight(TM), Housecall Plus(TM), HydraSteer(TM), Identity(R), Integrity(R),
IsoFlex(R), Linx(TM), LIvewire(TM), Livewire Cannulator(TM), Livewire Spiral
HP(TM), Livewire TC(TM), Microny(R), Maximum(TM), NaviFlex(TM), Pacel(TM),
Passive PLus(R), Photon(R), QuickSite(TM), Reflexion(TM), Reflexion
Cannulator(TM), Response(TM), Riata(R), Seal-Away(TM), SJM(R), SJM Biocor(TM),
SJM Epic(TM), SJM Regent(TM), SJM Tailor(TM), Spyglass(TM), St. Jude Medical(R),
Supreme(TM), Symmetry(TM), Telesheath(TM), Tendril(R), Toronto Root(TM), Toronto
SPV(R), TVL(R), Ultimum(TM), Verity(TM), Victory(TM).


(C)2004 ST. JUDE MEDICAL, INC.






                                       56

EX-21

                                                                      EXHIBIT 21

                             ST. JUDE MEDICAL, INC.

                         SUBSIDIARIES OF THE REGISTRANT


St. Jude Medical, Inc. Wholly Owned Subsidiaries:
- -------------------------------------------------

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

o    St. Jude Medical S.C., Inc. - St. Paul, Minnesota (Minnesota corporation)

          -    Bio-Med Sales, Inc. (Pennsylvania corporation)

          -    HeartBeat Medical, Inc. (Utah corporation)

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

          -    Brussels, Belgium branch

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

o    St. Jude Medical (Shanghai) Ltd. - Shanghai, China (Chinese corporation)

o    St. Jude Medical (Hong Kong) Limited - Kowloon, Hong Kong (Hong Kong
     corporation)

          -    Shanghai and Beijing, China representative offices

          -    Korean and Taiwan branch offices

          -    Mumbai, New Delhi, Calcutta and Chennai, India branch offices

          -    Singapore representative office

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

o    St. Jude Medical Australia Pty., Ltd. - Sydney Australia (Australian
     corporation)

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

o    St. Jude Medical, Daig Division, Inc.- Minnetonka, Minnesota (Minnesota
     corporation)

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

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

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

          -    Tokyo, Japan branch






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

o    St. Jude Medical Puerto Rico, Inc. - Caguas, Puerto Rico (Delaware
     corporation)

          -    St. Jude Medical Delaware Holding LLC (Delware corporation)
               (wholly owned subsidiary of St.Jude Medical Puerto Rico, Inc.)

o    St. Jude Medical Holland Finance C.V. (Netherlands limited partnership)
     (ownership of St. Jude Medical Holland Finance C.V. is shared by SJM
     International, Inc., St. Jude Medical Delaware Holding LLC, and the general
     partner, St. Jude Medical Puerto Rico, Inc.)

          -    St. Jude Medical Investments B.V. (Netherlands corporation
               headquartered in Luxembourg) (wholly owned subsidiary of St. Jude
               Medical Holland Finance C.V.)

               -    St. Jude Medical Nederland B.V. (Netherlands corporation)
                    (wholly owned subsidiary of St. Jude Medical Investments
                    B.V.)

                    -    Telectronics B.V. (Netherlands corporation) (wholly
                         owned subsidiary of St. Jude Medical Nederland B.V.)

          -    St. Jude Medical Enterprise AB (Swedish corporation headquartered
               in Luxembourg) (wholly owned subsidiary of St. Jude Medical
               Investments B.V.)

                    -    St. Jude Medical Puerto Rico B.V. (Netherlands
                         corporation) (wholly owned subsidiary of St. Jude
                         Medical Enterprise AB)

                         -    Puerto Rico branch of St. Jude Medical Puerto
                              Rico B.V.

                    -    St. Jude Medical Coordination Center (Belgium branch of
                         St. Jude Medical Enterprise AB)

                    -    St. Jude Medical AB (Swedish corporation) (wholly owned
                         subsidiary of St. Jude Medical Enterprise AB)

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

               -    Getz Bros. Co. Ltd. (Japanese corporation) (wholly owned
                    subsidiary of St. Jude Medical Holdings B.V.)

o    St. Jude Medical Sweden AB (Swedish corporation)

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

o    St. Jude Medical (Portugal) - Distribuicao de Produtos Medicos, Lda.
     (Portuguese corporation)

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

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

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

o    N.V. St. Jude Medical Belgium, S.A. (Belgian corporation)

o    St. Jude Medical Espana, S.A. (Spanish corporation)

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

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

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

o    St. Jude Medical GmbH (German corporation)

o    St. Jude Medical Kft (Hungarian corporation)

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

o    St. Jude Medical AG (Swiss corporation)

EX-23

                                                                      EXHIBIT 23

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report on Form 10-K
of St. Jude Medical, Inc. of our report dated January 26, 2004, included in the
2003 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) of this Annual Report on Form 10-K. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

We also consent to the incorporation by reference in Registration Statement No.
33-9262, Registration Statement No. 33-41459, Registration Statement No.
33-48502, Registration Statement No. 33-54435, Registration Statement No.
333-42945, Registration Statement No. 333-42658, Registration Statement No.
333-42668 and Registration Statement No. 333-96697 on Form S-8 of our report
dated January 26, 2004, with respect to the consolidated financial statements
incorporated herein by reference, and our report in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report on
Form 10-K of St. Jude Medical, Inc.

                                          /s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
March 12, 2004

EX-24

                                                                      EXHIBIT 24

                                POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Terry L. Shepherd, John C. Heinmiller and Kevin T.
O'Malley, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K of St. Jude Medical, Inc. for the fiscal year
ended December 31, 2003, 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 23rd day
of February, 2004, by the following persons.



/s/ TERRY L. SHEPHERD                      /s/ DANIEL J. STARKS
- -------------------------------------      -------------------------------------
Terry L. Shepherd                          Daniel J. Starks
Chairman and Chief Executive Officer       Director
(Principal Executive Officer)

/s/ JOHN C. HEINMILLER                     /s/ DAVID A. THOMPSON
- -------------------------------------      -------------------------------------
John C. Heinmiller                         David A. Thompson
Vice President, Finance and                Director
Chief Financial Officer (Principal
Financial and Accounting Officer)

/s/ RICHARD R. DEVENUTI                    /s/ STEFAN K. WIDENSOHLER
- -------------------------------------      -------------------------------------
Richard R. Devenuti                        Stefan K. Widensohler
Director                                   Director

/s/ STUART M. ESSIG                        /s/ WENDY L. YARNO
- -------------------------------------      -------------------------------------
Stuart M. Essig                            Wendy L. Yarno
Director                                   Director

/s/ THOMAS H. GARRETT III                  /s/ FRANK C-P YIN
- -------------------------------------      -------------------------------------
Thomas H. Garrett III                      Frank C-P Yin
Director                                   Director



    IN WITNESS WHEREOF, this Power of Attorney has been signed on this 12th day
of March, 2004, by the following persons.

/s/ Michael A. Rocca
- --------------------
Michael A. Rocca
Director

EX-31.1

                                                                    EXHIBIT 31.1

                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Terry L. Shepherd, certify that:

     1.   I have reviewed this annual report on Form 10-K of St. Jude Medical,
          Inc.;

     2.   Based on my knowledge, this 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)) 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)   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

               c)   Disclosed in this report any change in the registrant's
                    internal controls 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
                    controls over financial reporting; and

     5.   The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal controls 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 controls 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 controls over financial reporting.

Date: March 12, 2004
      --------------


/s/ TERRY L. SHEPHERD
- ------------------------------------
Terry L. Shepherd
Chairman 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)) 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)   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

               c)   Disclosed in this report any change in the registrant's
                    internal controls 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
                    controls over financial reporting; and

     5.   The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal controls 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 controls 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 controls over financial reporting.

Date: March 12, 2004
      --------------


/s/ JOHN C. HEINMILLER
- ------------------------------------
John C. Heinmiller
Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")
on Form 10-K for the period ended December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Terry L. Shepherd,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.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/ TERRY L. SHEPHERD
                                        ------------------------------------
                                        Terry L. Shepherd
                                        Chairman and Chief Executive Officer
                                        March 12, 2004

EX-32.2

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")
on Form 10-K for the period ended December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, John C.
Heinmiller, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss.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
                                      Vice President - Finance and
                                      Chief Financial Officer
                                      March 12, 2004